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Source: Golden Leaf Holdings Ltd.

Golden Leaf Reports Fiscal Second Quarter 2019 Results

TORONTO, Aug. 26, 2019 (GLOBE NEWSWIRE) -- Golden Leaf Holdings Ltd. (“Golden Leaf” or the “Company”) (CSE:GLH) (OTCQB:GLDFF), a pioneer cannabis oil solutions company and dispensary operator built around recognized brands, today announced financial results for the fiscal second quarter ended June 30, 2019, and a general business update.

Recent Business and Financial Highlights

  • Sales increased 17% over the second quarter in prior year.
  • Material improvement in Gross profit to 40% in Q2 2019, compared with 26% in Q2 2018, while experiencing growth in revenue.
  • Adjusted EBITDA loss decreased dramatically to US$1.5M in Q2 2019 compared with US$3.2M in Q2 2018.
  • Acquired the Standard Processing and Medical Sales Licenses from Health Canada.
  • Retained a recruiting firm to lead search for new CEO and CFO.  

Subsequent Events

An agreement to manufacture Chalice fruit chews in California

In July 2019, the Company entered into a License Agreement with The Micro Buddery, Inc. to manufacture Chalice Farms branded cannabis fruit chews in the state of California. The License Agreement is subject to regulatory approval from the California Bureau of Cannabis Control. This is the Company’s first foray into the California cannabis market.

Debt Restructuring Contingent Agreement and Debenture Holders Meeting

In July 2019, the Company reached an agreement in principle to extend the due date for the $9,527,350 earn-out payment due to Chalice LLC and its members, related to the acquisition of certain assets and a subsidiary of Chalice on July 7, 2017. The agreement provides for the consideration payable due date to be extended to May 2, 2022, but is not effective until the holders of the debentures that mature on November 2, 2019 vote to approve certain extraordinary resolutions, including the early conversion of the debentures.

The Company reached an agreement to extend the due date for the $9,527,350 earn-out payment due to Chalice LLC and its members to May 2, 2022. On August 21, 2019, the debenture holders approved the repayment of the principal amount of the debentures of C$12,961,000 and accrued interest of $190,815 via an early conversion on August 23, 2019 at C$0.06. The original maturity of these debentures and Chalice earn-out due date was November 2, 2019.  Following such debt restructuring and early conversion of the debentures, the Company has sufficient liquidity to meet its current obligations when due and to execute its strategic initiatives.

Fiscal Second Quarter Ended June 30, 2019 Financial Results

For the second quarter ended June 30, 2019 (“Q2 2019”), total revenue was US$4.3 million as compared to US$3.7 million for the same three-month period in 2018 (“Q2 2018”).  The 17% quarter-over-quarter increase is largely attributable to strong wholesale revenue streams in Oregon and flower sales from our Canadian operations.

Gross profit was US$1.7 million or 40% of total revenue for Q2 2019, compared with US$0.9 million or 26% of total revenue in Q2 2018.  Gross profit improvement in Q2 2019 over prior year period is consistent with the gross profit of 41% of quarterly revenues in Q1 2019.

“The strong gross margin run-rate in the first six months of 2019 is primarily due to significant cost reductions and utilization of improved inventory controls and processes,” said John Varghese, Interim CEO, Golden Leaf Holdings. “Our increased focus on operational excellence and building out our executive team is starting to show results that we believe are sustainable for growth in the coming quarters.”

Operating expenses were US$4.0 million for Q2 2019 compared with US$4.6 million for Q2 2018. Q2 2019 operating expenses included $0.3M in wages and benefits related to headcount reductions and severance.  

Adjusted EBITDA loss dramatically decreased to US$1.5 million for Q2 2019, compared with a loss of US$3.5 million for Q2 2018. Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization, non-cash compensation expenses, one-time transaction fees and other non-cash charges that include impairments. The Company considers Adjusted EBITDA an important operational measure for the business. For a reconciliation of Adjusted EBITDA to income (loss) before income taxes, please see the Company’s management discussion and analysis for the three and six months ended June 30, 2019 (the “MD&A”). 

Net loss for Q2 2019 was US$3.4 million or US$0.01 per share, compared with a net gain of US$3.2 million or US$0.01 per share for Q2 2018. Net income for Q1 2018 benefited from favorable changes in the fair value of warrant and debt liabilities of US$7.3 million, compared with an unfavorable change of $0.1M for Q2 2019. Changes in the fair value of warrant and debt liabilities and other non-cash items are excluded in the Adjusted EBITDA non-GAAP measurement.

As of June 30, 2019, the Company had approximately US$5.2 million in cash, compared with US$12.3 million at December 31, 2018.

The Company’s interim condensed consolidated financial statements for the three and six months ended June 30, 2019, the related notes and MD&A for the three and six months ended June 30, 2019 will be filed on SEDAR and available for review later today.

The Company’s recent investment presentation was filed on SEDAR on August 13, 2019.

About Golden Leaf Holdings
Golden Leaf Holdings Ltd., a Canadian company with operations in multiple jurisdictions including Oregon, Nevada and Canada, is one of the largest cannabis oil and solution providers in North America, and a leading cannabis products company built around recognized brands. Golden Leaf cultivates, extracts, manufactures and distributes its products through its branded Chalice Farm retail dispensaries, as well as through third party dispensaries. Golden Leaf leverages a strong management team with cannabis and food industry experience to complement its expertise in extracting, refining and selling cannabis oil.  Visit goldenleafholdings.com to learn more.

Company:
Kate Koustareva
Director of Financial Reporting and Treasury
Golden Leaf Holdings Ltd.
ir@goldenxtrx.com

Investor Relations:
Steve Hosein
Renmark Financial Communications
416-644-2020

Media Relations:
Anne Donohoe / Nick Opich
KCSA Strategic Communications
adonohoe@kcsa.com / nopich@kcsa.com
212-896-1265 / 212-896-1206

Disclaimer: This press release contains “forward-looking information” within the meaning of applicable securities legislation. Forward-looking information includes, but is not limited to, statements with respect to the Company’s future business operations, the opinions or beliefs of management and future business goals. Generally, forward looking information can be identified by the use of forward-looking terminology such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved”. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. These risks include but are not limited to general business, economic and competitive uncertainties, regulatory risks, market risks, risks inherent in manufacturing and retail operations such as unforeseen costs and production shutdowns, difficulties in maintaining brand loyalty, and other risks of the cannabis industry. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward looking information. Forward-looking information is provided herein for the purpose of presenting information about management’s current expectations relating to the future and readers are cautioned that such information may not be appropriate for other purpose. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws. This press release does not constitute an offer of securities for sale in the United States, and such securities may not be offered or sold in the United States absent registration or an exemption from registration or an exemption from registration.


GOLDEN LEAF HOLDINGS LTD. 
Interim Condensed Consolidated Statement of Financial Position (Unaudited)
As at June 30, 2019 and December 31, 2018  
(Expressed in U.S. dollars)  
   
 June 30, 2019December 31, 2018
   
ASSETS  
CURRENT  
Cash$5,249,820 $12,275,372 
Accounts receivable 476,468  624,453 
Other receivables 484,961  297,737 
Income tax recoverable 686,600  686,600 
Sales tax recoverable 562,833  661,319 
Biological assets 187,503  74,148 
Inventory 3,570,523  3,416,906 
Prepaid expenses and deposits 1,311,512  1,962,033 
Assets held for sale -  35,274 
Total current assets$12,530,220 $20,033,842 
   
Property, plant and equipment 11,067,700  6,188,835 
Intangible assets 21,626,213  21,782,949 
Goodwill 25,471,399  25,471,399 
Total assets$70,695,532 $73,477,025 
   
LIABILITIES  
CURRENT  
Accounts payable and accrued liabilities$790,342 $2,624,967 
Interest payable 752,660  92,554 
Income taxes payable 69,534  106,808 
Sales tax payable 109,600  231,675 
Current portion of long-term debt 1,235,033  25,492 
Current portion of convertible debentures carried at fair value 9,059,430  8,888,946 
Warrant liability 7,115  369,343 
Total current liabilities$12,023,714 $12,339,785 
   
Long term debt 4,262,902  46,229 
Note payable 312,118  312,118 
Convertible debentures carried at fair value 5,155,515  4,996,811 
Consideration payable 9,295,374  8,956,809 
Warrant liability 16,603  236,138 
Total liabilities$31,066,226 $26,887,890 
   
SHAREHOLDERS' EQUITY  
Share capital$138,689,168 $138,511,038 
Warrant reserve 3,771,816  4,052,164 
Share option reserve 4,638,151  4,777,929 
Contributed surplus 59,940  59,940 
Accumulated other comprehensive loss (1,107,975) (125,930)
Deficit (106,421,794) (100,686,006)
Total shareholders' equity 39,629,306  46,589,135 
Total liabilities and shareholders' equity$70,695,532 $73,477,025 
   

 

     
GOLDEN LEAF HOLDINGS LTD.    
Interim Condensed Consolidated Statements of Operations and Comprehensive Gain (Loss) (Unaudited) 
For the three and six months ended June 30, 2019 and 2018     
(Expressed in U.S. dollars)     
      
 For the three months ended June 30, For the six months ended June 30,
 20192018 20192018
Revenues     
Product sales$4,296,971 $3,671,738  $8,373,578 $6,854,727 
Consulting revenue 12,393  9,898   218,634  27,176 
Total Revenue$4,309,364 $3,681,636  $8,592,212 $6,881,903 
Inventory expensed to cost of sales 2,364,479  3,029,795   4,882,634  5,754,508 
Production costs 108,451  113,753   247,187  411,227 
Gross margin, excluding fair value items 1,836,434  538,088   3,462,391  716,168 
Fair value changes in biological assets included in inventory sold 235,833  10,518   397,356  129,648 
(Gain) Loss on changes in fair value of biological assets (104,242) (412,360)  (407,681) (706,257)
Gross profit$1,704,843 $939,930  $3,472,716 $1,292,777 
      
Expenses     
General and administration 2,926,629  3,270,258   5,926,090  6,066,052 
Share based compensation (82,216) 567,969   329,710  1,643,421 
Sales and marketing 377,933  440,751   1,008,895  824,052 
Depreciation and amortization 735,883  358,516   1,442,029  703,795 
Total expenses$3,958,229 $4,637,494  $8,706,724 $9,237,320 
      
Loss before items noted below$(2,253,386)$(3,697,564) $(5,234,008)$(7,944,543)
      
Interest expense 761,819  266,317   1,503,481  915,575 
Transaction costs 2,114  -   8,222  471,900 
Loss on disposal of assets 109,856  5,000   92,911  5,000 
Other income (loss) 234,762  36,723   93,565  (122,403)
Gain on change in fair value of warrant liabilities (82,101) (4,415,480)  (581,763) (10,627,702)
(Gain) loss on change in fair value of convertible debentures 155,446  (2,841,987)  119,277  (9,970,603)
Gain (loss) before income taxes (3,435,282) 3,251,863   (6,469,701) 11,383,690 
Current income tax expense 4,300  8,434   15,924  8,434 
              
Net gain (loss)$(3,439,582)$3,243,429  $(6,485,625)$11,375,256 
      
Other comprehensive  loss     
Items that will be reclassified subsequently to profit or loss:     
Cumulative translation adjustment 89,831  34,146   982,045  53,263 
              
Comprehensive gain (loss)$(3,529,413)$3,209,283  $(7,467,670)$11,321,993 
              
Basic and diluted gain (loss) per share$(0.01)$0.01  $(0.01)$0.02 
              
Weighted average number of common shares outstanding 589,243,324  575,776,971   589,191,834  555,451,438