tlry-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to

Commission File Number: 001-38594

 

Tilray, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

82-4310622

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

1100 Maughan Road

Nanaimo, BC, Canada, V9X IJ2

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 845-7291

 

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class 2 Common Stock, $0.0001 par value per share

 

TLRY

 

The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of November 13, 2019, the registrant had 16,666,667 shares of Class 1 Common Stock, $0.0001 par value per share, and 83,840,987 shares of Class 2 Common Stock, $0.0001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

1

 

 

Condensed Consolidated Balance Sheets

 

1

 

 

Condensed Consolidated Statements of Net Loss and Comprehensive Loss

 

2

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

3

 

 

Condensed Consolidated Statements of Cash Flows

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Item 4.

 

Controls and Procedures

 

32

PART II.

 

OTHER INFORMATION

 

33

Item 1.

 

Legal Proceedings

 

33

Item 1A.

 

Risk Factors

 

33

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

60

Item 6.

 

Exhibits

 

61

Signatures

 

62

 

 

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

TILRAY, INC.

Condensed Consolidated Balance Sheets

(in thousands of U.S. dollars, except for share and par value data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

100,159

 

 

$

487,255

 

Short-term investments

 

 

22,213

 

 

 

30,335

 

Accounts receivable, net of allowance for doubtful accounts of $612 and $292,

   respectively

 

 

36,040

 

 

 

16,525

 

Other receivables

 

 

2,886

 

 

 

969

 

Inventory

 

 

110,487

 

 

 

16,211

 

Prepaid expenses and other current assets

 

 

58,895

 

 

 

3,007

 

Total current assets

 

 

330,680

 

 

 

554,302

 

Property and equipment, net

 

 

166,489

 

 

 

80,214

 

Intangible assets, net

 

 

329,928

 

 

 

4,486

 

Goodwill

 

 

163,041

 

 

 

 

Investments

 

 

42,318

 

 

 

16,911

 

Deposits and other assets

 

 

7,744

 

 

 

754

 

Total assets

 

$

1,040,200

 

 

$

656,667

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

58,688

 

 

 

10,649

 

Accrued expenses and other current liabilities

 

 

71,387

 

 

 

14,818

 

Accrued obligations under capital lease

 

 

127

 

 

 

470

 

Total current liabilities

 

 

130,202

 

 

 

25,937

 

Accrued obligations under capital lease

 

 

9,166

 

 

 

8,286

 

Deferred tax liability

 

 

57,100

 

 

 

4,424

 

Convertible Notes, net of issuance cost

 

 

427,983

 

 

 

420,367

 

Total liabilities

 

$

624,451

 

 

$

459,014

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Class 1 common stock ($0.0001 par value, 250,000,000 shares authorized;

   16,666,667 shares issued and outstanding)

 

 

2

 

 

 

2

 

Class 2 common stock ($0.0001 par value; 500,000,000 shares authorized;

   83,605,076 and 76,504,200 shares issued and outstanding, respectively

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

623,254

 

 

 

302,057

 

Accumulated other comprehensive income

 

 

1,694

 

 

 

3,763

 

Accumulated deficit

 

 

(209,209

)

 

 

(108,177

)

Total stockholders’ equity

 

 

415,749

 

 

 

197,653

 

Total liabilities and stockholders’ equity

 

$

1,040,200

 

 

$

656,667

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


TILRAY, INC.

Condensed Consolidated Statements of Net Loss and Comprehensive Loss

(in thousands of U.S. dollars, except for share and per share data, unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

51,101

 

 

$

10,047

 

 

$

120,043

 

 

$

27,599

 

Cost of sales

 

 

35,248

 

 

 

6,979

 

 

 

86,532

 

 

 

16,458

 

Gross profit

 

 

15,853

 

 

 

3,068

 

 

 

33,511

 

 

 

11,141

 

General and administrative expense

 

 

19,978

 

 

 

7,001

 

 

 

49,240

 

 

 

16,488

 

Sales and marketing expense

 

 

16,974

 

 

 

3,493

 

 

 

39,161

 

 

 

9,061

 

Depreciation and amortization expense

 

 

3,190

 

 

 

529

 

 

 

7,438

 

 

 

1,032

 

Stock-based compensation expense

 

 

8,315

 

 

 

11,245

 

 

 

21,206

 

 

 

16,877

 

Research and development expense

 

 

2,315

 

 

 

802

 

 

 

4,891

 

 

 

2,416

 

Loss from equity method investments

 

 

1,837

 

 

 

 

 

 

1,837

 

 

 

 

Acquisition-related (income) expense, net

 

 

(13,454

)

 

 

10

 

 

 

(6,598

)

 

 

10

 

Operating loss

 

 

(23,302

)

 

 

(20,012

)

 

 

(83,664

)

 

 

(34,743

)

Foreign exchange loss (gain), net

 

 

2,585

 

 

 

(1,591

)

 

 

1,153

 

 

 

913

 

Interest expense, net

 

 

8,687

 

 

 

480

 

 

 

26,018

 

 

 

1,393

 

Finance income from ABG Profit Participation Arrangement

 

 

(210

)

 

 

 

 

 

(557

)

 

 

 

Other income, net

 

 

(1,313

)

 

 

(225

)

 

 

(5,661

)

 

 

(422

)

Loss before income taxes

 

 

(33,051

)

 

 

(18,676

)

 

 

(104,617

)

 

 

(36,627

)

Deferred income tax expense (recovery)

 

 

2,432

 

 

 

 

 

 

(3,987

)

 

 

 

Current income tax expense

 

 

195

 

 

 

24

 

 

 

402

 

 

 

87

 

Net loss

 

$

(35,678

)

 

$

(18,700

)

 

$

(101,032

)

 

$

(36,714

)

Net loss per share - basic and diluted

 

 

(0.36

)

 

 

(0.20

)

 

 

(1.04

)

 

 

(0.39

)

Weighted average shares used in computation of net loss per

   share - basic and diluted

 

 

98,130,507

 

 

 

93,144,042

 

 

 

96,742,626

 

 

 

93,144,042

 

Net loss

 

$

(35,678

)

 

$

(18,700

)

 

$

(101,032

)

 

$

(36,714

)

Foreign currency translation loss

 

 

(4,863

)

 

 

(451

)

 

 

(2,414

)

 

 

(538

)

Unrealized (loss) gain on cash equivalents and investments

 

 

(301

)

 

 

 

 

 

345

 

 

 

 

Other comprehensive loss

 

 

(5,164

)

 

 

(451

)

 

 

(2,069

)

 

 

(538

)

Comprehensive loss

 

$

(40,842

)

 

$

(19,151

)

 

$

(103,101

)

 

$

(37,252

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


TILRAY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands of U.S. dollars, except for share data, unaudited)

 

 

 

Common stock

 

 

Additional

 

 

Accumulated

other

 

 

 

 

 

 

Total

 

 

 

Number of

shares

 

 

Amount

 

 

paid-in

capital

 

 

comprehensive

income

 

 

Accumulated

deficit

 

 

equity

(deficit)

 

Balance as of December 31, 2018

 

 

93,170,867

 

 

$

10

 

 

$

302,057

 

 

$

3,763

 

 

$

(108,177

)

 

$

197,653

 

Shares issued for Natura acquisition

 

 

180,332

 

 

 

 

 

 

15,100

 

 

 

 

 

 

 

 

 

15,100

 

Shares issued for Manitoba Harvest acquisition

 

 

1,209,946

 

 

 

 

 

 

96,844

 

 

 

 

 

 

 

 

 

96,844

 

Shares issued for ABG Profit Participation Arrangement

 

 

1,680,214

 

 

 

 

 

 

125,097

 

 

 

 

 

 

 

 

 

125,097

 

Receivable for ABG Profit Participation Arrangement,

   net of finance income

 

 

 

 

 

 

 

 

(30,292

)

 

 

 

 

 

 

 

 

(30,292

)

Shares issued under stock-based compensation plans

 

 

545,000

 

 

 

 

 

 

931

 

 

 

 

 

 

 

 

 

931

 

Shares issued for employee compensation

 

 

11,868

 

 

 

 

 

 

649

 

 

 

 

 

 

 

 

 

649

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,306

 

 

 

 

 

 

 

 

 

5,306

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

933

 

 

 

 

 

 

933

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30,301

)

 

 

(30,301

)

Balance as of March 31, 2019

 

 

96,798,227

 

 

 

10

 

 

 

515,692

 

 

 

4,696

 

 

 

(138,478

)

 

 

381,920

 

Shares issued under stock-based compensation plans

 

 

530,943

 

 

 

 

 

 

3,483

 

 

 

 

 

 

 

 

 

3,483

 

Shares issued for investment

 

 

28,361

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

70

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,585

 

 

 

 

 

 

 

 

 

7,585

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,162

 

 

 

 

 

 

2,162

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,053

)

 

 

(35,053

)

Balance as of June 30, 2019

 

 

97,357,531

 

 

 

10

 

 

 

526,830

 

 

 

6,858

 

 

 

(173,531

)

 

 

360,167

 

Shares issued for common stock at-the-market, net of

   issuance costs

 

 

1,344,166

 

 

 

 

 

 

37,445

 

 

 

 

 

 

 

 

 

37,445

 

Shares issued for Manitoba Harvest acquisition

 

 

899,306

 

 

 

 

 

 

31,866

 

 

 

 

 

 

 

 

 

31,866

 

Shares issued for investments and S&S acquisition

 

 

433,338

 

 

 

 

 

 

14,438

 

 

 

 

 

 

 

 

 

14,438

 

Finance income for receivable for ABG Profit Participation

   Arrangement

 

 

 

 

 

 

 

 

1,393

 

 

 

 

 

 

 

 

 

1,393

 

Shares issued under stock-based compensation plans

 

 

237,402

 

 

 

 

 

 

2,967

 

 

 

 

 

 

 

 

 

2,967

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

8,315

 

 

 

 

 

 

 

 

 

8,315

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(5,164

)

 

 

 

 

 

(5,164

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,678

)

 

 

(35,678

)

Balance as of September 30, 2019

 

 

100,271,743

 

 

$

10

 

 

$

623,254

 

 

$

1,694

 

 

$

(209,209

)

 

$

415,749

 

3


TILRAY, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands of U.S. dollars, except for share data, unaudited)

 

 

 

Convertible preferred

shares

 

 

Common stock

 

 

Additional

 

 

Accumulated

other

 

 

 

 

 

 

Total

 

 

 

Number of

shares

 

 

Amount

 

 

Number of

shares

 

 

Amount

 

 

paid-in

capital

 

 

comprehensive

income

 

 

Accumulated

deficit

 

 

equity

(deficit)

 

Balance as of December 31, 2017

 

 

 

 

$

 

 

 

 

 

$

 

 

$

31,736

 

 

$

3,866

 

 

$

(40,454

)

 

$

(4,852

)

Shares issued for convertible preferred

   stock, net of issuance costs

 

 

7,794,042

 

 

 

1

 

 

 

 

 

 

 

 

 

52,639

 

 

 

 

 

 

 

 

 

52,640

 

Shares issued for common stock,

   net of issuance costs

 

 

 

 

 

 

 

 

75,000,000

 

 

 

8

 

 

 

 

 

 

 

 

 

 

 

 

8

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31

 

 

 

 

 

 

 

 

 

31

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,181

)

 

 

(5,181

)

Balance as of March 31, 2018

 

 

7,794,042

 

 

 

1

 

 

 

75,000,000

 

 

 

8

 

 

 

84,406

 

 

 

3,865

 

 

 

(45,635

)

 

 

42,645

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,601

 

 

 

 

 

 

 

 

 

5,601

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(86

)

 

 

 

 

 

(86

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,833

)

 

 

(12,833

)

Balance as of June 30, 2018

 

 

7,794,042

 

 

 

1

 

 

 

75,000,000

 

 

 

8

 

 

 

90,007

 

 

 

3,779

 

 

 

(58,468

)

 

 

35,327

 

Conversion of preferred stock

 

 

(7,794,042

)

 

 

(1

)

 

 

7,794,042

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares issued for common stock,

   net of issuance costs

 

 

 

 

 

 

 

 

10,350,000

 

 

 

1

 

 

 

160,692

 

 

 

 

 

 

 

 

 

160,693

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,245

 

 

 

 

 

 

 

 

 

11,245

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(451

)

 

 

 

 

 

(451

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,700

)

 

 

(18,700

)

Balance as of September 30, 2018

 

 

 

 

$

 

 

$

93,144,042

 

 

$

10

 

 

$

261,944

 

 

$

3,328

 

 

$

(77,168

)

 

$

188,114

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


TILRAY, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands of U.S. dollars, unaudited)

 

 

 

Nine months ended September 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(101,032

)

 

$

(36,714

)

Adjusted for the following items:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

10,441

 

 

 

2,552

 

Stock-based compensation expense

 

 

21,206

 

 

 

16,877

 

Change in fair value of contingent consideration

 

 

(17,019

)

 

 

 

Loss from equity method investments

 

 

1,837

 

 

 

 

Deferred taxes

 

 

(3,987

)

 

 

 

Amortization of discount on Convertible Notes

 

 

7,616

 

 

 

 

Other operating activities

 

 

1,755

 

 

 

1,618

 

Changes in non-cash working capital:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,102

)

 

 

(4,808

)

Other receivables

 

 

(1,917

)

 

 

(3,553

)

Inventory

 

 

(73,758

)

 

 

(7,754

)

Prepaid expenses and other current assets

 

 

(54,607

)

 

 

(4,686

)

Accounts payable

 

 

38,773

 

 

 

4,500

 

Accrued expenses and other current liabilities

 

 

16,539

 

 

 

5,528

 

Net cash used in operating activities

 

 

(167,255

)

 

 

(26,440

)

Investing activities

 

 

 

 

 

 

 

 

Acquisition of Manitoba Harvest, net of cash acquired

 

 

(151,003

)

 

 

 

Acquisition of Natura, net of cash acquired

 

 

(15,083

)

 

 

 

Investment in ABG Profit Participation Arrangement

 

 

(33,333

)

 

 

 

Investment in equity method investees and S&S acquisition

 

 

(14,302

)

 

 

 

Change in deposits and other assets

 

 

85

 

 

 

 

Purchases of short-term and non-current investments

 

 

(8,486

)

 

 

(44,061

)

Proceeds from sales and maturities of short-term investments

 

 

8,640

 

 

 

29,393

 

Purchases of property and equipment

 

 

(50,421

)

 

 

(38,076

)

Disposals of property and equipment

 

 

 

 

 

34

 

Purchases of intangible assets

 

 

(941

)

 

 

(834

)

Net cash used in investing activities

 

 

(264,844

)

 

 

(53,544

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from at-the-market equity offering, net of costs

 

 

37,445

 

 

 

 

Proceeds from ABG Profit Participation Arrangement

 

 

3,333

 

 

 

 

Repayment under Privateer debt facilities

 

 

 

 

 

(36,940

)

Advances under Privateer debt and construction facilities

 

 

 

 

 

3,700

 

Proceeds from issuance of common stock pursuant to IPO, net

 

 

 

 

 

160,785

 

Proceeds from Preferred Shares - Series A, net

 

 

 

 

 

52,638

 

Proceeds from exercise of stock options

 

 

4,885

 

 

 

 

Minimum lease payments under capital lease

 

 

(565

)

 

 

(516

)

Net cash provided by financing activities

 

 

45,098

 

 

 

179,667

 

Effect of foreign currency translation on cash and cash equivalents

 

 

(95

)

 

 

2,239

 

Cash and cash equivalents