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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) (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, 2019 December 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,
  2019 2018   2019 2018
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