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 November 30, 2021
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
|
655 Madison Avenue, Suite 1900 New York, NY |
10065 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (844) 845-7291
Securities registered pursuant to Section 12(b) 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, 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 ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of January 4, 2022, the registrant had 466,522,611 shares of common stock, $0.0001 par value per share, issued and outstanding.
Table of Contents
|
|
Page |
PART I. |
1 |
|
Item 1. |
1 |
|
|
1 |
|
|
Consolidated Statements of Income (Loss) and Comprehensive Loss (Unaudited) |
2 |
|
3 |
|
|
4 |
|
|
5 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
38 |
|
Item 4. |
38 |
|
PART II. |
40 |
|
Item 1. |
40 |
|
Item 1A. |
40 |
|
Item 2. |
42 |
|
Item 3. |
42 |
|
Item 4. |
42 |
|
Item 5. |
42 |
|
Item 6. |
43 |
|
44 |
i
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 (the “Form 10-Q”) contains forward-looking statements within the meaning of safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”” might,” “plan,” “project,” “will,” “would” ”seek,” or “should,” or the negative or plural of these words or similar expressions or variations are intended to identify such forward-looking statements. Forward-looking statements include, among other things, our beliefs or expectations relating to our future performance, results of operations and financial condition; our strategic initiatives, business strategy, supply chain, brand portfolio and product performance; the COVID-19 pandemic; current or future macroeconomic trends; and future corporate acquisitions and strategic transactions.
Risks and uncertainties that may cause actual results to differ materially from forward-looking statements include: our ability to successfully complete the integration of the businesses of Tilray and Aphria; challenges and uncertainty resulting from the COVID-19 pandemic; the highly regulated environment in which we operate and our dependence on regulatory approvals and licenses; our ability to manage our supply chain effectively; disruption of operations at our cultivation and manufacturing facilities; challenges and uncertainty resulting from the impact of competition; our ability to manage risks associated with our international sales and operations; our ability to successfully develop and commercialize new products; our ability to execute our strategic plan and other initiatives, including our ability to achieve $4 billion of revenue by the end of our fiscal year 2024; our dependency on significant customers, which generate a significant amount of our revenue; input cost inflation; disruptions to information technology systems; pending and future litigation; volatility in our stock; our ability to raise funds; and other risks and matters described in our most recent Annual Report on Form 10-K, this Form 10-Q and our other filings from time to time with the U.S. Securities and Exchange Commission and in our Canadian securities filings.
Forward looking statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q and, while we believe that information provides a reasonable basis for these statements, these statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements or forward-looking information as predictions of future events.
We undertake no obligation to update forward-looking statements to reflect actual results or changes in assumptions or circumstances, except as required by applicable law.
ii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
TILRAY, INC.
Consolidated Statements of Financial Position
(in thousands of United States dollars, unaudited)
The accompanying notes are an integral part of these consolidated financial statements.
1
TILRAY, INC.
Consolidated Statements of Income (Loss) and Comprehensive Loss
(in thousands of United States dollars, except for share and per share data, unaudited)
|
|
Three months ended November 30, |
|
|
Six months ended November 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
Net revenue |
|
$ |
155,153 |
|
|
$ |
129,459 |
|
|
$ |
323,176 |
|
|
$ |
246,949 |
|
Cost of goods sold |
|
|
122,387 |
|
|
|
94,176 |
|
|
|
239,455 |
|
|
|
176,721 |
|
Gross profit |
|
|
32,766 |
|
|
|
35,283 |
|
|
|
83,721 |
|
|
|
70,228 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
33,469 |
|
|
|
28,273 |
|
|
|
82,956 |
|
|
|
54,245 |
|
Selling |
|
|
9,210 |
|
|
|
6,079 |
|
|
|
16,642 |
|
|
|
11,896 |
|
Amortization |
|
|
29,016 |
|
|
|
4,208 |
|
|
|
59,755 |
|
|
|
8,335 |
|
Marketing and promotion |
|
|
7,120 |
|
|
|
4,252 |
|
|
|
12,585 |
|
|
|
9,177 |
|
Research and development |
|
|
515 |
|
|
|
225 |
|
|
|
1,300 |
|
|
|
345 |
|
Transaction costs |
|
|
8,120 |
|
|
|
18,206 |
|
|
|
33,699 |
|
|
|
20,664 |
|
Total operating expenses |
|
|
87,450 |
|
|
|
61,243 |
|
|
|
206,937 |
|
|
|
104,662 |
|
Operating loss |
|
|
(54,684 |
) |
|
|
(25,960 |
) |
|
|
(123,216 |
) |
|
|
(34,434 |
) |
Interest expense, net |
|
|
(9,940 |
) |
|
|
(4,832 |
) |
|
|
(20,110 |
) |
|
|
(10,568 |
) |
Non-operating income (expense), net |
|
|
64,750 |
|
|
|
(72,649 |
) |
|
|
113,610 |
|
|
|
(86,008 |
) |
Income (loss) before income taxes |
|
|
126 |
|
|
|
(103,441 |
) |
|
|
(29,716 |
) |
|
|
(131,010 |
) |
Income taxes (recovery) |
|
|
(5,671 |
) |
|
|
(14,192 |
) |
|
|
(909 |
) |
|
|
(20,017 |
) |
Net income (loss) |
|
$ |
5,797 |
|
|
$ |
(89,249 |
) |
|
$ |
(28,807 |
) |
|
$ |
(110,993 |
) |
Total net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Tilray Inc. |
|
|
(201 |
) |
|
|
(99,900 |
) |
|
|
(41,850 |
) |
|
|
(134,243 |
) |
Non-controlling interests |
|
|
5,998 |
|
|
|
10,651 |
|
|
|
13,043 |
|
|
|
23,250 |
|
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain |
|
|
(32,367 |
) |
|
|
(910 |
) |
|
|
(133,139 |
) |
|
|
475 |
|
Unrealized loss on convertible notes receivable |
|
|
52 |
|
|
|
— |
|
|
|
(597 |
) |
|
|
— |
|
Change in fair value of long-term investments |
|
|
(16,357 |
) |
|
|
— |
|
|
|
(16,357 |
) |
|
|
— |
|
Total other comprehensive (loss) income, net of tax |
|
|
(48,672 |
) |
|
|
(910 |
) |
|
|
(150,093 |
) |
|
|
475 |
|
Comprehensive loss |
|
|
(42,875 |
) |
|
|
(90,159 |
) |
|
|
(178,900 |
) |
|
|
(110,518 |
) |
Total comprehensive income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Tilray Inc. |
|
|
(41,853 |
) |
|
|
(100,810 |
) |
|
|
(184,923 |
) |
|
|
(133,768 |
) |
Non-controlling interests |
|
|
(1,022 |
) |
|
|
10,651 |
|
|
|
6,023 |
|
|
|
23,250 |
|
Weighted average number of common shares - basic |
|
|
460,254,275 |
|
|
|
243,477,655 |
|
|
|
454,797,598 |
|
|
|
242,207,388 |
|
Weighted average number of common shares - diluted |
|
|
460,254,275 |
|
|
|
243,477,655 |
|
|
|
454,797,598 |
|
|
|
242,207,388 |
|
Net income (loss) per share - basic |
|
$ |
(0.00 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.55 |
) |
Net income (loss) per share - diluted |
|
$ |
(0.00 |
) |
|
$ |
(0.41 |
) |
|
$ |
(0.09 |
) |
|
$ |
(0.55 |
) |
The accompanying notes are an integral part of these consolidated financial statements.
2
TILRAY, INC.
Consolidated Statements of Stockholders’ Equity
(in thousands of United States dollars, except for share data, unaudited)
|
|
Number of common shares |
|
|
Common stock |
|
|
Additional paid-in capital |
|
|
Accumulated other comprehensive income (loss) |
|
|
Accumulated Deficit |
|
|
Non- controlling interests |
|
|
Total |
|
|||||||
Balance at May 31, 2020 |
|
|
240,132,635 |
|
|
$ |
24 |
|
|
$ |
1,366,736 |
|
|
$ |
(5,434 |
) |
|
$ |
(113,352 |
) |
|
$ |
26,957 |
|
|
$ |
1,274,931 |
|
Share issuance - legal settlement |
|
|
1,389,884 |
|
|
|
— |
|
|
|
7,018 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,018 |
|
Share issuance - options exercised |
|
|
41,065 |
|
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4 |
|
Share issuance - RSUs exercised |
|
|
429,280 |
|
|
|
— |
|
|
|
2,246 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,246 |
|
Share-based payments |
|
|
— |
|
|
|
— |
|
|
|
1,233 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,233 |
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,385 |
|
|
|
(34,343 |
) |
|
|
12,599 |
|
|
|
(20,359 |
) |
Balance at August 31, 2020 |
|
|
241,992,864 |
|
|
$ |
24 |
|
|
$ |
1,377,237 |
|
|
$ |
(4,049 |
) |
|
$ |
(147,695 |
) |
|
$ |
39,556 |
|
|
$ |
1,265,073 |
|
Share issuance - legal settlement |
|
|
503,974 |
|
|
|
— |
|
|
|
3,436 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,436 |
|
Share issuance - equity financing |
|
|
14,610,496 |
|
|
|
2 |
|
|
|
103,594 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
103,596 |
|
Share issuance - SweetWater acquisition |
|
|
8,232,810 |
|
|
|
1 |
|
|
|
69,189 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69,190 |
|
Share issuance - options exercised |
|
|
74,337 |
|
|
|
— |
|
|
|
86 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
86 |
|
Share issuance - RSUs exercised |
|
|
8,823 |
|
|
|
— |
|
|
|
306 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
306 |
|
Share-based payments |
|
|
— |
|
|
|
— |
|
|
|
1,017 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,017 |
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(910 |
) |
|
|
(99,900 |
) |
|
|
10,651 |
|
|
|
(90,159 |
) |
Balance at November 30, 2020 |
|
|
265,423,304 |
|
|
$ |
27 |
|
|
$ |
1,554,865 |
|
|
$ |
(4,959 |
) |
|
$ |
(247,595 |
) |
|
$ |
50,207 |
|
|
$ |
1,352,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at May 31, 2021 |
|
|
446,440,641 |
|
|
$ |
46 |
|
|
$ |
4,792,406 |
|
|
$ |
152,668 |
|
|
$ |
(486,050 |
) |
|
$ |
6,243 |
|
|
$ |
4,465,313 |
|
Third party contribution to Superhero Acquisition LP |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,995 |
|
|
|
52,995 |
|
Share issuance - options exercised |
|
|
417,489 |
|
|
|
— |
|
|
|
2,756 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,756 |
|
Share issuance - RSUs exercised |
|
|
3,665,337 |
|
|
|
— |
|
|
|
6,661 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,661 |
|
Share-based payments, net |
|
|
— |
|
|
|
— |
|
|
|
(5,944 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,944 |
) |
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(101,421 |
) |
|
|
(41,649 |
) |
|
|
7,045 |
|
|
|
(136,025 |
) |
Balance at August 31, 2021 |
|
|
450,523,467 |
|
|
$ |
46 |
|
|
$ |
4,795,879 |
|
|
$ |
51,247 |
|
|
$ |
(527,699 |
) |
|
$ |
66,283 |
|
|
$ |
4,385,756 |
|
Share issuance - Superhero Acquisition LP |
|
|
9,817,061 |
|
|
|
— |
|
|
|
117,804 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
117,804 |
|
Share issuance - DDH note |
|
|
2,677,596 |
|
|
|
— |
|
|
|
28,560 |
|
|
|
— |
|
|
|
— |
|
|
|
(28,560 |
) |
|
|
— |
|
Share issuance - options exercised |
|
|
98,044 |
|
|
|
— |
|
|
|
1,939 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,939 |
|
Share issuance - RSUs exercised |
|
|
470,324 |
|
|
|
— |
|
|
|
6,314 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,314 |
|
Share-based payments, net |
|
|
215,901 |
|
|
|
— |
|
|
|
4,051 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,051 |
|
Comprehensive income (loss) for the period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,652 |
) |
|
|
(201 |
) |
|
|
(1,022 |
) |
|
|
(42,875 |
) |
Balance at November 30, 2021 |
|
|
463,802,393 |
|
|
$ |
46 |
|
|
$ |
4,954,547 |
|
|
$ |
9,595 |
|
|
$ |
(527,900 |
) |
|
$ |
36,701 |
|
|
$ |
4,472,989 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
TILRAY, INC.
Consolidated Statements of Cash Flows
(in thousands of United States dollars, unaudited)
|
|
For the six months ended November 30, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash used in operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(28,807 |
) |
|
$ |
(110,993 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
Deferred income tax recovery |
|
|
(11,228 |
) |
|
|
(36,175 |
) |
Unrealized foreign exchange (gain) loss |
|
|
(6,530 |
) |
|
|
6,648 |
|
Amortization |
|
|
76,804 |
|
|
|
23,010 |
|
Loss on sale of capital assets |
|
|
230 |
|
|
|
— |
|
Inventory valuation write down |
|
|
12,000 |
|
|
|
— |
|
Other non-cash items |
|
|
3,739 |
|
|
|
(134 |
) |
Stock-based compensation |
|
|
17,670 |
|
|
|
8,339 |
|
Loss on long-term investments & equity investments |
|
|
2,197 |
|
|
|
1,519 |
|
Loss (gain) on derivative instruments |
|
|
(133,436 |
) |
|
|
70,342 |
|
Loss on contingent consideration |
|
|
1,682 |
|
|
|
— |
|
Transaction costs associated with business acquisitions |
|
|
— |
|
|
|
13,897 |
|
Change in non-cash working capital: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
2,734 |
|
|
|
(28,570 |
) |
Prepaids and other current assets |
|
|
(6,299 |
) |
|
|
(4,019 |
) |
Inventory |
|
|
3,409 |
|
|
|
(18,352 |
) |
Accounts payable and accrued liabilities |
|
|
(44,513 |
) |
|
|
20,827 |
|
Net cash used in operating activities |
|
|
(110,348 |
) |
|
|
(53,662 |
) |
Cash used in investing activities: |
|
|
|
|
|
|
|
|
Investment in capital and intangible assets |
|
|
(23,856 |
) |
|
|
(29,863 |
) |
Proceeds from disposal of capital and intangible assets |
|
|
8,264 |
|
|
|
6,607 |
|
Promissory notes advances |
|
|
— |
|
|
|
(2,419 |
) |
Repayment of notes receivable |
|
|
— |
|
|
|
4,032 |
|
Proceeds from disposal of long-term investments and equity investees |
|
|
— |
|
|
|
2,676 |
|
Net cash paid on business acquisitions |
|
|
— |
|
|
|
(275,603 |
) |
Net cash used in investing activities |
|
|
(15,592 |
) |
|
|
(294,570 |
) |
Cash (used in) provided by financing activities: |
|
|
|
|
|
|
|
|
Share capital issued, net of cash issuance costs |
|
|
— |
|
|
|
102,559 |
|
Proceeds (payment) from warrants and options exercised |
|
|
(3,927 |
) |
|
|
90 |
|
Proceeds from long-term debt |
|
|
— |
|
|
|
1,881 |
|
Repayment of long-term debt |
|
|
(20,779 |
) |
|
|
(2,210 |
) |
Repayment of lease liabilities |
|
|
(3,360 |
) |
|
|
(71 |
) |
Increase in bank indebtedness |
|
|
19 |
|
|
|
3,689 |
|
Net cash (used in) provided by financing activities |
|
|
(28,047 |
) |
|
|
105,938 |
|
Effect of foreign exchange on cash and cash equivalents |
|
|
(2,696 |
) |
|
|
29,853 |
|
Net decrease in cash and cash equivalents |
|
|
(156,683 |
) |
|
|
(212,441 |
) |
Cash and cash equivalents, beginning of period |
|
|
488,466 |
|
|
|
360,646 |
|
Cash and cash equivalents, end of period |
|
$ |
331,783 |
|
|
$ |
148,205 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
TILRAY, INC.
Notes to Consolidated Financial Statements
Note 1. Description of business
Tilray, Inc., and its wholly owned subsidiaries (collectively “Tilray”, the “Company”, “we”, or “us”) is a leading global cannabis-lifestyle and consumer packaged goods company headquartered in New York, with operations in Canada, the United States, Europe, Australia, New Zealand and Latin America that is changing people’s lives for the better – one person at a time – by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body, and soul and invoke a sense of wellbeing. Tilray’s mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and wellbeing through high-quality, differentiated brands and innovative products. A pioneer in cannabis research, cultivation and distribution, Tilray’s production platform supports over 20 brands in over 20 countries, including comprehensive cannabis offerings, hemp-based foods, and alcoholic beverages.
On April 30, 2021, Tilray acquired all of the issued and outstanding common shares of Aphria Inc. (“Aphria”), an international organization focused on building a global cannabis-lifestyle consumer packaged goods company in addition to its businesses in the marketing and manufacturing beverage alcohol products in the United States, and in the distribution of (non-Cannabis) pharmaceutical products in Germany and Argentina, pursuant to a plan of arrangement (the “Arrangement”) under the Business Corporations Act (Ontario).
Note 2. Basis of presentation and summary of significant accounting policies
The accompanying unaudited consolidated financial statements (the “financial statements”) reflect the accounts of the Company. The financial statements were prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. The information included in this Form 10-Q should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended May 31, 2021 (the “Annual Financial Statements”). These financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company’s balance sheet in these interim financial statements was derived from the audited Annual Financial Statements but does not contain all of the footnote disclosures from the Annual Financial Statements.
These consolidated financial statements have been prepared on the going concern basis which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due, under the historical cost convention except for certain financial instruments that are measured at fair value, as detailed in the Company’s accounting policies.
As a result of the April 30, 2021 business combination with Aphria, the reported results do not include the results of operations of Tilray and its subsidiaries on and prior to April 30, 2021, in accordance with the accounting treatment applicable to the Arrangement. Accordingly, comparisons between the Company's results for the three and six months ended November 30, 2021 and prior periods may not be meaningful.
Information about the accounting treatment of the Arrangement including details of the transaction, determination of the total fair value consideration, and allocation of the purchase price, are included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).
The purchase price allocation for the Arrangement is open for adjustments and has been allocated based on estimated fair values of the assets acquired and liabilities assumed at the acquisition date. In the event that more information is obtained, the purchase price allocation may change. Any future adjustments to the purchase price allocation, including changes within identifiable intangible assets or estimation uncertainty impacted by market conditions, may impact future net earnings. The purchase price allocation adjustments can be made through the end of the measurement period, which is not to exceed one year from the acquisition date.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A complete list of our subsidiaries that existed prior to our most recent year end is included in the Company's Annual Report for the year ended May 31, 2021 filed in Form 10-K with the U.S. Securities and Exchange Commission on July 28, 2021 (“Annual Report”).
5
On August 13, 2021, the Company and other unrelated persons formed Superhero Acquisition L.P., a Delaware limited partnership (“SH Acquisition”), for the purpose of acquiring certain senior secured convertible notes in the principal amount of approximately $165.8 million (the “MM Notes”) originally issued by MedMen Enterprises Inc. (“MedMen”) together with certain associated warrants (the “MM Warrants”) to acquire Class B subordinate voting shares of Medmen (the “MedMen Shares”) from certain funds affiliated with Gotham Green Partners (the “MM Transaction”). The MM Notes mature on August 17, 2028. On August 17, 2021, SH Acquisition completed the MM Transaction and issued 9,817,061 shares of its common stock as partial consideration for the MM Transaction. The balance of the consideration for the MM Transaction was paid in cash by the other unrelated investors of SH Acquisition.
In connection with its issuance of 9,817,061 shares of its common stock, the Company’s received an interest in SH Acquisition equal to approximately 68% of the interests in SH Acquisition and, therefore, indirectly acquired a right to 68% of the MM Notes and related MM Warrants, which were convertible into approximately 21% of the MedMen Shares outstanding (if such MM Notes and MM Warrants were converted and exercised upon closing the MM Transaction). In addition, interest on the principal amount of the MM Notes shall accrue at an interest rate of LIBOR plus 6%, with a LIBOR floor of 2.5% and, any accrued interest shall be pay-in-kind at a price equal to the trailing 30-day volume weighted average price of the MedMen Shares, as and when such pay-in-kind interest becomes due and payable. SH Acquisition was also granted “top-up” rights enabling it (and its limited partners) to maintain its percentage ownership (on an “as-converted” basis) in the event that MedMen issues equity securities upon conversion of convertible securities that may be issued by MedMen. Tilray’s ability to convert the Notes and exercise the Warrants is dependent upon U.S. federal legalization of cannabis (a “Triggering Event”) or Tilray’s waiver of such requirement as well as any additional regulatory approvals.
Under the SH Acquisition partnership agreement, certain material events described therein require the approval of the Company, and, upon a Triggering Event, the Company has the ability to appoint two of the three members of the<