The unaudited pro forma consolidated statement of financial position as at March 31, 2024 has been prepared from information derived from the following:
• Flora's unaudited condensed interim consolidated statement of financial position as at March 31, 2024;
• TruHC's unaudited statement of financial position as at March 31, 2024, translated to United States dollars from European Euros at the March 29, 2024 rate of 1.0797, which represents the last business day in the month of March 2024.
The unaudited pro forma consolidated statement of loss and comprehensive loss for the three months ended March 31, 2024 has been prepared from information derived from the following:
• Flora's unaudited condensed interim consolidated statement of loss and comprehensive loss for the three months ended March 31, 2024;
• TruHC's unaudited statement of operations for the three months ended March 31, 2024, translated into United States dollars from European Euros at the three-month average rate of 1.0857.
The unaudited pro forma consolidated statement of loss and comprehensive loss for the year ended December 31, 2023 has been prepared from information derived from the following:
• Flora's audited consolidated statement of loss and comprehensive loss for the period from January 1, 2023 to December 31, 2023;
• TruHC's audited statement of operations for the year ended December 31, 2023, translated to United States dollars from European Euros at the twelve-month average rate of 1.0814.
The pro forma adjustments include all those transactions attributable to the Transaction for which the complete financial effects are objectively determinable.
The Pro Forma Financial Statements are not intended to reflect the results of operations or the financial position that would have actually resulted had the Transaction been effected on the dates indicated or the results which may be obtained in the future. The Pro Forma Financial Statements should be read in conjunction with the other sections of the Proxy Statement.
The pro forma adjustments are based on certain estimates and assumptions. Management believes that such assumptions provide a reasonable basis for presenting all the significant effects of the Transaction contemplated and that the Pro Forma Financial Statement adjustments give appropriate effect to those adjustments and are properly applied in the Pro Forma Financial Statements.
The Pro Forma Financial Statements are based on estimates and assumptions set forth in the notes herein. The Pro Forma Financial Statements are being provided solely for informational purposes and are not necessarily indicative of any future consolidated financial position or of the consolidated financial position that might have been achieved for the periods indicated; nor is it necessarily indicative of future results that may occur.
The allocation of the purchase price to reflect the fair values of the assets acquired and liabilities assumed is based on management's estimate of such assets and liabilities and, accordingly, the adjustments that have been included in the Pro Forma Financial Statements as at March 31, 2024 may be subject to change. The preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations as described in more detail in the explanatory notes below. The final allocation is expected to be completed when the Company files its condensed interim consolidated financial statements for three and six months ended June 30, 2024, and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include (1) changes in fair values of licenses; and (2) other changes to assets and liabilities.
Pro Forma Assumptions and Adjustments
The unaudited pro forma consolidated statement of financial position gives effect to the completion of the Transaction as if the Transaction had occurred on March 31, 2024. The unaudited pro forma consolidated statement of loss and comprehensive loss gives effect to the completion of those transactions had they occurred on January 1, 2023. The Pro Forma Financial Statements are based on the following estimates and assumptions:
a) On April 16, Flora entered into a share purchase agreement for the Transaction. Management has assessed the Arrangement under ASC 805 Business Combinations and concluded that it constitutes an asset acquisition. The management of Flora has made a preliminary determination of the fair value of the tangible and intangible assets acquired and liabilities assumed in the Transaction. If new information obtained within one year of the date of the Transaction about the facts and circumstances that existed at the date of the Transaction identifies adjustments to the amounts then the accounting for the Transaction is to be revised. The final allocation of the fair value of the net assets acquired and aggregate consideration may be significantly different from the preliminary allocation as presented below:
| First Closing - 2,135,199 common shares valued at $1.56 per share (i) |
$ |
3,330,910 |
|
| Second Closing - 635,363 common shares value at $1.35 per share (ii) |
|
857,740 |
|
| Total consideration |
|
4,188,650 |
|
| |
|
|
|
| Purchase price allocation: |
|
|
|
| Cash and cash equivalents |
|
15,007 |
|
| Receivables |
|
22,870 |
|
| Prepaid expenses and other current assets |
|
21,969 |
|
| Plant and equipment (iii) |
|
98,355 |
|
| Operating lease right of use assets |
|
496,138 |
|
| Trade and other payables |
|
(51,310 |
) |
| Operating lease liabilities |
|
(534,891 |
) |
| Other accrued liabilities |
|
(12,546 |
) |
| Deferred income tax liabilities |
|
(1,336,392 |
) |
| Licenses (iv) |
|
5,469,450 |
|
| |
$ |
4,188,650 |
|
The First Closing occurred on April 22, 2024. Flora's closing share price on April 19, 2024, representing the last available closing price at the time of this closing, is utilized to value this component. Therefore, the value of the First Closing had already occurred and will not vary based on the market price of the Company's common shares upon consummation of the Transaction.
(i) The value of the Second Closing within the purchase price will vary based on the market price of the Company's common shares upon the Second Closing. The Company believes that the following fluctuations in the market price of its common stock is reasonably possible based on historical volatility, and the potential effect on Second Closing component of the purchase price would be:
| |
Company's share
price |
Second Closing
Component of
Purchase Price |
| As presented |
$1.35 |
$857,740 |
| 10% Decrease |
$1.22 |
$771,966 |
| 20% Decrease |
$1.08 |
$686,192 |
| 30% Decrease |
$0.95 |
$600,418 |
| 40% Decrease |
$0.81 |
$514,644 |
| 50% Decrease |
$0.68 |
$428,870 |
| 10% Increase |
$1.49 |
$943,514 |
| 20% Increase |
$1.62 |
$1,029,288 |
| 30% Increase |
$1.76 |
$1,115,062 |
| 40% Increase |
$1.89 |
$1,200,836 |
| 50% Increase |
$2.03 |
$1,286,610 |
(ii) The Company has not yet determined the fair value of plant and equipment acquired and is using the carrying value.
(iii) The Company has preliminarily identified and valued $5,469,450 in licenses. Since all information required to perform a detailed valuation analysis of TruHC's licenses could not be obtained as of the date of this filing, for the purposes of these pro forma financial statements, the Company used certain assumptions based on preliminary valuations concluded for these licenses. A 10% change in the valuation of licenses would cause a corresponding increase or decrease in the excess of the purchase price over the fair value of the net assets of approximately $550,000 and annual amortization expense of approximately $110,000, assuming an overall weighted average useful life of 5 years. For the purpose of the Pro Forma Financial Statements, the following are the amortization expenses for each corresponding period:
a. For the three months ended March 31, 2024 - $276,170.
b. For the year ended December 31, 2023 - $1,104,678.
(iv) Reflects the elimination of TruHC's historical equity balances.
b) No finder's fees or commissions were paid or are payable in connection with the Transaction other than fees to certain consultants and investment banks acting as advisors to the Company. These fees would be valued at $138,000 incurred by Flora prior to the closing of the Transaction.
c) Represents the accrual of legal, consulting and other professional fees in connection with the Transaction and is estimated at $100,000. These costs will not affect the Company's income statement beyond 12 months after the closing of the Transaction.
d) In connection with the Transaction, TruHC's intercompany liabilities were forgiven.
e) For all adjustments except the one described in 2)a)(iv), the Company utilized an effective income tax rate of nil for the pro forma adjustments as these adjustments net to a taxable loss for which the corresponding deferred tax asset has a full valuation allowance.
2. Share Capital
A continuity of the pro forma consolidated share capital is as follows:
| As at March 31, 2024 |
Note |
|
Number
of shares |
|
|
Amount |
|
| Flora common shares outstanding prior to the Transaction |
|
|
8,981,000 |
|
$ |
148,871,000 |
|
| Shares issued to effect the Transaction |
2a |
|
2,770,562 |
|
|
4,188,650 |
|
| |
|
|
11,751,562 |
|
$ |
153,059,650 |
|