Full Press Release Details
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Sundial Growers Inc.
Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Sundial Growers
Inc. and subsidiaries (the Company ) as of December 31, 2019 and 2018, the related consolidated statements of loss and comprehensive loss, changes in shareholder s equity, and cash flows for the year ended December 31,
2019, the ten month period ended December 31, 2018 and the year ended February 28, 2018, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the year ended December 31, 2019, the ten month period ended December 31, 2018 and the
year ended February 28, 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company was in breach of its debt covenants, has net current
liabilities, has recurring losses and has a history of negative cash flows from operating activities. These conditions, along with other matters discussed in Note 1, raises substantial doubt about the Company s ability to continue as a going
concern. Management s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
KPMG LLP is a Canadian limited liability
partnership and a member firm of the KPMG network of independent member firms
affiliated with KPMG International Cooperative ( KPMG International ), a
Swiss entity. KPMG Canada provides services to KPMG
We conducted our audits in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company s auditor since 2018.
Sundial Growers Inc.
Consolidated Financial Statements
As at and for the year ended December 31, 2019,
ten months ended December 31, 2018,
and the year ended February 28, 2018
(Expressed in thousands of Canadian dollars)
Sundial Growers Inc.
Consolidated Statements of Financial Position
in thousands of Canadian dollars)
| As at | Note | December 31, 2019 | December 31, 2018 | |||||||||
| Assets | ||||||||||||
| Current Assets | ||||||||||||
| Cash and cash equivalents | 45,337 | 14,121 | ||||||||||
| Restricted cash | 13 | (a) | 15,827 | 350 | ||||||||
| Accounts receivable | 7 | 27,638 | 2,738 | |||||||||
| Biological assets | 8 | 14,309 | 876 | |||||||||
| Inventory | 9 | 59,942 | 1,234 | |||||||||
| Prepaid expenses and deposits | 9,564 | 2,390 | ||||||||||
| 172,617 | 21,709 | |||||||||||
| Non-current assets | ||||||||||||
| Property, plant and equipment | 10 | 281,984 | 88,491 | |||||||||
| Intangible assets | 5,11 | 43,995 | ||||||||||
| Goodwill | 5 | 11,440 | ||||||||||
| Total assets | 510,036 | 110,200 | ||||||||||
| Liabilities | ||||||||||||
| Current liabilities | ||||||||||||
| Accounts payable and accrued liabilities | 12 | 58,110 | 19,324 | |||||||||
| Current portion of long-term debt | 13,24 | 177,913 | 22,477 | |||||||||
| Convertible notes | 15 | 25,449 | ||||||||||
| Current portion of lease obligations | 16 | 722 | 44 | |||||||||
| Contingent consideration | 5 | (a) | 32,501 | |||||||||
| Current portion of financial obligations | 17 | 2,364 | ||||||||||
| 269,246 | 69,658 | |||||||||||
| Non-current liabilities | ||||||||||||
| Long-term debt | 13,24 | 32,159 | ||||||||||
| Lease obligations | 16 | 16,227 | 170 | |||||||||
| Deferred tax liability | 18 | 3,365 | ||||||||||
| Financial obligation | 17 | 16,121 | ||||||||||
| Total liabilities | 288,838 | 118,108 | ||||||||||
| Shareholders equity | ||||||||||||
| Share capital | 19 | (b) | 509,654 | 65,133 | ||||||||
| Warrants | 19 | (c) | 27,831 | 3,108 | ||||||||
| Contributed surplus | 19 | (d) | 30,192 | 9,493 | ||||||||
| Convertible notes equity component | 15 | 3,232 | ||||||||||
| Contingent consideration | 5 | (b) | 2,279 | |||||||||
| Accumulated deficit | (360,338 | ) | (88,874 | ) | ||||||||
| Accumulated other comprehensive income | 6,866 | |||||||||||
| Total shareholders equity | 216,484 | (7,908 | ) | |||||||||
| Non-controlling interest | 5 | 4,714 | ||||||||||
| Total liabilities and shareholders equity | 510,036 | 110,200 |
Going concern (note 1)
Commitments (note 29)
events (notes 5, 28, 30)
See accompanying notes to the consolidated financial statements.
| Approved by the Board: | ||||
| Signed Bryan Pinney | Signed Zachary George | |||
| Director | Director |
Sundial Growers Inc.
Consolidated Statements of Loss and Comprehensive Loss
(Expressed in thousands of Canadian dollars, except per share amounts)
| Note | Year ended December 31 2019 (1) Recast | Ten months ended December 31 2018 | Year ended February 28 2018 | |||||||||||||
| Gross revenue | 21 | 66,927 | ||||||||||||||
| Excise taxes | 3,365 | |||||||||||||||
| Net revenue | 63,562 | |||||||||||||||
| Cost of sales | 46,721 | |||||||||||||||
| Gross margin before fair value adjustments | 16,841 | |||||||||||||||
| Change in fair value of biological assets | 30,340 | (1,280 | ) | 366 | ||||||||||||
| Change in fair value of biological assets realized through inventory sold | (10,685 | ) | ||||||||||||||
| Gross margin | 36,496 | (1,280 | ) | 366 | ||||||||||||
| General and administrative | 22 | 38,934 | 8,309 | 3,144 | ||||||||||||
| Sales and marketing | 22 | 8,068 | 2,380 | 1,274 | ||||||||||||
| Research & development | 2,410 | 275 | 413 | |||||||||||||
| Pre-production expenses | 6,457 | 1,249 | ||||||||||||||
| Depreciation and amortization | 595 | 920 | 411 | |||||||||||||
| Foreign exchange loss (gain) | 939 | 141 | ||||||||||||||
| Share-based compensation | 20 | 38,698 | 7,410 | 4,576 | ||||||||||||
| Asset impairment | 10 | 162 | 523 | 2,184 | ||||||||||||
| Loss from operations | (53,310 | ) | (27,695 | ) | (12,885 | ) | ||||||||||
| Transaction costs | 5 | (a) | (8,481 | ) | ||||||||||||
| Finance costs | 23 | (24,216 | ) | (1,797 | ) | (75 | ) | |||||||||
| Loss on financial obligation | 17 | (60,308 | ) | (27,017 | ) | |||||||||||
| Gain (loss) on disposition of PP&E | 8 | (17 | ) | (35 | ) | |||||||||||
| Loss before income tax | (146,307 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Income tax recovery | 5 | (c),18 | 3,609 | |||||||||||||
| Net loss from continuing operations | (142,698 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Net loss from discontinued operations | 30 | (128,931 | ) | |||||||||||||
| Net loss | (271,629 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Gain on currency translation of foreign operations | 5 | (a) | 6,866 | |||||||||||||
| Comprehensive loss | (264,763 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Net loss from continuing operations attributable to: | ||||||||||||||||
| Sundial Growers Inc. | (142,533 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Non-controlling interest | 5 | (c) | (165 | ) | ||||||||||||
| (142,698 | ) | (56,526 | ) | (12,995 | ) | |||||||||||
| Net loss from discontinued operations attributable to: | ||||||||||||||||
| Sundial Growers Inc. | (128,931 | ) | ||||||||||||||
| Net loss attributable to: | ||||||||||||||||
| Sundial Growers Inc. | (271,464 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Non-controlling interest | 5 | (c) | (165 | ) | ||||||||||||
| (271,629 | ) | (56,526 | ) | (12,995 | ) | |||||||||||
| Comprehensive loss attributable to: | ||||||||||||||||
| Sundial Growers Inc. | (264,598 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Non-controlling interest | 5 | (c) | (165 | ) | ||||||||||||
| (264,763 | ) | (56,526 | ) | (12,995 | ) | |||||||||||
| Net loss per common share | ||||||||||||||||
| Basic and diluted | 25 | $ | (3.17 | ) | $ | (0.82 | ) | $ | (0.23 | ) |
Segment information (note 6)
See accompanying notes to the consolidated financial statements.
Sundial Growers Inc.
Consolidated Statements of Changes in Shareholders Equity
(Expressed in thousands of Canadian dollars)
| Note | Share capital | Warrants | Contributed surplus | Convertible notes equity component | Contingent consideration | Accumulated deficit | Accumulated other comprehensive loss | Non- controlling interest | Total equity | |||||||||||||||||||||||||||||||
| Balance at February 28, 2017 | 15,136 | (3,615 | ) | 11,521 | ||||||||||||||||||||||||||||||||||||
| Net loss | (12,995 | ) | (12,995 | ) | ||||||||||||||||||||||||||||||||||||
| Share issuances | 8,123 | 8,123 | ||||||||||||||||||||||||||||||||||||||
| Shares issued to related parties | 3,000 | 3,000 | ||||||||||||||||||||||||||||||||||||||
| Share issuance costs | (515 | ) | (515 | ) | ||||||||||||||||||||||||||||||||||||
| Share-based compensation | 25 | 4,551 | 4,576 | |||||||||||||||||||||||||||||||||||||
| Balance at February 28, 2018 | 25,769 | 4,551 | (16,610 | ) | 13,710 | |||||||||||||||||||||||||||||||||||
| Net loss | (56,526 | ) | (56,526 | ) | ||||||||||||||||||||||||||||||||||||
| Share issuances | 20,452 | 20,452 | ||||||||||||||||||||||||||||||||||||||
| Shares issued to related parties | 16,474 | 16,474 | ||||||||||||||||||||||||||||||||||||||
| Share issuance costs | (310 | ) | (310 | ) | ||||||||||||||||||||||||||||||||||||
| Share repurchase | (827 | ) | (15,738 | ) | (16,565 | ) | ||||||||||||||||||||||||||||||||||
| Fair value allocated to warrants | (3,108 | ) | 3,108 | |||||||||||||||||||||||||||||||||||||
| Warrants exercised | 2,182 | 2,182 | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 521 | 6,889 | 7,410 | |||||||||||||||||||||||||||||||||||||
| Employee warrants exercised | 3,980 | (1,947 | ) | 2,033 | ||||||||||||||||||||||||||||||||||||
| Equity component of convertible notes | 3,232 | 3,232 | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | 65,133 | 3,108 | 9,493 | 3,232 | (88,874 | ) | (7,908 | ) | ||||||||||||||||||||||||||||||||
| Net loss | (271,464 | ) | (165 | ) | (271,629 | ) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income (1) | 6,866 | 6,866 | ||||||||||||||||||||||||||||||||||||||
| Share issuances | 19 | (b) | 198,378 | 198,378 | ||||||||||||||||||||||||||||||||||||
| Shares issued to related parties | 17,19 | (b) | 63,460 | 5,833 | 69,293 | |||||||||||||||||||||||||||||||||||
| Share issuance costs | 19 | (b) | (12,770 | ) | (12,770 | ) | ||||||||||||||||||||||||||||||||||
| Business acquisitions | 5 | 39,849 | 2,279 | 4,879 | 47,007 | |||||||||||||||||||||||||||||||||||
| Convertible debt - conversions | 14,15 | 113,526 | 6,731 | (3,232 | ) | 117,025 | ||||||||||||||||||||||||||||||||||
| Warrants reclassified from liability | 19 | (c) | 16,091 | 16,091 | ||||||||||||||||||||||||||||||||||||
| Warrants exercised | 19 | (c) | 21,882 | (3,932 | ) | 17,950 | ||||||||||||||||||||||||||||||||||
| Share-based compensation | 20 | 2,515 | 37,009 | 39,524 | ||||||||||||||||||||||||||||||||||||
| Employee warrants exercised | 20 | 17,681 | (16,310 | ) | 1,371 | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 509,654 | 27,831 | 30,192 | 2,279 | (360,338 | ) | 6,866 | 4,714 | 221,198 |
See accompanying notes to the consolidated financial statements.
Sundial Growers Inc.
Consolidated Statement of Cash Flows
thousands of Canadian dollars)
| Note | Year ended December 31 2019 (1) Recast | Ten months ended December 31 2018 | Year ended February 28 2018 | |||||||||||||
| Cash provided by (used in): | ||||||||||||||||
| Operating activities | ||||||||||||||||
| Net loss from continuing operations | (142,698 | ) | (56,526 | ) | (12,995 | ) | ||||||||||
| Items not involving cash: | ||||||||||||||||
| Income tax recovery | (3,609 | ) | ||||||||||||||
| Change in fair value of biological assets | (30,340 | ) | 1,280 | (366 | ) | |||||||||||
| Share-based compensation | 20 | 38,698 | 7,410 | 4,576 | ||||||||||||
| Depreciation and amortization | 10,11 | 6,296 | 920 | 411 | ||||||||||||
| Loss (gain) on disposition of PP&E | (8 | ) | 17 | 35 | ||||||||||||
| Transaction costs | 1,279 | |||||||||||||||
| Finance costs | 23 | 11,070 | 917 | |||||||||||||
| Loss on financial obligation | 60,308 | 18,485 | ||||||||||||||
| Unrealized foreign exchange (gain) loss | 671 | |||||||||||||||
| Asset impairment | 162 | 523 | 2,184 | |||||||||||||
| Change in non-cash working capital | 24 | (41,626 | ) | 1,217 | 910 | |||||||||||
| Net cash used in operating activities from continuing operations | (99,797 | ) | (25,757 | ) | (5,245 | ) | ||||||||||
| Net cash used in operating activities from discontinued operations | 30 | (12,939 | ) | |||||||||||||
| Net cash used in operating activities | (112,736 | ) | (25,757 | ) | (5,245 | ) | ||||||||||
| Investing activities | ||||||||||||||||
| Additions to property, plant and equipment | 10 | (110,271 | ) | (76,321 | ) | (7,588 | ) | |||||||||
| Proceeds from disposal of PP&E | 51 | 30 | ||||||||||||||
| Acquisition of Bridge Farm | 5 | (a) | (77,023 | ) | ||||||||||||
| Change in non-cash working capital | 24 | 1,659 | 10,282 | (2,121 | ) | |||||||||||
| Net cash used in investing activities from continuing operations | (185,584 | ) | (66,039 | ) | (9,679 | ) | ||||||||||
| Net cash from investing activities from discontinued operations | 30 | (27,560 | ) | |||||||||||||
| Net cash used in investing activities | (213,144 | ) | (66,039 | ) | (9,679 | ) | ||||||||||
| Financing activities | ||||||||||||||||
| Proceeds from Syndicated Credit Agreement, net of costs | 13 | (a) | 82,687 | |||||||||||||
| (Repayment) proceeds of Credit Facilities | 13 | (b) | (32,871 | ) | 32,159 | |||||||||||
| Proceeds from Term Debt Facility, net of costs | 13 | (c) | 105,539 | |||||||||||||
| (Repayment) proceeds of other debt instruments | 13 | (d)-(g) | (56,173 | ) | 8,546 | 7,000 | ||||||||||
| Proceeds from convertible notes, net of costs | 14 | 90,373 | 27,764 | |||||||||||||
| Payments on lease obligations | (292 | ) | (34 | ) | (109 | ) | ||||||||||
| Proceeds from issuance of shares, net of costs | 19 | (b) | 177,202 | 36,616 | 9,569 | |||||||||||
| Proceeds from exercise of warrants | 19 | (c) | 17,950 | 2,182 | ||||||||||||
| Proceeds from exercise of employee warrants | 20 | 1,371 | 2,033 | |||||||||||||
| Settlement of convertible notes | 15 | (4,190 | ) | |||||||||||||
| Settlement of financial obligation | 17 | (9,500 | ) | |||||||||||||
| Restricted cash | 13 | (a) | (15,477 | ) | ||||||||||||
| Repurchase of shares | (9,634 | ) | ||||||||||||||
| Change in non-cash working capital | 24 | 2,147 | (1,393 | ) | 2,426 | |||||||||||
| Net cash provided by financing activities from continuing operations | 358,766 | 98,239 | 18,886 | |||||||||||||
| Net cash provided by financing activities from discontinued operations | 30 | (499 | ) | |||||||||||||
| Net cash provided by financing activities | 358,267 | 98,239 | 18,886 | |||||||||||||
| Impact of foreign currency translation | (1,171 | ) | ||||||||||||||
| Change in cash and cash equivalents | 31,216 | 6,443 | 3,962 | |||||||||||||
| Cash and cash equivalents, beginning of year | 14,121 | 7,678 | 3,716 | |||||||||||||
| Cash and cash equivalents, end of period | 45,337 | 14,121 | 7,678 |
See accompanying notes to the consolidated financial statements.
Sundial Growers Inc.
Notes to the Consolidated Financial Statements
year ended December 31, 2019
(Expressed in thousands of Canadian dollars, except where otherwise noted)
Sundial Growers Inc. ( Sundial or the Company ) was incorporated under the Business Corporations Act
(Alberta) on August 19, 2006.
The Company s head office is located at 300, 919 11th Avenue SW, Calgary, Alberta,
The principal activities of the Company are the production, distribution and sale of cannabis in Canada and the
production, distribution and sale of ornamental flowers and herbs in the United Kingdom. On June 5, 2020, the Company disposed of Bridge Farm and the Bridge Farm results are presented herein as discontinued operations (note 30). The production,
distribution and sale of cannabis was regulated by the Access to Cannabis for Medical Purposes Regulations ( ACMPR ) in Canada, up to and including October 16, 2018. On October 17, 2018, the ACMPR was superseded by the Cannabis
Act which regulates the production, distribution, and possession of cannabis for both medical and adult recreational access in Canada.
On August 1, 2019, the Company s common shares began trading on the Nasdaq Global Select Market ( Nasdaq )
under the ticker symbol SNDL .
Sundial does not engage in any U.S. cannabis-related activities as defined in
Canadian Securities Administrators Staff Notice 51-352.
Going concern assumption
These consolidated financial statements have been prepared on a going concern basis, which assumes that the
Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company is an early-stage company, has accumulated significant losses and was not in compliance with its loan covenants (note 10a) as at
December 31, 2019 and March 31, 2020. Furthermore, the Company and certain of its subsidiaries have a limited operating history and a history of negative cash flows from operating activities.
The Company has a Producer s License at each of its two Canadian facilities, a license to sell live plants to other
licensed producers and its standard processing and sales license from Health Canada. The Company has maintained compliance with all Health Canada s requirements under these licenses.
The ability of the Company to continue as a going concern depends on Health Canada maintaining such licenses, the continued
support of its lenders, its ability to achieve profitable operations and its ability to raise additional financing to fund current and future operating and investing activities. There is no assurance that the Company will be able to accomplish any
of the foregoing objectives.
During the year ended December 31, 2019, the Company sourced the capital and liquidity
to advance its strategic growth initiatives by way of the capital transactions described in notes 13, 14 and 19. At December 31, 2019, the Company was not in compliance with the interest coverage ratio covenant under its Syndicated Credit
Agreement. As a result, as at December 31, 2019, the full principal amount of the Syndicated Credit Agreement and the full principal amount of the Term Debt Facility were classified as current liabilities on the Company s statement of
On May 14, 2020, the Company obtained a waiver under the Syndicated Credit Agreement for the
December 31, 2019 interest coverage ratio covenant breach.
On June 5, 2020, the Company entered into an amended
and restated credit agreement (note 10a), executed a refinancing transaction under its Term Debt Facility (note 10b), executed an intercreditor agreement and closed the sale of Bridge Farm (note 3). The amended and restated credit agreement includes
a waiver for the Company s March 31, 2020 covenant non-compliance, elimination of financial covenants other than a minimum cash balance covenant of $2.5 million until December 31, 2020 or
later and a covenant requiring the Company to raise capital of US$10 million by December 1, 2020. Additionally, principal repayments of $2.1 million per quarter were rescheduled to commence on September 30, 2020.
Additionally, based on the Company s most recent financial projections, management is forecasting that the Company will be
in violation of the Syndicated Credit Agreement senior funded debt to EBITDA covenant at December 31, 2020. The Company plans to access the capital markets to raise additional liquidity. The Company has filed registrations statements for a base
shelf prospectus allowing it to issue common shares in an amount up to US$100 million at its discretion, and to establish an at-the-market equity program covering
common share issuances of up to US$50 million. There can be no guarantee that the Company will be able to raise additional capital on terms acceptable to it or at all. Any delay or failure to complete any additional financing would have a
significant negative impact on the Company s business, results of operations and financial condition, and the Company may be forced to curtail or cease operations or seek relief under the applicable bankruptcy or insolvency laws.
These events, combined with the accumulated losses to date, indicate the existence of a material uncertainty that casts
substantial doubt on the Company s ability to continue as a going concern. These consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classifications of assets and liabilities
should the Company be unable to continue as a going concern.
Sundial Growers Inc.
Notes to the Consolidated Financial Statements
year ended December 31, 2019