What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-09 compared with 2023-08-10 · 135 added, 125 removed, 474 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30, December 31,

2023 (unaudited) 2022

37 unchanged sentences

Common shares, nil par value;

unlimited shares authorized as of June 30, 2023 and December 31, 2022, respectively;

152,825,118 and 152,135,026 shares issued and outstanding as of June 30, 2023 and December 31, 2022

unlimited shares authorized;

153,779,856 and 152,135,026 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

9 unchanged sentences

(in thousands, except share and per share amounts)

Three Months Ended June 30, (unaudited)

Six Months Ended June 30, (unaudited)

Three Months Ended September 30, (unaudited)

Nine Months Ended September 30, (unaudited)

2023 2022 2023 2022

3 unchanged sentences

Selling, general and administrative expenses 19,889 11,032 57,029 48,646

Asset Impairment — 1,822 — 1,822

Operating loss

( 11,960 ) ( 3,909 ) ( 30,265 ) ( 20,488 )

Gain on investment in unconsolidated entity 10,700 — 10,700 —

Change in fair value of financial instruments and other

Gain on initial investment in unconsolidated entity — — 10,700 —

Change in fair value of financial instruments

( 4,024 ) ( 4,000 ) 5,588 ( 3,900 )

1 unchanged sentence

841 321 ( 1,234 ) 304

Income (loss) before provision for income taxes

Loss before provision for income taxes

( 15,143 ) ( 7,588 ) ( 15,211 ) ( 24,084 )

Income tax benefit (expense)

Net income (loss)

Income tax expense

$ ( 15,143 ) $ ( 7,588 ) $ ( 15,211 ) $ ( 24,084 )

Per common share amounts (Note 10)

Net income (loss) per common share, basic

$ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

Net income (loss) per common share, diluted

Net loss per common share, basic and diluted

$ ( 0.10 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.17 )

18 unchanged sentences

152,825,118 $ 1 $ 326,355 $ ( 247,995 ) $ 78,361

See Notes to Unaudited Condensed Consolidated Financial Statements

CHARLOTTE’S WEB HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

Common Shares

Accumulated Deficit

Shareholders’

Common shares issued upon vesting of restricted share units, net of withholding 954,738 — ( 127 ) — ( 127 )

Share-based compensation — — 647 — 647

Net income (loss) — — — ( 15,143 ) ( 15,143 )

Balance— September 30, 2023

153,779,856 $ 1 $ 326,875 $ ( 263,138 ) $ 63,738

Balance—December 31, 2021

12 unchanged sentences

145,278,165 $ 1 $ 321,021 $ ( 205,110 ) $ 115,912

Common shares issued upon vesting of restricted share units, net of withholding 231,207 — ( 67 ) — ( 67 )

ATM program issuance costs — — ( 59 ) — ( 59 )

Share-based compensation — — 664 — 664

Net income (loss) — — — ( 7,588 ) ( 7,588 )

Balance—September 30, 2022

145,509,372 $ 1 $ 321,559 $ ( 212,698 ) $ 108,862

See Notes to Unaudited Condensed Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Six Months Ended June 30, (unaudited)

Nine Months Ended September 30,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Change in fair value of financial instruments and other

Change in fair value of financial instruments

( 5,588 ) 3,900

Gain on investment in unconsolidated entity ( 10,700 ) —

Convertible debenture accrued interest 1,954 —

Gain on initial investment in unconsolidated entity ( 10,700 ) —

Convertible debenture and other accrued interest 2,916 —

Asset impairment — 1,822

Share-based compensation

Loss on foreign currency translation

Changes in right-of-use assets 1,453 1,877

Allowance for credit losses 1,187 ( 89 )

Inventory provision

4 unchanged sentences

Inventories, net

2,878 ( 2,411 )

Prepaid expenses and other current assets

( 589 ) 3,086

Accounts payable, accrued and other liabilities

2 unchanged sentences

( 1,722 ) ( 1,665 )

License and media rights

Income taxes receivable

License and media rights payable

Income taxes and other receivable

Other operating assets and liabilities, net

18 unchanged sentences

Non-cash activities:

Non-cash purchase of intangible asset ( 163 ) —

Non-cash purchase of property and equipment and intangible asset ( 81 ) —

Non-cash issuance of note receivable ( 142 ) —

15 unchanged sentences

The Company does not currently have any plans to expand into such high THC products in the near future.

The Company’s current product categories include human ingestible products:

tinctures (liquid product), capsules, gummies, topicals, and pet products.

The Company’s current product categories include human ingestible products, such as, tinctures (liquid product), capsules, and gummies, as well as, topicals and pet products.

The Company’s products are distributed through its e-commerce website, third-party e-commerce websites, select distributors, health practitioners, and a variety of brick-and-mortar specialty retailers.

The Company grows its proprietary hemp domestically in the United States on farms leased in northeastern Colorado and sources hemp through contract farming operations in Arizona, Kentucky, Oregon, and Canada.

The Hemp grown in Canada is utilized exclusively in the Canadian market and not in products sold in the United States.

In furtherance of the Company’s Research and Development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to substantially expand the Company’s efforts around the science of hemp derived compounds.

The Hemp grown in Canada is utilized exclusively in the Canadian markets or for research purposes and not in products sold in the United States.

In furtherance of the Company’s research and development ("R&D") efforts, the Company established CW Labs, an internal division for R&D, to expand the Company’s efforts around the science of hemp derived compounds.

CW Labs is currently engaged in clinical trials addressing Hemp-based health solutions.

5 unchanged sentences

Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of the Financial Accounting Standards Board ("FASB").

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2023 and its results of operations for the three and six months ended June 30, 2023 and 2022, cash flows for the six months ended June 30, 2023 and 2022, and stockholders’ equity for the three and six months ended

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022,

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

June 30, 2023 and 2022.

Operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

cash flows for the nine months ended September 30, 2023 and 2022, and stockholders’ equity for the three and nine months ended September 30, 2023 and 2022.

Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.

The unaudited interim condensed consolidated financial statements presented herein do not contain the required disclosures under GAAP for annual consolidated financial statements.

9 unchanged sentences

The following table sets forth the disaggregation of the Company’s revenue:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

4 unchanged sentences

Recently Adopted Accounting Pronouncements

As of June 30, 2023, there are no new accounting pronouncements adopted or issued by the FASB that had or may have a material impact on the Company’s condensed consolidated financial statements.

There are no new accounting pronouncements adopted or issued by the FASB that had or may have a material impact on the accompanying unaudited interim condensed consolidated financial statements.

CHARLOTTE’S WEB HOLDINGS, INC.

2 unchanged sentences

FAIR VALUE MEASUREMENT

The following table sets forth the Company’s financial instruments and other that were measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

June 30, 2023

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

September 30, 2023

Level 1 Level 2 Level 3 Total

15 unchanged sentences

Debt conversion option $ — $ 12,995 $ — $ 12,995

There were no transfers between levels of the hierarchy during the three and six month periods ended June 30, 2023 and the year ended December 31, 2022.

There were no transfers between levels of the hierarchy during the three and nine month periods ended September 30, 2023 and the year ended December 31, 2022.

Investment in Unconsolidated Entity

5 unchanged sentences

The entity was established to pursue FDA-approval for a botanical drug to target a neurological condition.

BAT holds an equity interest in the entity in the form of 200,000 or 100 % preferred units following its $ 10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

The Company and AJNA each hold 400,000 or 50 %, respectively, of the entity’s voting common units.

BAT holds an equity interest in DeFloria in the form of 200,000 or 100 % preferred units following its $ 10 million investment and has the right to participate in future equity issuances to maintain its pro rata equity position.

The Company and AJNA each hold 400,000 or 50 %, respectively, of DeFloria’s voting common units.

The Company’s contribution to DeFloria is a license permitting the use of certain proprietary hemp intellectual property, including clinical and consumer data.

5 unchanged sentences

( In thousands, except share, per share, per unit, and number of years)

use the initial $ 10 million cash investment for the clinical development of a hemp botanical Investigational New Drug application and to commence Phase I clinical development in 2024.

Concurrently with the formation of the DeFloria entity, the Company entered into a warrant agreement with AJNA to purchase 865,052 of Class A Common Stock of AJNA for an exercise price of $ 2.89 per share.

use the initial $ 10 million cash investment for the clinical development of a hemp botanical Investigational New Drug application and has commenced Phase I clinical development.

Concurrently with the formation of DeFloria, the Company was issued a warrant to purchase 865,052 shares of Class A Common Stock of AJNA for an exercise price of $ 2.89 per share.

Management determined the warrant should be accounted for in accordance with ASC 321, which requires the warrant to be measured at fair value at issuance and subsequently remeasured at fair value each reporting period.

All changes from the remeasurement of the warrant will be recorded as a change in fair value of financial instruments and other in the statements of operations.

The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of June 30, 2023.

All changes from the remeasurement of the warrant will be recorded as a change in fair value of financial instruments in the statements of operations.

The Company determined the fair value of the AJNA warrants to be de minimis and as such no value was recorded as of September 30, 2023.

The Company determined that it has a variable interest in the investment in DeFloria.

4 unchanged sentences

As the Company is not required to consolidate the investment and does not meet any of the other scope exceptions, the Company has the ability to adopt the fair value option for the investment at inception.

The Company elected the fair value option because it allows the investment to be valued based on current market conditions.

As such the investment is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments and other for the period.

For the three and six months ended June 30, 2023, a gain of $ — , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of June 30, 2023, the DeFloria investment represents an investment of $ 10,700 within the condensed consolidated balance sheets.

Upon formation of the entity, the Company elected the fair value option because it allows the investment to be valued based on current market conditions.

As such, the investment is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments for the period.

For the three and nine months ended September 30, 2023, a gain of $ 400 , respectively, related to the investment in DeFloria was recognized as a change in fair value of financial instruments in the statements of operations.

As of September 30, 2023, the DeFloria investment represents an investment of $ 11,100 within the condensed consolidated balance sheets.

The use of assumptions for the fair value determination includes a high degree of subjectivity and judgment using unobservable inputs (level 3 on the fair value hierarchy), which results in estimation uncertainty.

3 unchanged sentences

The following additional assumptions are used in the model:

September 30,

Expected term (years)

19 unchanged sentences

Debt Interest Rate Conversion Feature

The debt interest rate conversion feature is classified as a financial asset and is remeasured at fair value at each reporting date, with changes recognized in consolidated statements of operations as changes in fair value of financial instruments and other for the period.

The debt interest rate conversion feature, if triggered, reduces the stated interest rate of the debenture to 1.5% upon federal regulation of CBD in the United States.

For the three and six months ended June 30, 2023, a gain of $ 106 and a loss $ 506 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of June 30, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 836 and $ 1,320 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

To determine the value of the option, the Company utilizes a probability weighted income approach.

For the three and nine months ended September 30, 2023, a loss of $ 38 and $ 544 , respectively, related to the debt interest rate conversion feature was recognized as a change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the debt interest rate conversion feature represents a financial asset of $ 778 and $ 1,320 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

To determine the value of the conversion feature, the Company utilizes a probability weighted income approach.

This method calculates the present value of the reduced interest accrued on the debenture assuming the feature is triggered at a certain time, after accounting for the probability of federal regulation of CBD.

1 unchanged sentence

The following additional assumptions are used in the model:

June 30, December 31,

September 30,

Stated interest rate 5.0 % 5.0 %

15 unchanged sentences

Treasury Securities with a maturity equivalent to the expected maturity of the debenture.

For the three and six months ended June 30, 2023, a $ 4,066 and $ 10,361 gain, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments and other in the statements of operations.

As of June 30, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 2,815 and $ 12,995 , respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2023, a $ 4,661 loss and $ 5,700 gain, respectively, related to the debt conversion option was recognized as a change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the debt conversion option represents a financial liability of $ 7,407 and $ 12,995 , respectively, within derivative and other long-term liabilities in the condensed consolidated balance sheets.

The following table provides the assumption regarding Level 2 fair value measurements inputs at their measurement dates:

June 30, December 31,

September 30,

Expected volatility

9 unchanged sentences

("Stanley Brothers USA"), a Cannabis wellness incubator.

Until the Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both the Company and Stanley Brothers USA will continue to operate as standalone entities in the US.

Until the Stanley Brothers USA Holdings Purchase Option ("SBH Purchase Option") is exercised, both the Company and Stanley Brothers USA will continue to operate as standalone entities in the United States.

Internationally, the companies are able to explore opportunities where Cannabis is federally permissible.

15 unchanged sentences

Changes in assumptions that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value.

Changes in fair value measurements, if significant, may affect performance of cash flows.

For the three months ended June 30, 2023 and 2022, a gain of $ 57 and $ 0 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

For the six months ended June 30, 2023 and 2022, a loss of $ 243 and a gain $ 100 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments and other in the statements of operations.

As of June 30, 2023 and December 31, 2022, the SBH Purchase Option represents a financial asset of $ 2,057 and $ 2,300 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

Changes in fair value measurements, if significant, may affect the performance of cash flows.

For the three months ended September 30, 2023 and 2022, a gain of $ 275 and a loss of $ 4,000 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the statements of operations.

For the nine months ended September 30, 2023 and 2022, a gain of $ 32 and a loss of $ 3,900 , respectively, related to the SBH Purchase Option was recognized as change in fair value of financial instruments in the statements of operations.

As of September 30, 2023 and December 31, 2022, the SBH Purchase Option represents a financial asset of $ 2,332 and $ 2,300 , respectively, within SBH purchase option and other derivative assets in the condensed consolidated balance sheets.

The Monte Carlo valuation model considers multiple revenue and Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA") outcomes for Stanley Brothers USA and other probabilities in assigning a fair value.

1 unchanged sentence

The following additional assumptions are used in the model of the SBH Purchase Option:

June 30, December 31,

September 30,

Expected volatility

5 unchanged sentences

Inventories consist of the following:

September 30,

Harvested hemp and seeds

1 unchanged sentence

Raw materials

10,440 10,960

Finished goods

37,080 58,960

41,502 58,960

inventory provision

2 unchanged sentences

$ 22,631 $ 26,953

In May 2023, the Company sold harvested hemp that had a full inventory provision as of December 31, 2022.

The sale of hemp resulted in a $ 12,899 reduction to the inventory provision as of June 30, 2023.

During the current year, the Company sold harvested hemp that had a full inventory provision as of December 31, 2022.

The sale of hemp resulted in a $ 12,854 reduction to the inventory provision as of September 30, 2023.

LICENSE AND MEDIA RIGHTS

6 unchanged sentences

As consideration under the MLB promotional rights agreement, the Company has paid and is committed to pay a combination of cash over the license period, along with upfront non-cash consideration in the form of equity, as well as contingent consideration in the form of contingent payments based on revenue.

As of June 30, 2023 and December 31, 2022, the carrying value of the licensed properties was $ 18,235 and $ 23,399 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, the carrying value of the media rights was $ 7,232 and $ 7,482 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets.

For the three and six months ended June 30, 2023, the Company paid MLB $ 2,000 and $ 4,000 , respectively, as part of the committed cash payments, and recognized $ 2,074 and $ 3,897 , respectively, in amortization expense related to the license and media right assets.

As of September 30, 2023 and December 31, 2022, the carrying value of the licensed properties was $ 16,412 and $ 23,399 , respectively, recorded as a license and media rights asset within the condensed consolidated balance sheets.

As of September 30, 2023 and December 31, 2022, the carrying value of the media rights was $ 6,107 and $ 7,482 recorded as a prepaid asset and a license and media rights asset within the condensed consolidated balance sheets.

For the three and nine months ended September 30, 2023, the Company paid MLB $ 2,000 and $ 6,000 , respectively, as part of the committed cash payments, and recognized $ 2,949 and $ 6,846 , respectively, in amortization expense related to the license and media right assets.

Licensed properties are amortized straight line and media rights are amortized as incurred.

Maturities of the MLB license and media rights payable as of June 30, 2023 are as follows:

Maturities of the MLB license and media rights payable as of September 30, 2023 are as follows:

Year Ending December 31:

5 unchanged sentences

Total non-current license and media rights payable

As of June 30, 2023, expected amortization of licensed properties are as follows:

As of September 30, 2023, expected amortization of licensed properties are as follows:

Year Ending December 31:

2 unchanged sentences

Convertible Debenture

As of November 14, 2022, the Company entered into the Subscription Agreement with BT DE Investments, Inc., providing for the issuance of a $ 56.8 million (C$ 75.3 million) convertible debenture.

On November 14, 2022, the Company entered into the Subscription Agreement with BT DE Investments, Inc., providing for the issuance of a $ 56.8 million (C$ 75.3 million) convertible debenture.

The debenture was denominated in Canadian Dollars ("CAD" or "C$").

7 unchanged sentences

The maturity date for the debenture is November 14, 2029.

The following is a summary of the Company's convertible debenture as of June 30, 2023 :

As of June 30, 2023

The following is a summary of the Company's convertible debenture as of September 30, 2023 :

As of September 30, 2023

Principal Amount Unamortized Debt Discount and Costs Net Carrying Amount

7 unchanged sentences

The debenture was C$ 75.3 million per the subscription agreement and translated to USD on the transaction date.

For the three and six months ended June 30, 2023 , the Company recognized a foreign currency loss of $ 831 and $ 820 , respectively, related to the net carrying value of the debenture within the statement of operations .

For the three and nine months ended September 30, 2023 , the Company recognized a foreign currency gain of $ 994 and $ 174 , respectively, related to the net carrying value of the debenture within the statement of operations .

Interest is accrued annually and payable on the maturity date or date of earlier conversion.

On conversion, accrued interest will either be converted into common shares equal to the amount of accrued interest or will be paid in cash if agreed with the Lender.

As of June 30, 2023 , the principal amount of the debenture includes $ 1,777 of accrued interest expense.

The following is a summary of the interest expense and amortization expense, recorded within the statement of operation, of the Company's convertible debenture for the three and six months ended June 30, 2023 :

Three Months Ended Six Months Ended

June 30, June 30,

As of September 30, 2023 , the principal amount of the debenture includes $ 2,479 of accrued interest expense.

Three Months Ended Nine Months Ended

September 30,

Interest and Amortization Expense 2023 2023

5 unchanged sentences

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of June 30, 2023 there is no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

Although the ultimate aggregate amount of monetary liability or financial impact with respect to these matters is subject to many uncertainties and is therefore not predictable with assurance, management believes that as of September 30, 2023 there is no litigation pending that could have, individually and in the aggregate, a material adverse effect on the Company’s financial position, results of operations or cash flows.

CHARLOTTE’S WEB HOLDINGS, INC.

4 unchanged sentences

Generally, the lease agreements do not include options to terminate the lease.

Maturities of operating lease liabilities as of June 30, 2023 are as follows:

Maturities of operating lease liabilities as of September 30, 2023 are as follows:

Operating Leases

6 unchanged sentences

Total non-current lease liabilities

For the three and nine months ended September 30, 2022, the Company recorded an impairment charge of $ 1,822 related to the decision to cease utilizing the Denver office space recorded within asset impairment in the consolidated statements of operations.

There were no such impairments for the three and nine months ended September 30, 2023.

SHAREHOLDERS’ EQUITY

As of June 30, 2023 and December 31, 2022, the Company’s share capital consists of one class of issued and outstanding shares:

As of September 30, 2023 and December 31, 2022, the Company’s share capital consists of one class of issued and outstanding shares:

common shares.

2 unchanged sentences

Common Shares

As of June 30, 2023 and December 31, 2022, the Company was authorized to issue an unlimited number of common shares, which have no par value.

INCOME (LOSS) PER SHARE

The Company computes income (loss) per share of common shares.

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding.

Diluted income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common shares together with the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been issued, unless anti-dilutive.

As of September 30, 2023 and December 31, 2022, the Company was authorized to issue an unlimited number of common shares, which have no par value.

LOSS PER SHARE

The Company computes loss per share of common shares.

Basic net loss per common share is computed by dividing the net loss by the weighted-average number of common shares outstanding.

Diluted loss per common share is computed by dividing the net loss by the weighted-average number of common shares together with the number of additional common shares that would have been outstanding if all potentially dilutive common shares had been issued, unless anti-dilutive.

CHARLOTTE’S WEB HOLDINGS, INC.

1 unchanged sentence

( In thousands, except share, per share, per unit, and number of years)

The following table sets forth the computation of basic and dilutive net income (loss) per share attributable to common shareholders:

Three Months Ended June 30,

Six Months Ended June 30,

The following table sets forth the computation of basic and dilutive net loss per share attributable to common shareholders:

Three Months Ended September 30,

Nine Months Ended September 30,

2023 2022 2023 2022

Net income (loss) $ 2,844 $ ( 7,870 ) $ ( 67 ) $ ( 16,496 )

Net loss $ ( 15,143 ) $ ( 7,588 ) $ ( 15,211 ) $ ( 24,084 )

Weighted-average number of common shares - basic 153,094,229 145,334,992 152,632,806 145,203,515

2 unchanged sentences

153,094,229 145,334,992 152,632,806 145,203,515

Income (loss) per common share – basic $ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

Income (loss) per common share – diluted $ 0.02 $ ( 0.05 ) $ — $ ( 0.11 )

As of June 30, 2023 and 2022, potentially dilutive securities include stock options, restricted share units, and convertible debenture conversion.

The Company computes the effect of dilutive securities using the treasury stock method and average market prices during the period.

The number of shares issuable upon the exercise of share-based awards excluded from the calculation of diluted EPS because the effect of their inclusion would have been anti-dilutive totaled 9,411,551 for the three months ended June 30, 2023.

Loss per common share – basic $ ( 0.10 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.17 )

Loss per common share – diluted $ ( 0.10 ) $ ( 0.05 ) $ ( 0.10 ) $ ( 0.17 )

As of September 30, 2023 and 2022, potentially dilutive securities include stock options, restricted share units, common share warrants, and convertible debenture conversion.

When the Company recognizes a net loss from continuing operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share.

The potentially dilutive awards outstanding for each period are presented in the table below:

September 30,

Outstanding options 6,535,407 4,625,261

Outstanding restricted share units 3,559,769 2,843,470

10,095,176 7,468,731

The Company's debenture is convertible into 19.9 % ownership of the Company’s common shares at a conversion price of C$ 2.00 per common share of the Company.

1 unchanged sentence

If the convertible debenture in diluted EPS is anti-dilutive, or if the conversion value of the debenture does not exceed their conversion price for a reporting period, then the shares underlying the notes will not be reflected in the Company’s calculation of diluted EPS.

For the three months ended June 30, 2023, the price of the Company’s Shares did not exceed the conversion price and therefore there was no impact to diluted EPS during those periods.

When the Company recognizes a net loss, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per share.

For the three and nine months ended September 30, 2023, the price of the Company’s shares did not exceed the conversion price and therefore there was no impact to potential common share diluted EPS during those periods.

On October 12, 2023, the Company granted 4.5 million restricted shares to William Morachnick, the new chief executive officer, as part of his employment agreement.

SHARE-BASED COMPENSATION

7 unchanged sentences

The fair values of options granted during the period were determined using a Black-Scholes model.

The following principal inputs were used in the valuation of awards issued for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

The following principal inputs were used in the valuation of awards issued for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

Expected volatility

5 unchanged sentences

$ 0.36 $ 0.43

Detail of the number of stock options outstanding for the six months ended June 30, 2023 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Detail of the number of stock options outstanding for the nine months ended September 30, 2023 under the Company's 2015 legacy option plan and the Company's amended 2018 long term incentive plan (collectively, the "Plans") is as follows:

Number of Options

6 unchanged sentences

( 1,170,291 ) 1.38

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

6,535,407 $ 0.81 8.76 $ 90,010

Exercisable/vested as of June 30, 2023

Exercisable/vested as of September 30, 2023

2,745,812 $ 1.17 7.49 $ —

The weighted average grant-date fair value of options granted during the six months ended June 30, 2023 and 2022 was $ 0.38 and $ 1.14 , respectively.

The weighted average share price at the date of exercise of options exercised during the six months ended June 30, 2023 and 2022 was $ 0 , respectively.

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $ 0.38 and $ 1.11 , respectively.

The weighted average share price at the date of exercise of options exercised during the nine months ended September 30, 2023 and 2022 was $ 0 , respectively.

Restricted share units

The Company has issued time-based restricted share units to certain employees as permitted under the 2018 Plan.

The Company has issued time-based restricted share units to certain employees as permitted under the Company's amended 2018 long term incentive plan (the "2018 Plan").

The restricted share units granted vest in accordance with the board-approved agreement, typically over equal installments up to four years .

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The fair value of each restricted share unit granted is equal to the market price of the Company’s shares at the date of the grant.

The fair value of shares vested during the six months ended June 30, 2023 and 2022 was $ 872 and $ 625 , respectively.

The fair value of shares vested during the nine months ended September 30, 2023 and 2022 was $ 1,150 and $ 881 , respectively.

CHARLOTTE’S WEB HOLDINGS, INC.

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( 526,266 ) $ 0.77

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

3,559,769 $ 0.39

Share-based Compensation Expense

Share-based compensation expense for all equity arrangements for the three months ended June 30, 2023 and 2022 was $ 624 and $ 643 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

Share-based compensation expense for all equity arrangements for the six months ended June 30, 2023 and 2022 was $ 999 and $ 2,022 , respectively, included in selling, general and administrative expense in the condensed consolidated statements of operations.

As of June 30, 2023, $ 4,074 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.49 years.

The Company’s effective tax rate in the three and six months ended June 30, 2023 and 2022 was 0 %.

Share-based compensation expense for all equity arrangements for the three months ended September 30, 2023 and 2022 was $ 647 and $ 664 , respectively, included in Selling, general and administrative expense in the condensed consolidated statements of operations.

Share-based compensation expense for all equity arrangements for the nine months ended September 30, 2023 and 2022 was $ 1,646 and $ 2,686 , respectively, included in Selling, general and administrative expense in the condensed consolidated statements of operations.

As of September 30, 2023, $ 3,347 of total unrecognized share-based compensation expense related to unvested options and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 2.70 years.

The Company’s effective tax rate in the three and nine months ended September 30, 2023 and 2022 was 0 %.

The Company’s effective tax rates differ from the U.S.

federal statutory rate of 21.0% for the three and six months end June 30, 2023 and 2022 , respectively, primarily due to the valuation allowance.

The effective tax rate for the three and six months ended June 30, 2023 is consistent with the three and six months ended June 30, 2022 , as the Company has been in a full valuation allowance for both periods.

federal statutory rate of 21.0% for the three and nine months end September 30, 2023 and 2022 , respectively, primarily due to the valuation allowance.

The effective tax rate for the three and nine months ended September 30, 2023 is consistent with the three and nine months ended September 30, 2022 , as the Company has been in a full valuation allowance for both periods.

As of December 31, 2022, the Company qualified for federal government assistance through employee retention credit ("ERC") provisions of the Consolidated Appropriations Act of 2021.

Management recorded the ERC benefit of $ 4,106 for the year ended December 31, 2022 as an offset to Selling, general and administrative expense.

During the three months ending June 30, 2023, the company received $ 4,261 , which includes $ 155 of interest income, related to the ERC.

During the nine months ending September 30, 2023, the company received $ 4,261 , which includes $ 155 of interest income, related to the ERC.

RELATED PARTY TRANSACTIONS

Effective November 2020, the Company entered into a secured promissory note, where $ 1,000 was loaned to one of the founders.

The note receivable was secured by equity instruments with certain founders of the Company, and bore interest at 3.25 % per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021.

Effective November 2020, the Company issued a secured promissory note, where $ 1,000 was loaned to one of the Company's founders.

The note receivable was secured by equity instruments held by certain founders of the Company, bore interest at 3.25 % per annum, and required the unpaid principal and unpaid interest balances to be paid on or before the maturity date of November 13, 2021.

On March 22, 2022, the founders requested an extension of the maturity date, as allowed under the terms of the promissory note, resulting in an extension of the maturity date to November 13, 2023.

According to the terms of the agreement, no additional interest will accrue through the payment date.

As of June 30, 2022 , the note receivable of $ 1,037 consisted of principal and interest.

As of September 30, 2022 , the note receivable of $ 1,037 consisted of principal and interest.

As of December 31, 2022 , the Company established a reserve against the note receivable due to decline in collateral and risk associated with collectability and therefore, expensed the outstanding balance of $ 1,037 .

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On March 2, 2021, the Company entered into the SBH Purchase Option with Stanley Brothers USA as discussed above (Note 3).

The SBH Purchase Option was purchased for a total consideration of $ 8,000 .

The SBH Purchase Option was purchased for total consideration of $ 8,000 .

Certain founders of the Company, who are or were employees at the time, are the majority shareholders of Stanley Brothers USA.

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The Company and AJNA each hold 400,000 of the entity’s voting common units (Note 3).

Effective May 1, 2023, the Company entered into an 8 % interest bearing note receivable with DeFloria for the bill of sale of lab equipment in the amount of $ 170 .

Effective May 1, 2023, the Company entered into an 8 % interest bearing note receivable with DeFloria for the sale of lab equipment in the amount of $ 170 .

The principal and interest of the note receivable will be paid in 36 monthly installments.

As of June 30, 2023, the remaining note receivable of $ 156 is presented in other assets in the condensed consolidated balance sheets.

As of September 30, 2023, the remaining note receivable of $ 142 is presented in other assets in the condensed consolidated balance sheets.

Pursuant to an amendment to the Name and Likeness and License Agreement between the Company and Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, the agreement was extended to December 31, 2023.

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Upon execution of the consulting agreement, the Company paid $ 2,081 to Leeland & Sig LLC d/b/a Stanley Brothers Brand Company, on behalf of the Stanley Brothers, as consideration for the consulting services to be provided to the Company over the term of the agreement and certain restrictive covenants.

For the three and six months ended June 30, 2022, the Company recognized $ 454 and $ 875 , respectively, of sales and marketing expenses in the condensed consolidated statements of operations related to these agreements.

For the three and nine months ended September 30, 2022, the Company recognized $ 150 and $ 1,025 , respectively in sales and marketing expenses in the condensed consolidated statements of operations and net loss related to this agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements