What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-15 · 159 added, 124 removed, 234 unchanged (55% of the section changed)

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes of Greenlane Holdings, Inc.

and its consolidated subsidiaries (“Greenlane” and, collectively with the Operating Company and its consolidated subsidiaries, the “Company”, "we", "us" and "our") for the quarterly period ended June 30, 2022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes of Greenlane Holdings, Inc.

and its consolidated subsidiaries (“Greenlane” and, collectively with the Operating Company and its consolidated subsidiaries, the “Company”, "we", "us" and "our") for the quarterly period ended September 30, 2022 included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and related notes of Greenlane Holdings, Inc.

for the year ended December 31, 2021, which are included in our Annual Report on Form 10-K.

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Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") and in other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").

Factors that might cause such a difference include those discussed in our filings with the SEC, under the heading "Risk Factors" in our Annual Report on Form 10-K for

the fiscal year ended December 31, 2021 (the "2021 Annual Report") and in other documents that we file from time to time with the Securities and Exchange Commission (the "SEC").

Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements.

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• general economic trends and trends in the industry and markets in which we operate;

• our limited liquidity and our ability to successfully execute our strategic initiatives to improve our liquidity position;

• public heath crises, including the COVID-19 pandemic;

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Our Greenlane Brands are comprised of child-resistant packaging innovator Pollen Gear;

VIBES rolling papers;

the Marley Natural accessory line;

Haring Glass Collection accessory line;

Aerospaced & Groove grinders;

Aerospaced grinders;

Cookies lifestyle line;

and Higher Standards, which is both an upscale product line and an innovative retail experience with flagship stores at New York City’s famed Chelsea Market and the iconic Malibu Village in California.

and Higher Standards, which is both an upscale product line and an innovative retail experience with a flagship store in New York City’s famed Chelsea Market.

During 2021, we have taken significant strides to grow our brand portfolio including with the March acquisition of substantially all of the assets of Eyce LLC and more recently, the November acquisition of substantially all of the assets of Organicix LLC dba DaVinci Tech.

Furthermore, as a pioneer in the ancillary cannabis space, Greenlane is the partner of choice for many of the industry's leading MSOs, LPs, and brands, including PAX Labs, Grenco Science, Storz & Bickel, Firefly, Santa Cruz Shredder, Cookies, and CCELL.

We also completed development of our newest product line, Groove, an expansive collection of reliable ancillary cannabis products officially launched in October of this year.

At a more affordable price point, we are excited to attract a broader customer range with options for consumers of all budgets.

Furthermore, as a pioneer in the ancillary cannabis space, Greenlane is the partner of choice for many of the industry's leading MSOs, LPs, and brands, including Storz & Bickel, Firefly, Santa Cruz Shredder, Cookies, and CCELL.

We merchandise vaporizers, packaging, and other products in the United States, Canada, and Europe and we distribute to retailers through wholesale operations and to consumers through e-commerce activities and our retail stores.

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The number of shares available to be awarded under the Equity Plan have also been appropriately adjusted.

On March 10, 2022, the Company announced via press release its 2022 Plan to reduced its cost structure, increase liquidity, and accelerate its path to profitability.

The 2022 Plan includes a recently completed reduction in force, reduction of its worldwide facility footprint, rationalization of its product offering, including the discontinuation of certain lower-margin third-party brands, disposition of non-core assets, a sale leaseback of the Company's headquarter building, increase of prices on select products, and the securing of an asset based loan to support working capital needs (with respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”).

On March 10, 2022, we announced our strategic plan (the “2022 Plan”) to reduce our cost structure, increase liquidity and accelerate our path to profitability.

The 2022 Plan includes a recently completed reduction in force, reduction of facility footprints worldwide, a sale leaseback of our headquarters building, disposition of non-core assets, discontinuation of lower-margin third-party brands, increase of prices on select products and securing an asset-based loan that will support our working capital needs (with respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”).

On June 22, 2022, we provided an update on the Liquidity Initiatives, which our management believes can generate more than $30.0 million of liquidity on a non-dilutive basis by the end of 2022 if all measures are successful.

On August 9, 2022, we entered into an asset-based loan agreement which makes available to the Company a term loan of up to $15.0 million.

Additionally, we are in the process of selling non-core assets, which if sold together with our headquarters building listed for sale in May 2022 at the sales price anticipated by our management, is expected to generate an additional $10.0 million of liquidity.

Finally, we are working to sell our excess & obsolete (“E&O”) inventory of lower-margin, non-strategic products,

along with reducing our overall level of inventory on hand.

On July 19, 2022, Warehouse Goods entered into that certain Membership Interest Purchase Agreement and supporting documents to sell our 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash.

Additionally, on August 9, 2022, we entered into an asset-based loan pursuant to that certain Loan and Security Agreement, dated as of August 8, 2022 (the “Loan Agreement”), by and among the Company, certain subsidiaries of the Company as guarantors, the parties thereto from time to time as lenders (the “Lenders”), and WhiteHawk Capital Partners LP, as the agent for the Lenders.

As described in the Loan Agreement, the Lenders agreed to make available to us a term loan of up to $15.0 million on the terms and conditions set forth therein and the other Financing Agreements (as defined therein).

Subsequently, on August 16, 2022, 1095 Broken Sound Pwky entered into a Purchase and Sale Agreement with a third-party whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including our headquarters building in Boca Raton, Florida for total consideration of $9.95 million, and on September 22, 2022 we closed on the sale.

We expect to remain in our current headquarters space at 1095 Broken Sound Parkway, Suite 300 in Boca Raton, Florida through the end of November 2022, at which point we will transition our headquarters to Suite 100.

Finally, we are working to sell our excess & obsolete (“E&O”) inventory of lower-margin, non-strategic products, along with reducing our overall level of inventory on hand.

In May 2022, we commenced our official E&O sales program internally and have since sold more than $2.7 million of previously reserved E&O inventory.

Our management anticipates that the proceeds from these E&O sales, combined with a general sell-down of other non-core third-party brand inventory, will generate more than $10.0 million in liquidity.

We can provide no assurances that our expectations with respect to the Liquidity Initiatives will come to fruition on the expected timeline, in the expected amounts or at all.

Management believes that the 2022 Plan will significantly reduce costs, help accelerate the Company's path to profitability, support the growth of the business in a non-dilutive manner, and allow the Company to reinvest capital into its highest margin and highest growth potential product lines, such as its Greenlane Brands.

Notwithstanding the 2022 Plan, we were required to obtain additional capital through the sale of common stock and warrants in a public offering that closed in October 2022.

See Note 9 — October 2022 Offering.

This offering was completed in order to meet short term funding needs, and we are still seeking to execute our 2022 Plan and other liquidity initiatives.

Discontinuation of Nicotine Sales and Increased Focus on Greenlane Brands

Over the course of 2021, we reduced our reliance on lower-margin third-party nicotine brands and increased our focus on our Greenlane Brands, as part of our strategy to scale our portfolio of proprietary brands to build the leading house of brands in the ancillary cannabis industry.

As evidence of this, sales from nicotine products decreased to $0 of total net sales for the six months ended June 30, 2022 from $2.0 million, or 2.9% of total net sales for the same period in 2021.

As evidence of this, sales from nicotine products decreased to $0 of total net sales for the nine months ended September 30, 2022 from $0.1 million, or 0.3% of total net sales for the same period in 2021.

In December 2019, a novel strain of coronavirus known as COVID-19 was reported in Wuhan, China.

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Results of Operations

The following table presents operating results for the three and six months ended June 30, 2022 and 2021:

The following table presents operating results for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

% of Net sales Change % of Net sales Change

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General and administrative 8,547 16,795 29.8 % 40.7 % (8,248) (49.1) % 30,850 34,774 26.8 % 31.6 % (3,924) (11.3) %

Goodwill and indefinite-lived intangibles impairment charge 66,760 — 232.8 % — % 66,760 66,760 — 58.0 % — % 66,760 — %

Depreciation and amortization 2,124 1,199 7.4 % 2.9 % 925 77.1 % 6,876 2,385 6.0 % 2.2 % 4,491 188.3 %

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Consolidated Results of Operations

For the three months ended June 30, 2022, net sales were approximately $39.9 million, compared to approximately $34.7 million for the same period in 2021, representing an increase of $5.2 million, or 15.0%.

The increase was primarily due to the merger with KushCo in August 2021, which contributed $24.0 million in net sales in 2022.

Excluding KushCo's post-merger sales, net sales declined 54.2% to $15.9 million for the three months ended June 30, 2022 compared to $34.7 million for the same period in 2021.

For the three months ended September 30, 2022, net sales were approximately $28.7 million, compared to approximately $41.3 million for the same period in 2021, representing a decrease of $12.6 million, or 30.6%.

The decrease was partially offset by the merger with KushCo in August 2021, which contributed $20.1 million in net sales in 2022 compared to $12.6 million for prior year, which only included September 2021 activity.

Excluding KushCo's post-merger sales, net sales decreased 70.2% to $8.6 million for the three months ended September 30, 2022 compared to $28.7 million for the same period in 2021.

Third-party consumer brand sales decreased $14.3 million compared to the same period in 2021 due to our strategy to focus on proprietary brands and business strategy to move away from lower margin third-party consumer brand sales.

Sales of Greenlane Brands decreased $4.3 million, or 45.7%, to $5.1 million for the three months ended June 30, 2022 from $9.5 million for the same period in 2021, driven largely by a decrease in Vibes and Pollen Gear sales.

For the six months ended June 30, 2022, net sales were approximately $86.5 million, compared to approximately $68.7 million for the same period in 2021, representing an increase of $17.7 million or 25.8%.

The increase was primarily due to the merger with KushCo in August 2021, which contributed $53.4 million in net sales in 2022.

Excluding KushCo's post-merger sales, net sales declined 50.5% to $34.0 million for the six months ended June 30, 2022 compared to $68.7 million for the same period in 2021.

The decrease is related to consumer goods sales for Greenlane Brands and third-party brands decreasing as a whole.

Sales of Greenlane Brands decreased $3.6 million, or 54.7%, to $3.0 million for the three months ended September 30, 2022 from $6.6 million for the same period in 2021, driven largely by a decrease in Vibes due to the sale of Greenlane's interest in the business, a decrease in Eyce and Aerospaced sales, partially offset by an increase in DaVinci.

For the nine months ended September 30, 2022, net sales were approximately $115.1 million, compared to approximately $110.0 million for the same period in 2021, representing an increase of $5.1 million or 4.6%.

The increase was primarily due to the merger with KushCo in August 2021, which contributed $73.5 million in net sales in 2022 versus $12.6 million for prior year, which only included September 2021 activity..

Excluding KushCo's post-merger sales, net sales declined 51% to $41.6 million for the nine months ended September 30, 2022 compared to $85.2 million for the same period in 2021.

The decrease year over year is related to Industrial Pollen Gear $5.4 million and consumer goods sales for Greenlane Brands $7.6 million and third-party brands decreasing $27.9 million as a whole.

The Company is in process of implementing a business strategy to move away from lower margin third-party consumer brand sales and focus on Greenlane Brands with higher margins.

Sales were adversely impacted by ERP implementation efforts and the introduction of new CRM and B2B systems during the first half of the year.

Revenue was negatively impacted by Greenlane's selling it's interest in the Vibes business during the current quarter.

Sales were adversely impacted by ERP implementation efforts and the introduction of new CRM and B2B systems.

Cost of Sales and Gross Margin

For the three months ended June 30, 2022, cost of sales increased by $6.2 million, or 24.0%, as compared to the same period in 2021.

The increase in cost of sales was attributable to incremental KushCo post-merger sales of $24.0 million, offset partially by a decrease in revenue of 54.2% excluding the impact of the KushCo merger.

Gross margin decreased to 20.3% for the three months ended June 30, 2022, compared to gross margin of 26.1% for the same period in 2021.

Excluding write-offs of damaged and obsolete inventory for the three months ended June 30, 2022 and three months ended June 30, 2021 of $1.4 million and $0.2 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 2.7% to 23.9% for the three months ended June 30, 2022, compared to 26.6% for the same period in 2021.

The decrease in margin is related to the addition of lower margin KushCo-related brands with sales of $24.0 million, and a 45.7% decrease in Greenlane Brands sales, which carry a higher margin profile.

For the six months ended June 30, 2022 cost of sales increase by $21.3 million, or 41.6%, as compared to the same period in 2021.

The increase in cost of sales attributable to post-merger KushCo revenues was $45.6 million, offset partially by a decrease associated with a revenue reduction of 52.8% excluding the impact of the KushCo merger.

Gross margin decreased to 16.3% for the six months ended June 30, 2022, compared to gross margin of 25.6% for the same period in 2021.

Excluding inventory write-offs of damaged and obsolete inventory for the six months ended June 30, 2022 and the six months ended June 30, 2021 of $6.8 million and $1.2 million respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 3.2% to 24.2% for the six months ended June 30,2022, compared to 27.4% for the same period in 2021.

The decrease in margin is related to an increase in lower margin KushCo party brand sales with lower margin profile.

For the three months ended September 30, 2022, cost of sales decreased by $16.1 million, or 40.5%, as compared to the same period in 2021.

The decrease in cost of sales was attributable to a decrease in revenue.

Gross margin increased to 17.3% for the three months ended September 30, 2022, compared to gross margin of 3.6% for the same period in 2021.

Excluding write-offs of damaged and obsolete inventory for the three months ended September 30, 2022 and 2021 of $1.0 million and $7.6 million, respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the three months ended September 30, 2022, compared to 22.0% for the same period in 2021.

The increase in margin is related to a 71.9% decline in third-party brand sales, which carry a lower margin profile.

For the nine months ended September 30, 2022 cost of sales increased by $5.2 million, or 5.7%, as compared to the same period in 2021.

The increase is related to the increase in sales year over year of 4.6%.

Gross margin decreased to 16.5% for the nine months ended September 30, 2022, compared to gross margin of 17.4% for the same period in 2021.

Excluding inventory write-offs of damaged and obsolete inventory for the nine months ended September 30, 2022 and 2021, respectively, of $7.8 million and $7.6 million respectively, associated with post-merger and ongoing product rationalization initiatives, gross margins decreased 1.1% to 20.8% for the nine months ended September 30, 2022, compared to 22.0% for the same period in 2021.

Excluding damaged and obsolete negative impact margins remained relatively flat year over year.

Salaries, Benefits and Payroll Taxes

Salaries, benefits and payroll taxes expenses increased by approximately $3.2 million, or 57.9%, to $8.8 million for the three months ended June 30, 2022, compared to $5.6 million for the same period in 2021, primarily due to an increase related to the KushCo merger and an increase in severance of $0.8 million driven by the cost saving strategies that began in the prior quarter.

Salaries, benefits and payroll taxes expenses increased by approximately $6.9 million or 57.9% , to $18.9 million for the six months, compared to $12.0 million for the same period in 2021, primarily due to an increase related to the KushCo merger and an increase in severance of $1.7 million driven by the cost saving strategies that began in the prior quarter.

Salaries, benefits and payroll taxes expenses decreased by approximately $4.2 million, or 37.5%, to $7.0 million for the three months ended September 30, 2022, compared to $11.2 million for the same period in 2021, primarily due to a decrease in stock compensation of $3.4 million related to the acceleration of vesting options due to the KushCo merger.

Salaries, benefits and payroll taxes expenses increased by approximately $2.7 million or 11.8% , to $25.9 million for the the nine months ended September 30, 2022, compared to $23.2 million for the same period in 2021, primarily due to an increase related to the KushCo merger, partially offset by a $2.7 million decrease in stock compensation.

As we continue to closely monitor the evolving business landscape, including the impacts of COVID-19 and the regulatory and macro environment on our customers, vendors, and overall business performance, we remain committed to right-sizing our organization and introducing digital solutions while delivering on our strategy to recruit, train, promote and retain the most talented and success-driven personnel in the industry.

General and Administrative Expenses

General and administrative expenses increased by approximately $2.2 million, or 26.1%, for the three months ended June 30, 2022, compared to the same period in 2021.

This increase was primarily due to an increase of approximately $0.7 million in bad debt expense and an increase of $1.1 million related to a previous gain due to indemnification asset recovery related to VAT liability in 2021.

General and administrative expenses increased by approximately $4.3 million or 24.1%, for the six months, compared to the same period in 2021.

This increase was primarily due to an increase of approximately $1.3 million outbound freight cost due to the increase in sales, $1.0 million insurance expense, $0.6 million increase in bad debt expense with the majority related to a gain due to indemnification asset recovery related to VAT liability, $0.5 million of software expense cost associated to the ERP implementation and $0.7 million reduction to expense related to one-time write off adjustments recorded to prior year.

General and administrative expenses decreased by approximately $8.2 million, or 49.1%, for the three months ended September 30, 2022, compared to the same period in 2021.

This decrease was primarily due to an decrease of approximately $5.0 million in marketing expense, $1.3 million in professional fees and $1.8 million in prepaid inventory write-off for the prior year.

Also contributing to the decrease was the gain on the sale of the Vibes business interest $2.1 million, Boca Florida real estate sale $0.8M offset by an increase in bad debt expense of $0.8 million year over year and fixed asset sale loss of $0.7 million.

General and administrative expenses decreased by approximately $3.9 million or 11.3%, for the nine months ended September 30, 2022, compared to the same period in 2021.

This decrease was primarily due to a $3.5 million reduction in professional fees related to the KushCo merger.

Additionally, merchant fees decreased $1.3 million due to a decline in consumer revenue, insurance decreased $1.3 million due to a one-time D&O insurance payment related to the KushCo merger in the prior year, marketing expenses decreased $0.6 million, and restructuring expenses decreased $0.6 million.

These declines were partially offset by a $2.2 million increase in bad debt, $1.9 million increase in facilities, and $0.8 million increase in outbound shipping driven by the KushCo merger.

Also contributing to the decrease was the gain on the sale of the Vibes business interest of $2.1 million, and then Boca Raton, Florida real estate sale of $0.8M offset by a loss of $0.7 million related to a fixed asset sale.

Goodwill and Indefinite-Lived Intangibles Impairment Charge

We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the three months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021.

This impairment charge was due to declining business and declining enterprise value.

We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million during the nine months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2021.

This impairment charge was due to declining business and declining enterprise value.

Depreciation and Amortization Expense

Depreciation and amortization expense increased $1.7 million, or 265.9%, for the three months ended June 30, 2022, compared to the same period in 2021.

The increase is primarily related to the additional depreciation and amortization expense related to assets acquired in conjunction with the KushCo merger, as well as the Eyce and DaVinci business acquisitions.

Depreciation and amortization expense increased $3.6 million, or 300.7%, for the six months ended June 30, 2022, compared to the same period in 2021.

Depreciation and amortization expense increased $0.9 million, or 77.1%, for the nine months ended September 30, 2022, compared to the same period in 2021.

The increase is primarily related to the additional depreciation and amortization expense related to assets acquired in conjunction with the KushCo merger, the Eyce and DaVinci business acquisitions, and the ERP implementation.

Depreciation and amortization expense increased $4.5 million, or 188.3%, for the nine months ended September 30, 2022, compared to the same period in 2021.

Other Income (Expense), Net

Interest expense.

Interest expense increased approximately $0.1 million during the three months ended June 30, 2022.

The increase is primarily related to promissory notes for the Eyce and DaVinci acquisition and Bridge loan.

Interest expense increased approximately $0.9 million during the six months ended June 30, 2022.

The increase is primarily related to promissory notes for the Eyce and DaVinci acquisition and Bridge loan.

Interest expense increased approximately $0.8 million during the three months ended September 30, 2022.

The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition.

Interest expense decreased approximately $1.2 million during the nine months ended September 30, 2022.

The increase is primarily related to the new ABL facility and promissory notes for the Eyce and DaVinci acquisition.

Other expense, net.

Other income (expense), net, expense increased by approximately $0.4 million for the three months ended June 30, 2022, compared to the same period in 2021.

The change is primarily due to a loss related to the change in fair value of equity investments of $0.3 million.

Other income (expense), net, expense increased by approximately $0.8 million for the six months ended June 30, 2022, compared to the same period in 2021.

The change is primarily due to a loss related to the change in fair value of equity investments of $0.9 million.

Other income (expense), net, expense increased by approximately $2.1 million million for the three months ended September 30, 2022, compared to the same period in 2021.

The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition.

Other income (expense), net, expense increased by approximately $1.3 million for the nine months ended September 30, 2022, compared to the same period in 2021.

The change is primarily due to a gain related to the change in fair value of contingent consideration of $1.0 million related to the DaVinci acquisition.

Provision for (Benefit from) Income Taxes

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federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income.

For the three and six months ended June 30, 2022 and 2021, respectively, the effective tax rate differed from the U.S.

For the three and nine months ended September 30, 2022 and 2021, respectively, the effective tax rate differed from the U.S.

federal statutory tax rate of 21% primarily due to the Operating Company's pass-through structure for U.S.

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Based on this assessment, we determined we had the following two operating segments beginning with the fourth quarter of 2021, which are the same as our reportable segments:

(1) Consumer Goods, which largely comprises Greenlane's legacy operations across the United States, Canada, and Europe, and (2) Industrial Goods, which largely comprises KushCo's legacy operations.

(1) Consumer Goods, which largely comprises Greenlane's legacy operations across the United States, Canada, and Europe, and (2) Industrial Goods, which largely

comprises KushCo's legacy operations.

These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021.

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Our CODM allocates resources to and assesses the performance of our two operating segments based on the operating segments' net sales and gross profit.

The following table sets forth information by reportable segment for the three and six months ended June 30, 2022 and 2021, respectively:

The following table sets forth information by reportable segment for the three and nine months ended September 30, 2022 and 2021, respectively:

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

% of Total Net sales Change % of Total Net sales Change

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Consumer Goods

For the three months ended June 30, 2022, our Consumer Goods operating segment reported net sales of approximately $15.9 million compared to approximately $30.0 million for the same period in 2021, representing a decrease of $14.1 million or 46.9%.

The year-over-year decrease represented a $4.3 million or 45.7% decrease in Greenlane Brands sales and a $13.6 million or 53.9% decrease in consumer third-party brand sales due to our strategy to focus on proprietary brands with higher margins and a $4.3 million or 45.7% decrease in Greenlane Brands sales.

For the six months ended June 30, 2022 our Consumer Goods operating segment reported net sales of approximately $33.1 million compared to approximately $60.5 million for the same period in 2021, representing a decrease of $27.5 million or 45.4%.

For the three months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $8.6 million compared to approximately $24.7 million for the same period in 2021, representing a decrease of $16.2 million or 65.4%.

The year-over-year decrease represented a $5.6 million or 63.2% decrease in Greenlane Brands sales and a $14.3 million or 71.9% decrease in consumer third-party brand sales due to our strategy to focus on proprietary brands with higher margins.

The company has also sold Greenlane's interest in the Vibes business impacting sales negatively.

For the nine months ended September 30, 2022, our Consumer Goods operating segment reported net sales of approximately $41.6 million compared to approximately $85.2 million for the same period in 2021, representing a decrease of $43.6 million or 51.2%.

The year-over-year decrease is driven by a decrease in third-party and Greenlane brand sales.

For the three months ended June 30, 2022, cost of sales decreased by $9.8 million, or 24.0%, as compared to the same period in 2021.

The decrease in cost of sales was primarily due to the $19.3 aforementioned sales decrease of 46.9%.

For the six months ended June 30, 2022 cost of sales decreased by $19.4 million or 41.6% , as compared to the same period in 2021.

The company has also sold Greenlane's interest in the Vibes business impacting sales negatively.

For the three months ended September 30, 2022, cost of sales decreased by $15.3 million, or 65.8%, as compared to the same period in 2021.

The decrease in cost of sales was primarily due to the $16.2 million aforementioned sales decrease of 65.4%.

For the nine months ended September 30, 2022, cost of sales decreased by $33.7 million or 49.0% , as compared to the same period in 2021.

The decrease in cost of sales was primarily due to a $43.6 million or 51.2% decrease in sales compared to the same period in 2021.

Gross margin decreased to 19.3% for the three months ended June 30, 2022, compared to gross margin of approximately 21% for the same period in 2021.

The decrease is related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives.

Gross margin decrease to 17.6% for the six months ended June 30, 2022, compared to gross margin of approximately 23% for the same period in 2021.

Gross margin increased 1.2% to 7.3% for the three months ended September 30, 2022, compared to gross margin of approximately 6.1% for the same period in 2021.

The low margins in both years are related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives.

Excluding these D&O charges of $0.8 million, gross margin was approximately 17.0% for the three months ended September 30, 2022, compared to gross margin of approximately 23.5% for the same period in 2021 which incurred $4.3 million of D&O write-offs.

Gross margin decreased 3.7% to 15.6% for the nine months ended September 30, 2022, compared to gross margin of approximately 19.3% for the same period in 2021.

The decrease is related to excess and obsolete inventory charges associated with inventory and product rationalization initiatives.

Excluding these D&O charges of $3.4 million, gross margin was approximately 23.7% for the nine months ended September 30, 2022, compared to gross margin of approximately 25.8% for the same period in 2021 which incurred $5.5 million of D&O write-offs.

Industrial Goods

For the three months ended June 30, 2022, our Industrial Goods operating segment reported net sales of approximately $29.4 million compared to approximately $3.5 million for the same period in 2021, representing an increase of $19.3 million or 405.3%.

For the three months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $20.1 million compared to approximately $16.6 million for the same period in 2021, representing an increase of $3.5 million or 21.2%.

The increase is directly related to net sales resulting from our merger with KushCo in August 2021.

For the six months ended June 30, 2022, our Industrial Goods operating segment reported net sales of approximately $53.4 million compared to approximately $8.2 million for the same period in 2021, representing an increase of $45.2 million or 550%.

For the nine months ended September 30, 2022, our Industrial Goods operating segment reported net sales of approximately $73.5 million compared to approximately $24.8 million for the same period in 2021, representing an increase of $48.7 million or 196.4%.

The increase is directly related to the net sales resulting from our merger with KushCo in August 2021.

For the three months ended June 30, 2022, cost of sales increased by $15.9 million, or 523.4%, as compared to the same period in 202, due to the increase in sales.

For the six months ended June 30, 2022 cost of sales increased by $39.7 million or 713%, as compared to the same period in 2021, due to the increase in sales year-over-year.

Gross margin was approximately 21.0% for the three months ended June 30, 2022, compared to gross margin of approximately 35.9% for the same period in 2021, representing a 41.6% year over year decrease.

Excluding post-merger strategic product rationalization initiative charges of $0.9 million, gross margin was approximately 24.5% for the three months ended June 30, 2022, compared to gross margin of approximately 36.0% for the same period in 2021.

The year over year decrease in gross margin of approximately 11.5% is related to the sale of lower-margin KushCo related products.

Gross margin was approximately 15.3% million for the six months ended June 30, 2022, compared to gross margin of approximately 32.3% for the same period in 2021, representing a 53% year-over-year decrease.

Excluding post-merger strategic product rationalization initiative charges of $4.3 million, gross margin was approximately 23.4% for the six months ended June 30, 2022, compared to gross margin of approximately 32.3% for the same period in 2021.

The year-over-year decrease in gross margin of approximately 8.9% is related to the sale of lower-margin KushCo related products.

For the three months ended September 30, 2022, cost of sales decreased by $0.8 million, or 5.1%, as compared to the same period in 2021, due to the increase in sales.

For the nine months ended September 30, 2022, cost of sales increased by $38.8 million or 175.0%, as compared to the same period in 2021, due to the increase in sales year-over-year.

Gross margin was approximately 21.6% for the three months ended September 30, 2022, compared to gross margin of approximately (0.1)% for the same period in 2021, representing a 15017.7% year-over-year increase.

Excluding post-merger strategic product rationalization initiative charges of $0.2 million, gross margin was approximately 22.4% for the three months ended September 30, 2022, compared to gross margin of approximately 17.8% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million.

The year over year increase in gross margin of approximately 4.6% is related to the sale of higher-margin KushCo related products.

Gross margin was approximately 17.0% million for the nine months ended September 30, 2022, compared to gross margin of approximately 10.6% for the same period in 2021, representing a 60.7% year-over-year increase.

Excluding post-merger strategic product rationalization initiative charges of $4.7 million, gross margin was approximately 23.4% for the nine months ended September 30, 2022, compared to gross margin of approximately 22.6% for the same period in 2021 excluding post-merger strategic product rationalization charge of $3.0 million.

The year-over-year increase in gross margin of approximately 0.8% is related to the sale of higher-margin KushCo related products.

Net Sales by Geographic Regions

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

% of Net sales Change % of Net sales Change

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United States

For the three months ended June 30, 2022, our United States net sales were approximately $37.6 million, compared to approximately $30.7 million for the same period in 2021, representing an increase of $6.9 million, or 22.5%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed $23.6 million in total net sales.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $16.7 million, or 54.5%, to approximately $14.0 million for the three months ended June 30, 2022, compared to the same period in 2021.

The year-over-year decrease was principally due to a decrease in wholesale revenue of $8.3 million, and a decrease in consumer retail and marketplace revenue of $3.9 million.

For the six months ended June 30, 2022, out United States net sales were approximately $80.6 million, compared to approximately $59.4 million for the same period in 2021, representing an increase of $21.2 million, or 35.8%.

For the three months ended September 30, 2022, our United States net sales were approximately $25.8 million, compared to approximately $37.5 million for the same period in 2021, representing a decrease of $11.7 million, or 31.2%.

The year-over-year decrease was primarily reduced by the impact of the KushCo merger, which contributed $20.1 million in total net sales.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $20.1 million, or 70.2%, to approximately $8.6 million for the three months ended September 30, 2022, compared to the same period in 2021.

over-year decrease was principally due to a decrease in wholesale revenue of $10.0 million, and a decrease in consumer retail and marketplace revenue of $4.2 million.

For the nine months ended September 30, 2022, our United States net sales were approximately $106.4 million, compared to approximately $96.9 million for the same period in 2021, representing an increase of $9.5 million, or 9.9%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed $70.9 million in total net sales.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $30.9 million, or 52%, to approximately $21.2 million for the six months ended June 30, 2022, compared to the same period in 2021.

The decrease was driven by a decrease in wholesale revenue and consumer e-commerce business.

For the three months ended June 30, 2022, our Canadian net sales were approximately $0.9 million, compared to approximately $1.4 million for the same period in 2021, representing a decrease of $0.5 million, or 38.1%.

The year-over-year decrease was primarily due to a $0.5 million decrease in wholesale revenue.

This was partially offset by $0.4 million in net sales contributed by KushCo.

For the six months ended June 30, 2022, our Canadian net sales were approximately $2.7 million, compared to approximately $4.0 million for the same period in 2021, representing a decrease of $1.2 million, or 31.3%.

Excluding net sales contributed by KushCo, total net sales decreased by approximately $37.5 million, or 106.6%, to approximately $35.1 million for the nine months ended September 30, 2022, compared to the same period in 2021.

The decrease was driven by a decrease in wholesale revenue and consumer marketplace and e-commerce business.

For the three months ended September 30, 2022, our Canadian net sales were approximately $1.5 million, compared to approximately $1.0 million for the same period in 2021, representing an increase of $0.6 million, or 57.1%.

The year-over-year increase was primarily due to the merger with KushCo, which contributed in total net sales.

This was partially offset by a $0.4 million decrease in consumer revenue.

For the nine months ended September 30, 2022, our Canadian net sales were approximately $4.3 million, compared to approximately $5.0 million for the same period in 2021, representing a decrease of $0.7 million, or 13.8%.

The year-over-year decrease was primarily due to a decrease in wholesale revenue offset by incremental sales contributed by KushCo.

For the three months ended June 30, 2022, our European net sales were approximately $1.4 million, compared to approximately $2.6 million for the same period in 2021, representing a decrease of $1.2 million or 44.8%.

This was primarily due to a $0.5 million, or (43.2)%, decrease in our B2B sales.

For the six months ended June 30, 2022, our European net sales were approximately $3.1 million, compared to approximately $5.4 million for the same period in 2021, representing a decrease of $2.3 million, or 42%.

For the three months ended September 30, 2022, our European net sales were approximately $1.3 million, compared to approximately $2.8 million for the same period in 2021, representing a decrease of $1.5 million or 52.8%.

This was primarily due to a $0.9 million, or 65.2%, decrease in our e-commerce sales.

For the nine months ended September 30, 2022, our European net sales were approximately $4.5 million, compared to approximately $8.2 million for the same period in 2021, representing a decrease of $3.8 million, or 45.7%.

This was primarily due to a decrease in wholesale sales.

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Our primary requirements for liquidity and capital are working capital, debt service related to recent acquisitions and general corporate needs.

Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds from our ATM Program and other equity issuances such as our June 2022 Offering.

As of June 30, 2022, we had approximately $9.1 million of cash, of which $1.0 million was held in foreign bank accounts, and approximately $44.8 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $12.9 million of cash, of which $0.7 million was held in foreign bank accounts, and approximately $53.8 million of working capital as of December 31, 2021.

Our primary sources of liquidity are our cash on hand and the cash flow that we generate from our operations, as well as proceeds other equity issuances such as our June 2022 and August 2022 offerings.

As of September 30, 2022, 2022, we had approximately $8.0 million of cash, of which $1.0 million was held in foreign bank accounts, and approximately $39.4 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $12.9 million of cash, of which $0.7 million was held in foreign bank accounts, and approximately $53.8 million of working capital as of December 31, 2021.

The repatriation of cash balances from our foreign subsidiaries could have adverse tax impacts or be subject to capital controls;

however, these balances are generally available to fund the ordinary business operations of our foreign subsidiaries without legal or other restrictions.

In December 2021, we entered into a Secured Promissory Note (the “December 2021 Note”), which was subsequently amended on June 30, 2022 (the “First Amendment”), with Aaron LoCascio, the Company’s former President and co-founder and a member of the Board, which provided for a loan of $8.0 million originally maturing on June 30, 2022.

Accrued interest at a rate of 15.0% was due monthly, and the principal amount was originally due in full in June 2022.

The First Amendment extended the maturity of the December 2021 Note to July 14, 2022.

The December 2021 Note was secured by a continuing security interest in all of our assets and properties whether then or thereafter existing or required, including our inventory and receivables (as defined under the Universal Commercial Code) and included negative covenants restricting our ability to incur further indebtedness and engage in certain asset dispositions until the earlier of the maturity date or the December 2021 Note being fully repaid.

On July 14, 2022, we entered into the Second Amendment to the December 2021 Note (the “Second Amendment” and together with the First Amendment, the "Bridge Loan"), which provided for the extension of the maturity date of the Bridge Note from July 14, 2022 to July 19, 2022.

In connection with the entry into the Second Amendment, we repaid $4.0 million of the aggregate principal amount due under the Bridge Loan on July 14, 2022, with the remainder due at maturity.

On July 19, 2022, we repaid the remaining balance on the Bridge Loan in full, and, as a result, all obligations under the Bridge Loan have been satisfied.

On June 27, 2022, we entered into a securities purchase agreement with an accredited investor, pursuant to which we agreed to issue and sell an aggregate of 585,000 shares of our Class A common stock, pre-funded warrants to purchase up to 495,000 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 1,080,000 shares of our Class A common stock (the “June 2022 Standard Warrants” and, together with the June 2022 Pre-Funded Warrants, the “June 2022 Warrants”), in a registered direct offering (the “June 2022 Offering”).

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All June 2022 Pre-Funded Warrants were exercised in July 2022, based upon which we issued an additional 495,000 shares of our Class A common stock, for de minimis net proceeds.

As described in "Note 13 - Subsequent Events," on July 19, 2022, we entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $5.3 million in cash and on August 9, 2022, we entered into the Loan Agreement whereby the Lenders agreed to make available to the Company a term loan of up to $15.0 million.

See "Note 13 - Subsequent Events" for more information.

On March 10, 2022, we announced the 2022 Plan to reduce our cost structure, increase liquidity and accelerate our path to profitability.

respect to the sale of the Company’s headquarters building, discontinuation and disposition of non-core and lower-margin inventory and securing an asset-backed loan, the “Liquidity Initiatives”).

Please see "Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations — Overview — 2022 Plan" for more information.

On July 19, 2022, we entered into the Sale Agreement with Portofino to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into the Loan Agreement whereby the Lenders agreed to make available to the Company a term loan of up to $15.0 million.

On October 1, 2018, one of the Operating Company’s wholly-owned subsidiaries closed on the purchase of a building for $10.0 million, which serves as our corporate headquarters.

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Our obligations under the Real Estate Note are secured by a mortgage on the property.

We are seeking to enter

into a sale lease-back transaction with respect to our corporate headquarters, at which point we would repay the Real Estate Note, and use the net proceeds from the sale for working capital purposes.

We are in the process of establishing a payment plan (the “Payment Plan”) for the repayment of approximately $6.0 million in liabilities due to a third-party vendor (the “Vendor”) relating to previously purchased inventory.

In connection with our ongoing discussions with the Vendor, on July 18, 2022, we paid $1.0 million of the approximate $6.0 million balance due to the Vendor in cash and, during the period of July 26, 2022 through July 31, 2022, we returned approximately $1.3 million in inventory to the Vendor, which was accepted by the Vendor and will be credited against the remaining outstanding balance owed by us to the Vendor once the Vendor has confirmed the value of the returned inventory.

Currently, we expect to owe the Vendor approximately $3.5 million in remaining liabilities pending the Vendor’s confirmation of the value of the inventory returned to it.

We expect to enter into the Payment Plan to repay the remainder of the amount due to the Vendor in the amount of $200,000 in cash each week until the remainder of the liabilities due to the Vendor are repaid in full.

However, we can provide no assurances as to the timing of our entry into the Payment Plan, the final terms of the Payment Plan or that we will enter into the Payment Plan at all.

On September 22, 2022 (the “Closing Date”), 1095 Broken Sound consummated the previously disclosed transactions contemplated by that certain Purchase and Sale Agreement, dated as of August 16, 2022, by and between 1095 Broken Sound and ASC Capital LLC (the “Purchaser”) whereby 1095 Broken Sound agreed to sell a certain parcel of real estate including the our headquarters building to the Purchaser for total consideration of $9.95 million in cash (collectively, the “HQ Transaction”).

On the Closing Date, the Company used the proceeds from the HQ Transaction to repay the remainder of the Real Estate Note in full.

The remaining proceeds will be used for general corporate purposes.

On July 19, 2022, Warehouse Goods LLC ("Warehouse Goods"), a wholly owned subsidiary of the Company, entered into a Membership Interest Purchase Agreement and supporting documents (collectively, the “Sale Agreement”), to sell the Company’s 50% stake in VIBES Holdings LLC for total consideration of $4.6 million in cash and on August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which makes available to the Company a term loan of up to $15.0 million.

On October 13, 2022, we entered into the Settlement Agreement with the Vendor for the repayment of the Remaining Liabilities due to the Vendor relating to previously purchased inventory.

As previously disclosed and in connection with the our ongoing discussions with the Vendor, on July 18, 2022, we paid $1.0 million of the approximately $6.0 million balance due to the Vendor in cash and during the period of July 26, 2022 through July 31, 2022, returned approximately $1.1 million in inventory to the Vendor, which was accepted by the Vendor and was credited against the remaining outstanding balance owed by us to the Vendor.

The Settlement Agreement provides for a payment plan pursuant to which the we have agreed to repay the Remaining Liabilities in weekly installments commencing on October 14, 2022.

Pursuant to the terms of the Settlement Agreement, the Remaining Liabilities will be repaid in full on December 9, 2022.

On October 24, 2022, Warehouse Goods sold 38,839 shares of High Tide common stock for total consideration of approximately $0.05 million.

On October 27, 2022, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 6,955,555 shares of our Class A common stock, 1,377,780 October 2022 Pre-Funded Warrants and 16,666,670 October 2022 Standard Warrants.

Each October 2022 Unit consisted of one share of Class A common stock or a October 2022 Pre-Funded Warrant and two October 2022 Standard Warrants to purchase one share of our Class A common stock.

The October 2022 Units were offered pursuant to the S-1 Registration Statement.

The October 2022 Standard Warrants are exercisable immediately at an exercise price equal to $0.90 per share of Class A common stock for a period of seven years.

Each October 2022 Pre-Funded Warrant is exercisable immediately with no expiration date for one share of Class A common stock at an exercise price of $0.0001.

The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million.

For more information regarding the October 2022 Offering, please see "Note 13 - Subsequent Events."

On November 3, 2022, Merger Sub Gotham 2 sold its interest in XS Financial to certain purchasers for total consideration of approximately $0.65 million, minus certain fees.

On the same day, we also entered into the Lease Termination Agreement, which provided for the termination of our lease at 6261 Katella Avenue in Cypress, California.

Pursuant to the terms of the Lease Termination Agreement, we agreed to pay a fee of approximately $0.46 million as an early termination fee in consideration for the Landlord's agreement to terminate all of our remaining obligations under the Cypress lease.

We expect the Lease Termination to result in approximately $1.7 million in savings, although we can provide no assurances as to the total amount of savings realized from the Lease Termination.

We have an effective shelf registration statement on Form S-3 (the "Shelf Registration Statement") and may opportunistically conduct securities offerings from time to time in order to meet our liquidity needs.

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However, we may be unable to access the capital markets because of current market volatility and the performance of our stock price.

On March 31, 2022, the date on which our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") was filed with the SEC, the Shelf Registration Statement became subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 ("Instruction I.B.6") because our public float was less than $75 million.

On March 31, 2022, the date on which our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Annual Report") was filed with the SEC, the Shelf Registration Statement became subject to the offering limits set forth in Instruction I.B.6 because our public float was less than $75 million.

For so long as our public float is less than $75 million, the aggregate market value of securities sold by us under the Shelf Registration Statement (including our ATM Program) pursuant to Instruction I.B.6 during any twelve consecutive months may not exceed one-third of our public float.

Since the launch of the ATM program in August 2021 and through June 30, 2022, we sold 972,624 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $12.7 million.

Since the launch of the ATM program in August 2021 and through September 30, 2022, we sold 972,624 shares of our Class A common stock under the ATM Program, which generated gross proceeds of approximately $12.7 million.

In light of our low cash position, we have been forced to sell stock under our ATM program at prices that may not otherwise be attractive and are dilutive.

We have offered $6.8 million in securities pursuant to Instruction I.B.6 in the twelve calendar months preceding the date of filing of this Quarterly Report on Form 10-Q.

Following the completion of the June 2022 Offering we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the Nasdaq Exchange Cap, which will limit our liquidity options in the capital markets.

Following the completion of the June 2022 Offering we are unable to issue additional shares of Class A common stock pursuant to the ATM Program or otherwise use the Shelf Registration Statement for a period of time due to the restrictions under Instruction I.B.6 to Form S-3, which will limit our liquidity options in the capital markets.

Our future liquidity needs may also include payments in respect of the redemption rights of the Common Units held by its members that may be exercised from time to time (should we elect to exchange such Common Units for a cash payment), payments under the TRA and state and federal taxes to the extent not sheltered by our tax assets, including those arising as a result of purchases, redemptions or exchanges of Common Units for Class A common stock.

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Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.

As of June 30, 2022, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

As of September 30, 2022, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

The following summary of cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2022 2021

Net cash used in operating activities $ (22,488) $ (32,028)

Net cash used in investing activities (1,197) (3,590)

Net cash provided by (used in) financing activities 11,115 (292)

Net cash provided by (used in) investing activities 12,500 (14,256)

Net cash provided by financing activities 7,535 28,871

Net Cash Used in Operating Activities

During the six months ended June 30, 2022, net cash used in operating activities of approximately $13.7 million consisted of (i) net loss of $33.2 million, offset by non-cash adjustments to net loss of approximately $6.8 million, including depreciation and amortization expense of approximately $4.8 million, stock-based compensation expense of approximately $1.6 million, and an offsetting reversal on the allowance of an indemnification receivable of approximately $1.8 million, and (ii) a $12.7 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $2.1 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $10.6 million.

During the six months ended June 30, 2021, net cash used in operating activities of approximately $15.2 million consisted of (i) net loss of $13.6 million, offset by non-cash adjustments to net loss of approximately $0.6 million, including depreciation and amortization expense of approximately $1.2 million, stock-based compensation expense of approximately $1.0 million, and a reversal on the allowance of an indemnification receivable of approximately $1.7 million, and (ii) $2.2 million cash used in working capital primarily driven by decreases in accounts payable and accrued expenses of approximately $13.7 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $11.5 million, which included the collection of an indemnification asset of approximately $0.9 million, and the reduction of our VAT receivable balance upon the collection of a refund from the Dutch tax authorities of approximately $4.1 million.

Net Cash Used in Investing Activities

During the six months ended June 30, 2022, net cash used in investing activities of approximately $1.2 million largely consisted of capital expenditures, including development costs for our new enterprise resource planning (ERP) system.

During the six months ended June 30, 2021, we used cash of approximately $3.6 million, consisting of $2.4 million for the acquisition of Eyce LLC and $1.5 million for capital expenditures, including development costs for our ERP system, offset partially by proceeds from the sale of assets held for sale of approximately $0.7 million.

Net Cash Provided by (Used in) Financing Activities

During the six months ended June 30, 2022, net cash provided by financing activities of approximately $11.1 million primarily consisted of cash proceeds of approximately $14.1 million from the issuance of Class A common stock through our ATM Program and the June 2022 Offering, offset primarily by approximately $2.0 million in payments on notes payable, finance lease obligations and other long-term liabilities, and approximately $0.9 million in payments of contingent consideration related to the Eyce LLC acquisition.

During the six months ended June 30, 2021, net cash used in financing activities primarily consisted of approximately $0.2 million in payments on other long-term liabilities, notes payable and finance lease obligations, $0.2 million in member distributions, offset by $0.1 million of cash proceeds from the exercise of stock options.

During the nine months ended September 30, 2022, net cash used in operating activities of approximately $22.5 million consisted of (i) net loss of $112.4 million, offset by non-cash adjustments to net loss of approximately $74.3 million, and (ii) a $15.7 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $9.9 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $25.6 million.

During the nine months ended September 30, 2021, net cash used in operating activities of approximately $32.0 million consisted of (i) net loss of $42.3 million, offset by non-cash adjustments to net loss of approximately $7.1 million, and (ii) $2.2 million cash used in working capital primarily driven by decreases in accounts payable and accrued expenses of approximately $13.7 million, offset by decreases in accounts receivable, inventories, vendor deposits and other current assets of approximately $11.5 million, which included the collection of an indemnification asset of approximately $0.9 million, and the reduction of our VAT receivable balance upon the collection of a refund from the Dutch tax authorities of approximately $4.1 million.

Net Cash Provided by (Used in) Investing Activities

During the nine months ended September 30, 2022, net cash provided by investing activities of approximately $12.5 million largely consisted of proceeds from the same of assets held for sale of $9.6 million and proceeds from the sales of our interests in VIBES of $4.6 million, offset by cash used for development costs for our new enterprise resource planning (ERP) system of $1.7 million.

During the nine months ended September 30, 2021, net cash used in investing activities of approximately $14.3 million consisted of (i) approximately $12.3 million of cash used for the acquisition of Eyce and KushCo, net of cash acquired, (ii) $2.3 million for capital expenditures, including development costs for our new enterprise resource planning system, and (iii) $0.3 million of cash for the purchase of intangible assets, offset by proceeds from the sale of assets held for sale of approximately $0.7 million.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2022, net cash provided by financing activities of approximately $7.5 million primarily consisted of cash proceeds of approximately $14.1 million from the issuance of Class A common stock through our ATM Program and the June 2022 Offering, offset primarily by approximately $2.8 million in payments on notes payable, finance lease obligations and other long-term liabilities, and approximately $0.9 million in payments of contingent consideration related to the Eyce LLC acquisition.

During the nine months ended September 30, 2021, net cash used in financing activities primarily consisted of approximately $0.2 million in payments on other long-term liabilities, notes payable and finance lease obligations, $0.2 million in member distributions, offset by $0.1 million of cash proceeds from the exercise of stock options.

Critical Accounting Policies and Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis