Greenlane Holdings, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 September 30, 2023 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, 2022, which are included in Amendment No. 1 to our Annual Report on Form 10-K/A. 28 Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q ("Form 10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part I, Item 2 of this Form 10-Q under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could” and similar expressions. Examples of forward-looking statements include, without limitation : • statements regarding our growth and other strategies, results of operations or liquidity; • statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; • statements regarding our industry; • statements of management’s goals and objectives; • statements regarding laws, regulations, and policies relevant to our business; • projections of revenue, earnings, capital structure and other financial items; • assumptions underlying statements regarding us or our business; and • other similar expressions concerning matters that are not historical facts. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. 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 Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2022 (the "2022 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. These risks include, but are not limited to, those listed below and those discussed in greater detail in Part I, Item 1A of the 2022 Annual Report under the heading “Risk Factors." • the potential delisting of our Class A common stock from Nasdaq; • our expectations about our ability to fully execute actions and steps that would be probable of mitigating the existence of substantial doubt regarding our ability to continue as a going concern; • our strategy, outlook and growth prospects; • general economic trends and trends in the industry and markets in which we operate; • our dependence on, and our ability to establish and maintain business relationships with, third-party suppliers and service suppliers; • our ability to access capital; • the competitive environment in which we operate; • our vulnerability to third-party transportation risks; • the impact of governmental laws and regulations and the outcomes of regulatory or agency proceedings; • our ability to accurately estimate demand for our products and maintain appropriate levels of inventory; • our ability to maintain or improve our operating margins and meet sales expectations; • our ability to adapt to changes in consumer spending and general economic conditions, including the current inflationary environment; • our ability to use or license certain trademarks; • our ability to maintain consumer brand recognition and loyalty of our products; • our and our customers’ ability to establish or maintain banking relationships; • fluctuations in U.S. federal, state, local and foreign tax obligation and changes in tariffs; • our ability to address product defects; • our exposure to potential various claims, lawsuits and administrative proceedings; • contamination of, or damage to, our products; 29 • any unfavorable scientific studies on the long-term health risks of vaporizers, electronic cigarettes, or cannabis or hemp-derived products, including CBD; • failure of our information technology systems to support our current and growing business; • our ability to prevent and recover from internet security breaches; • our ability to generate adequate cash from our existing business to support our growth; • our ability to raise capital on favorable terms, or at all, to support the continued growth of the business; • our ability to protect our intellectual property rights; • our dependence on continued market acceptance of our products by consumers; • our sensitivity to global economic conditions and international trade issues; • our ability to comply with certain environmental, health and safety regulations; • our ability to successfully identify and complete strategic acquisitions; • natural disasters, adverse weather conditions, operating hazards, environmental incidents and labor disputes; • increased costs as a result of being a public company; and • our failure to maintain adequate internal controls over financial reporting. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements. Overview Founded in 2005, Greenlane is a premier global platform for the development and distribution of premium cannabis accessories, vape devices, and lifestyle products. In 2021, we completed several transformative acquisitions including the acquisition of two proprietary house brands, EYCE (“Eyce”) and DaVinci (“DaVinci”), along with a larger merger with KushCo Holdings, adding a significant industrial line of business to the Greenlane platform. These acquisitions strengthened our leading position as a consumer ancillary products house-of-brands business by adding two established brands to our portfolio (Eyce and DaVinci), and significantly expanded our customer network, bringing strategic relationships with leading cannabis multi-state-operators (“MSOs”), cannabis single-state operators (“SSOs”), and Canadian licensed-producers (“LPs”). Greenlane provides a wide array of consumer ancillary products and industrial ancillary products to thousands of cannabis producers, processors, brands, and retailers (“Cannabis Operators”), specialty retailers, smoke shops and head shops, convenience stores, and consumers directly through our own proprietary web stores and large online marketplaces such as Amazon. We have been developing a world-class portfolio of our own proprietary brands (the "Greenlane Brands") that we believe will, over time, deliver higher margins and create long-term value for our customers and shareholders. Our wholly-owned Greenlane Brands includes our recently launched a more affordable product line – Groove, innovative silicone pipes and accessories – Eyce, best-in-class premium vaporizer brand – DaVinci, premium smoke shop and ancillary product brand – Higher Standards, and child-resistant packaging brand - Pollen Gear. We also have category exclusive licenses for the premium Marley Natural branded products, as well as the K.Haring Glass Collection. The Greenlane Brands, along with a curated set of third-party products, are offered to customers through our proprietary, owned and operated e-commerce platforms which include Vapor.com, Vaposhop.com, DaVinciVaporizer.com, PuffItUp.com, HigherStandards.com, EyceMolds.com and MarleyNaturalShop.com. These platforms allow us to reach customers directly with helpful resources and a seamless purchasing experience. We merchandise vaporizers, packaging, and other ancillary products in the United States, Canada, Europe and Latin America. We distribute products to retailers through wholesale operations and distribute products to consumers through e-commerce activities and our flagship Higher Standards store in New York City's famed Chelsea Market. We operate our own distribution center in the United States, while also utilizing third-party logistics ("3PL") locations in Canada and Europe. We have made tremendous progress consolidating and streamlining our warehouse and distribution operations in 2022 and 2023. We manage our business in two different, but complementary, business segments. The first is the Consumer Goods segment, which focuses on serving consumers across wholesale, retail and e-commerce operations—offering both our Greenlane Brands as well as ancillary products and accessories from select leading third-party brands, such as Storz and Bickel, 30 Grenco Science, PAX, Cookies, and more. This segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands. In addition to our Consumer Goods segment, we have our Industrial Goods segment, which focuses on serving Cannabis Operators by providing ancillary products essential to their daily operations and growth, such as packaging and vaporization solutions, including our Greenlane Brand Pollen Gear. Refer to "Note 12— Segment Reporting" within Item 1 to this Quarterly Report on Form 10-Q for additional information on our reportable segments. Plan to Accelerate Path to Profitability and Capitalize the Business In today’s economic environment, not to mention the environment of the cannabis industry itself, the key focus for many companies is profitability. At Greenlane, we are hyper focused on getting our business profitable and well-capitalized for long-term sustainability. We have been working hard to right-size our business, focus on core areas, and reduce our overall cost structure while improving our margins in an effort to be profitable. In April 2023, we successfully entered into two strategic partnerships which management believes will help significantly reduce our overall cost structure, enhance our margins and further support our facilities consolidation initiatives while also servicing and providing solutions to our customers. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a MarijuanaPackaging.com (“MJ Pack”), a leading provider of packaging solutions to the cannabis industry. As part of the MJ Packaging Partnership, we will no longer purchase additional packaging inventory and MJ Pack will become our strategic partner to continue providing and enhancing packaging solutions for our customers. As a result of the MJ Packaging Partnership, we are no longer seeking a purchaser for our packaging division. Second, we entered into a strategic partnership with an affiliate of one our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top line revenue for these packaging and vape products these partnerships combined with some of our other restructuring initiatives, should allow us to reduce our overall cost-structure and enhance our margins, and convert millions of dollars of existing inventory back into cash, thereby improving our balance sheet. We have made progress consolidating and streamlining our office, warehouse, and distribution operations footprint. We reduced our salaries, benefits and payroll taxes expenses by approximately $11.3 million, for the nine months ended September 30, 2023, compared to the same period for 2022 to reduce costs. We are actively selling 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 been aggressively liquidating E&O inventory into cash. In addition to the strategic initiatives discussed above, we obtained additional capital through the sale of Class A common stock and warrants in a public offering that closed in July 2023 and future receivables financings arrangements entered into in July and August 2023 (the "Future Receivables Financings"). The July 2023 Offering was completed and the Future Receivables Financings were entered into in order to meet short term funding needs, and we are still seeking to execute our strategic and other liquidity initiatives. USPS PACT Act Exemption On January 11, 2022, we announced via press release that the United States Postal Service (the “USPS”) had approved our application for a business and regulatory exemption to the PACT Act (with respect to the business and regulatory exemption granted by the USPS, the “PACT Act Exemption”), allowing us to ship vaporizers and accessories classified as electronic nicotine delivery systems (“ENDS”) products to other compliant businesses. With this approval, over 97% of our total annual sales became eligible for shipment by freight, USPS and other major parcel carriers. The PACT Act Exemption also enables us to partner with other businesses that ship ENDS products and had their supply chains disrupted by PACT Act compliance. On June 24, 2022, we provided via press release an update on the progress of the PACT Act Exemption, following our successful implementation of the controls, processes and systems required by the USPS in connection with the shipment of ENDS products. We expect the ability to fulfill ENDS orders with the USPS to allow us to reduce shipping costs, decrease fulfillment times and enhance the overall customer experience for approved wholesale customers. 31 Reverse Stock Splits On August 4, 2022, we filed a Certificate of Amendment to the A&R Charter with the Secretary of State of the State of Delaware (the "SSSD"), which effected a one-for-20 reverse stock split (the “2022 Reverse Stock Split”) of our issued and outstanding shares of Class A common stock and Class B common stock (collectively, the "Common Stock") at 5:01 PM Eastern Time on August 9, 2022. As a result of the 2022 Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the 2022 Reverse Stock Split. On June 2, 2023, we filed a Certificate of Amendment to the A&R Charter with the SSSD, which effected a one-for-10 reverse stock split (the “2023 Reverse Stock Split” and together with the 2022 Reverse Stock Split, the "Reverse Stock Splits") of our issued and outstanding shares of Common Stock at 5:01 PM Eastern Time on June 5, 2023. As a result of the 2023 Reverse Stock Split, every 10 shares of common stock issued and outstanding were converted into one share of common stock. We paid cash in lieu of fractional shares, and accordingly, no fractional shares were issued in connection with the 2023 Reverse Stock Split. The Reverse Stock Splits did not change the par value of the Common Stock or the authorized number of shares of Common Stock. All outstanding options, restricted stock awards, warrants and other securities entitling their holders to purchase or otherwise receive shares of our Common Stock have been adjusted as a result of the Reverse Stock Splits, as required by the terms of each security . The number of shares available to be awarded under our Amended and Restated 2019 Equity Incentive Plan have also been appropriately adjusted. Nasdaq Deficiency Letters On August 3, 2023, we received a letter from the Nasdaq Listing Qualifications Department (the "Staff") of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it no longer is in compliance with Nasdaq Listing Rule 5450(b)(1)(C) because the market value of the publicly held shares of Class A common stock has fallen below the $5.0 million minimum required for continued listing on the Nasdaq Global Market for a period of at least 30 consecutive business days. Nasdaq calculates publicly held shares by subtracting from the total shares of Class A common stock outstanding any shares held by officers, directors or any person who beneficially owns more than 10% of the total shares of Class A common stock outstanding. In accordance with Nasdaq Listing Rule 5810(c)(3)(D), we have a grace period of 180 calendar days, until January 30, 2024, to regain compliance with Nasdaq Listing Rule 5450(b)(1)(C). Compliance can be achieved by meeting the $5.0 million minimum requirement for market value of publicly held shares for a minimum of 10 consecutive business days during the 180-day compliance period. If we do not regain compliance with Nasdaq Listing Rule 5450(b)(1)(C) by the end of the 180-day grace period, Nasdaq will notify us that the Class A common stock is subject to delisting. In the event that we receive a notice of delisting, Nasdaq rules permit us to appeal the delisting determination to a Nasdaq Hearings Panel. Alternatively, we may apply to transfer the listing of the Class A common stock to The Nasdaq Capital Market (the “Capital Market”) if we satisfy the continued listing criteria for the Capital Market. On August 21, 2023, we received a deficiency letter from the Staff of Nasdaq notifying us that, for the last 30 consecutive business days, the closing bid price for our Class A common stock had been below the minimum $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been given 180 calendar days, or until February 20, 2024, to regain compliance with Rule 5450(a)(1). If we choose to implement a reverse stock split, we must complete the split no later than ten business days prior to February 20, 2024, to regain compliance. If at any time before February 20, 2024, the bid price of the Class A common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, the Staff will provide written confirmation that we have regained compliance. If we do not regain compliance with Rule 5450(a)(1) by February 20, 2024, we may be afforded a second 180 calendar day period to regain compliance. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, except for the minimum bid price requirement. In addition, we would be required to notify Nasdaq of our intent to cure the deficiency during the second compliance period. On November 22, 2023, we received a written notice from the Staff of Nasdaq indicating that we were not in compliance with Nasdaq’s continued listing standards because we did not timely file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023. We had 60 calendar days (or until January 22, 2024) to submit a plan to regain 32 compliance. We regained compliance with this continued listing standard by filing this Quarterly Report with the Securities and Exchange Commission. We currently are considering all available options to resolve these deficiencies and regain compliance with Nasdaq’s minimum requirements for the market value of publicly held shares, and closing bid price, of our Class A common stock . Results of Operations The following table presents operating results for the three and nine months ended September 30, 2023 and 2022: Three Months Ended September 30, Nine Months Ended September 30, % of Net sales Change % of Net sales Change 2023 2022 2023 2022 $ % 2023 2022 2023 2022 $ % Net sales 11,800 28,680 100.0 % 100.0 % $ (16,880) (58.9) % 55,384 115,130 100.0 % 100.0 % $ (59,746) (51.9) % Cost of sales 8,671 23,711 73.5 % 82.7 % (15,040) (63.4) % 42,162 96,094 76.1 % 83.5 % (53,932) (56.1) % Gross profit 3,129 4,969 26.5 % 17.3 % (1,840) (37.0) % 13,222 19,036 23.9 % 16.5 % (5,814) (30.5) % Operating expenses: Salaries, benefits and payroll taxes 4,059 7,000 34.4 % 24.4 % (2,941) (42.0) % 14,586 25,897 26.3 % 22.5 % (11,311) (43.7) % General and administrative 5,433 8,547 46.0 % 29.8 % (3,114) (36.4) % 20,209 30,850 36.5 % 26.8 % (10,641) (34.5) % Goodwill and indefinite-lived intangibles impairment charge — 66,760 — % 232.8 % (66,760) (100.0) % — 66,760 — % 58.0 % (66,760) (100.0) % Definite-lived intangibles impairment charge — 50,694 — % 176.8 % (50,694) (100.0) % — 50,694 — % 44.0 % (50,694) (100.0) % Property and equipment impairment charge — 7,336 — % 25.6 % (7,336) (100.0) % — 7,336 — % 6.4 % (7,336) (100.0) % Depreciation and amortization 524 2,124 4.4 % 7.4 % (1,600) (75.3) % 1,492 6,876 2.7 % 6.0 % (5,384) (78.3) % Total operating expenses 10,016 142,461 84.8 % 496.8 % (132,445) (93.0) % 36,287 188,413 65.5 % 163.7 % (152,126) (80.7) % Loss from operations (6,887) (137,492) (58.3) % (479.4) % 130,605 (95.0) % (23,065) (169,377) (41.6) % (147.1) % 146,312 (86.4) % Other income (expense), net: Interest expense (3,415) (926) (28.9) % (3.2) % (2,489) 268.8 % (5,148) (1,598) (9.3) % (1.4) % (3,550) 222.2 % Other income (expense), net 204 1,173 1.7 % 4.1 % (969) (82.6) % 338 562 0.6 % 0.5 % (224) (39.9) % Total other expense, net (3,211) 247 (27.2) % 0.9 % (3,458) * (4,810) (1,036) (8.7) % (0.9) % (3,774) * Loss before income taxes (10,098) (137,245) (85.5) % (478.6) % 127,147 (92.6) % (27,875) (170,413) (50.3) % (148.1) % 142,538 (83.6) % Provision for (benefit from) income taxes — — — % — % — * (6) 62 — % 0.1 % (68) (109.7) % Net loss (10,098) (137,245) (85.5) % (478.6) % 127,147 (92.6) % (27,869) (170,475) (50.3) % (148.2) % 142,606 (83.7) % Net loss attributable to non-controlling interest 19 (6,742) 0.2 % (23.5) % 6,761 (100.3) % (27) (12,516) (0.2) % (10.9) % 12,489 (99.8) % Net loss attributable to Greenlane Holdings, Inc. $ (10,117) $ (130,503) (85.7) % (455.0) % $ 120,386 (92.2) % $ (27,842) $ (157,959) (50.1) % (137.2) % $ 130,117 (82.4) % *Not meaningful Consolidated Results of Operations Net Sales For the three months ended September 30, 2023, net sales were approximately $11.8 million, compared to approximately $28.7 million for the same period in 2022, representing a decrease of $16.9 million, or 58.9%. The Industrial segment was down $14.3 million or 71.1%, and the Consumer segment was down $2.6 million or 30.1%. The Industrial segment decrease was related to transitioning to a commission revenue model of approximately $0.3 million recorded related to 33 $7.8 million of gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business for the three months ended September 30, 2023. The Consumer segment sales decreased due to declining business globally and the company focusing on profitability revenue versus top-line revenue. The Company is focused on selling in-house brands with higher margins and moving away from third-party brands with lower margins. For the nine months ended September 30, 2023, net sales were approximately $55.4 million, compared to approximately $115.1 million for the same period in 2022, representing a decrease of $59.7 million or 51.9%. The Industrial segment decreased $38.0 million or 51.6% and the Consumer segment decreased $21.8 million or 52.4%. The Industrial segment decrease was related to transitioning to a commission revenue model of approximately $0.3 million recorded related to $7.8 million of gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business for the nine months ended September 30, 2023. The Consumer segment sales decreased due to declining business globally and the company focusing on profitability revenue versus top-line revenue. The Company is focused on selling in-house brands with higher margins and moving away from third-party brands with lower margins. Cost of Sales and Gross Margin For the three months ended September 30, 2023, cost of sales decreased by $15.0 million, or 63.4%, as compared to the same period in 2022. The decrease in cost of sales was attributable to a decrease in revenue. Gross margin increased to 26.5% for the three months ended September 30, 2023, compared to gross margin of 17.3% for the same period in 2022. The 9.2% increase in gross margin is related to transitioning to a commission revenue model for the majority of the vaporizer sales with 100% margin versus gross revenue with lower margins. Also contributing to the increase in margin is the Company's continued focus on consumer in-house brands with higher margins and moving away from third-party brands with lower margins. For the nine months ended September 30, 2023 cost of sales decreased by $53.9 million, or 56.1%, as compared to the same period in 2022. The decrease in cost of sales was attributable to a decrease in revenue. Gross margin increased to 23.9% for the nine months ended September 30, 2023, compared to gross margin of 16.5% for the same period in 2022. Excluding inventory write-offs of damaged and obsolete inventory for the nine months ended September 30, 2023 and 2022, respectively, of $0.1 million and $7.8 million respectively, gross margins increased 1% to 24% for the nine months ended September 30, 2023, compared to 23% for the same period in 2022. Salaries, Benefits and Payroll Taxes Salaries, benefits and payroll taxes expenses decreased by approximately $2.9 million, or 42.0%, to $4.1 million for the three months ended September 30, 2023, compared to $7.0 million for the same period in 2022. The decrease is related to a major restructuring effort by the company to reduce headcount and cost to align with revenue. Salaries, benefits and payroll taxes expenses decreased by approximately $11.3 million or 43.7% , to $14.6 million for the nine months ended September 30, 2023, compared to $25.9 million for the same period in 2022. The decrease is related to a major restructuring effort by the company to reduce headcount and cost to align with revenue. General and Administrative Expenses General and administrative expenses decreased by approximately $3.1 million, or 36.4%, for the three months ended September 30, 2023, compared to the same period in 2022. This decrease was primarily due to decreases of approximately $1.7 million for professional services, $1.7 million for bad debt, $0.6 million for outbound freight, $0.5 million for facility, $0.4 million for merchant fees, and $0.3 million for general insurance, partially offset by a gain on fixed assets of $2.0 million. General and administrative expenses decreased by approximately $10.6 million or 34.5%, for the nine months ended September 30, 2023, compared to the same period in 2022. This decrease was primarily due to decreases of approximately $4.2 million for professional services, $2.6 million for facility, $2.3 million for outbound freight, $1.1 million for general insurance, $0.8 million for bad debt, $0.7 million for merchant fees, $0.4 million for dues and subscriptions, $0.3 for marketing, and $0.5 million for other expenses, partially offset by a gain on fixed assets of $2.0 million. Impairment Charges - Goodwill, Indefinite-lived intangibles, and Definite-lived Intangibles We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million and a definite-lived intangibles impairment charge of approximately $50.7 million during the three months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2023. We incurred a impairment charge of approximately $7.3 million to fixed assets related to the ERP system during the three months ended September 30, 2022, 34 compared to no such impairment charge for the comparable period in 2023. The impairment charges were due to declining business and declining enterprise value. We incurred a goodwill and indefinite-lived intangibles impairment charge of approximately $66.8 million and a definite-lived intangibles impairment charge of approximately $50.7 million during the nine months ended September 30, 2022, compared to no such impairment charge for the comparable period in 2023. We incurred a impairment charge of approximately $7.3 million to fixed assets related to the ERP system during the nine months ended September 30, 2022, compared to no such impairment charge fore the comparable period in 2023.This impairment charges were due to declining business and declining enterprise value. Depreciation and Amortization Expense Depreciation and amortization expense decreased $1.6 million , or 75.3%, for the three months ended September 30, 2023, compared to the same period in 2022. The decrease is primarily related to the intangible and fixed asset impairments incurred in the three months ended September 30 2022, reducing amortization expense. Depreciation and amortization expense decreased $5.4 million, or 78.3%, for the nine months ended September 30, 2023, compared to the same period in 2022. The decrease is primarily related to the intangible and fixed asset impairments recorded as of September 30 2022, reducing amortization expense. Other Income (Expense), Net Interest expense. Interest expense increased approximately $2.5 million during the three months ended September 30, 2023. The increase is primarily related to the exiting ABL facility which accelerated deferred interest expense as well as the promissory notes for the Eyce and DaVinci acquisition. Interest expense increased approximately $3.6 million during the nine months ended September 30, 2023. The increase is primarily related to the exiting ABL facility which accelerated deferred interest expense as well as the promissory notes for the Eyce and DaVinci acquisition. Other expense, net. Other income (expense), net, expense decreased by approximately $1.0 million for the three months ended September 30, 2023, compared to the same period in 2022. 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 during the three months ended September 30, 2023. Other income (expense), net, expense decreased by approximately $0.2 million for the nine months ended September 30, 2023, compared to the same period in 2022. 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 As a result of the IPO and the related transactions completed in April 2019 (described further in "Note 1—Business Operations and Organizations" of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q), we owned a portion of the Common Units of the Operating Company, which was treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, the Operating Company was generally not subject to U.S. federal and certain state and local income taxes, however, certain states in which the Operating Company does business impose state composite and/or withholding income taxes. Any taxable income or loss generated by the Operating Company was passed through to and included in the taxable income or loss of its members, including Greenlane, on a pro-rata basis, in accordance with the terms of the Operating Agreement. The Operating Company was also subject to taxes in foreign jurisdictions. We are a corporation subject to U.S. federal income taxes, in addition to state and local income taxes, based on our share of the Operating Company’s pass-through taxable income. Effective on December 31, 2022, the Operating Company became wholly owned by us. As a result, the Operating Company’s tax status was converted from a partnership to a disregarded entity. Starting in 2023, 100% of the Operating Company’s US income and expenses will be included in our US and state tax returns. For the three and nine months ended September 30, 2023 and 2022, 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. income tax purposes (through December 31, 2022), the relative mix in earnings and losses in the U.S. versus foreign tax jurisdictions, and the valuation allowance against the deferred tax asset. 35 Segment Operating Performance Following the completion of the KushCo merger in late August 2021, we reassessed our operating segments based on our new organizational structure. 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. These changes in operating segments align with how we manage our business beginning with the fourth quarter of 2021. The Consumer Goods segment focuses on serving consumers across wholesale, retail and e-commerce operations—through both our proprietary brands, including Eyce, DaVinci, VIBES, Marley Natural, Keith Haring, and Higher Standards, as well as lifestyle products and accessories from leading brands, like PAX, Storz and Bickel, Grenco Science, and many more. The Consumer Goods segment forms a central part of our growth strategy, especially as it relates to scaling our own portfolio of higher-margin proprietary owned brands. The Industrial Goods segment focuses on serving the premier MSOs and retailers through our wholesale operations by providing ancillary products essential to their growth, such as customizable packaging and supply products and vaporization solutions offering which includes CCELL branded products. Our chief operating decision maker ("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 nine months ended September 30, 2023 and 2022, respectively: Three Months Ended September 30, Nine Months Ended September 30, % of Total Net sales Change % of Total Net sales Change 2023 2022 2023 2022 $ % 2023 2022 2023 2022 $ % Net sales: Consumer Goods $ 5,988 $ 8,565 50.7 % 29.9 % $ (2,577) (30.1) % $ 19,823 $ 41,617 35.8 % 36.1 % $ (21,794) (52.4) % Industrial Goods 5,812 20,115 49.3 % 70.1 % (14,303) (71.1) % 35,561 73,513 64.2 % 63.9 % (37,952) (51.6) % Total net sales $ 11,800 $ 28,680 $ 55,384 $ 115,130 % of Segment Net sales Change % of Segment Net sales Change Cost of sales: 2023 2022 2023 2022 $ % 2023 2022 2023 2022 $ % Consumer Goods $ 4,197 $ 7,937 70.1 % 92.7 % $ (3,740) (47.1) % $ 13,942 $ 35,104 70.3 % 84.4 % $ (21,162) (60.3) % Industrial Goods 4,474 15,774 77.0 % 78.4 % (11,300) (71.6) % 28,220 60,990 79.4 % 83.0 % (32,770) (53.7) % Total cost of sales $ 8,671 $ 23,711 $ 42,162 $ 96,094 Gross profit: Consumer Goods $ 1,791 $ 628 29.9 % 7.3 % $ 1,163 185.2 % $ 5,881 $ 6,513 29.7 % 15.6 % $ (632) (9.7) % Industrial Goods 1,338 4,341 23.0 % 21.6 % (3,003) (69.2) % 7,341 12,523 20.6 % 17.0 % (5,182) (41.4) % Total gross profit $ 3,129 $ 4,969 $ 13,222 $ 19,036 Consumer Goods For the three months ended September 30, 2023, our Consumer Goods operating segment reported net sales of approximately $6.0 million compared to approximately $8.6 million for the same period in 2022, representing a decrease of $2.6 million or 30.1%. The Consumer segment sales decreased due to declining business globally and the company focusing on profitability revenue versus top-line revenue. The company is focused on selling in-house brands with higher margins and moving away from 3rd Party brands with lower margins. For the nine months ended September 30, 2023, our Consumer Goods operating segment reported net sales of approximately $19.8 million compared to approximately $41.6 million for the same period in 2022, representing a decrease of $21.8 million or 52.4%. The Consumer segment year over year sales decreased due to declining business globally and the company focusing on profitability revenue versus top-line revenue. The Company is focused on selling in-house brands with higher margins and moving away from third-party brands with lower margins. 36 For the three months ended September 30, 2023, cost of sales decreased by $3.7 million, or 47.1%, as compared to the same period in 2022 . The decrease in cost of sales was primarily due to the $2.6 million aforementioned sales decrease of 30.1%. For the nine months ended September 30, 2023, cost of sales decreased by $21.2 million or 60.3% , as compared to the same period in 2022. The decrease in cost of sales was primarily due to a $21.8 million or 52.4% decrease in sales compared to the same period in 2022. Gross margin increased 22.6% to 29.9% for the three months ended September 30, 2023, compared to gross margin of approximately 7.3% for the same period in 2022. The increase in gross margin is related to focusing on selling in-house brands that carry a higher margin profile and a reduction in excess and obsolete expense for the prior year. Gross margin increased 14.0% to 29.7% for the nine months ended September 30, 2023, compared to gross margin of approximately 15.6% for the same period in 2022. The increase in gross margin is related to focusing on selling in-house brands that carry a higher margin profile and a reduction in excess and obsolete expense for the prior year. Industrial Goods For the three months ended September 30, 2023, our Industrial Goods operating segment reported net sales of approximately $5.8 million compared to approximately $20.1 million for the same period in 2022, representing an decrease of $14.3 million or 71.1%. The Industrial segment decrease was related to transitioning to a commission revenue model of approximately $0.3 million recorded related to $7.8 million of gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business for the three months ended September 30, 2023. For the nine months ended September 30, 2023, our Industrial Goods operating segment reported net sales of approximately $35.6 million compared to approximately $73.5 million for the same period in 2022, representing an decrease of $38.0 million or 51.6%. The Industrial segment decrease was related to transitioning to a commission revenue model of approximately $0.3 million recorded related to $7.8 million of gross revenue previously recorded for the largest vaporizer product customers and discontinuing the packaging products business for the nine months ended September 30, 2023. For the three months ended September 30, 2023, cost of sales decreased by $11.3 million, or 71.6%, as compared to the same period in 2022, due to the decrease in sales. For the nine months ended September 30, 2023, cost of sales increased by $32.8 million or 53.7%, as compared to the same period in 2022, due to the decrease in sales year-over-year. Gross margin was approximately 23.0% for the three months ended September 30, 2023, compared to gross margin of approximately 21.6% for the same period in 2022. The slight increase is related to a commission revenue model versus gross revenue model for the largest vaporizer product customers and discontinuing the lower margin packaging products business. Gross margin was approximately 20.6% million for the nine months ended September 30, 2023, compared to gross margin of approximately 17.0% for the same period in 2022. The slight increase is related to a commission revenue model versus gross revenue model for the largest vaporizer product customers and discontinuing the lower margin packaging products business. Net Sales by Geographic Regions Three Months Ended September 30, Nine Months Ended September 30, % of Net sales Change % of Net sales Change 2023 2022 2023 2022 $ % 2023 2022 2023 2022 $ % Net sales: United States $ 10,199 $ 25,801 86.5 % 90.0 % $ (15,602) (60.5) % $ 51,151 $ 106,407 92.4 % 92.4 % $ (55,256) (51.9) % Canada 265 1,543 2.2 % 5.4 % (1,278) (82.8) % 690 4,273 1.2 % 3.7 % (3,583) (83.9) % Europe 1,336 1,336 11.3 % 4.6 % — — % 3,543 4,464 6.4 % 3.9 % (921) (20.6) % Total net sales $ 11,800 $ 28,680 100.0 % 100.0 % $ (16,880) (58.9) % $ 55,384 $ 115,144 100.0 % 100.0 % $ (59,760) (51.9) % United States For the three months ended September 30, 2023, our United States net sales were approximately $10.2 million, compared to approximately $25.8 million for the same period in 2022, representing a decrease of $15.6 million, or 60.5%. The year-over-year decrease in net sales was due to a major restructuring effort and a shift in strategy to focus on in-house brands 37 that carry a higher margin profile while rationalizing out third-party brand offerings, which generated top line revenue with lower margins. Net sales were also affected by the sale of the Company's minority interest in the Vibes brand during 2022. The company transition out of the Industry packaging business, which impacted sales and required significant working capital and produced low margins. The company entered into a strategic partnership with an affiliate of one our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships will result in a decrease in top line revenue for these packaging and vape products these partnerships combined with some of our other restructuring initiatives, should allow us to reduce our overall cost-structure and enhance our margins, and convert millions of dollars of existing inventory back into cash, thereby improving our balance sheet. The Company is focused on profitable revenue and as a result top line revenue has significantly been reduced. For the nine months ended September 30, 2023, our U.S. net sales were approximately $51.2 million, compared to approximately $106.4 million for the same period in 2022, representing an increase of $(55.3) million, or 51.9%. The year over-year decrease in net sales was due to a major restructuring effort and a shift in strategy to focus on in-house brands that carry a higher margin profile while rationalizing out third-party brand offerings, which generated top line revenue with lower margins. Net sales were also affected by the sale of the Company's minority interest in the Vibes brand during 2022. The company transition out of the Industry packaging business, which impacted sales and required significant working capital and produced low margins. The company entered into a strategic partnership with an affiliate of one our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships will result in a decrease in top line revenue for these packaging and vape products these partnerships combined with some of our other restructuring initiatives, should allow us to reduce our overall cost-structure and enhance our margins, and convert millions of dollars of existing inventory back into cash, thereby improving our balance sheet. The Company is focused on profitable revenue and as a result top line revenue has significantly been reduced. Canada For the three months ended September 30, 2023, our Canadian net sales were approximately $0.3 million, compared to approximately $1.5 million for the same period in 2022, representing a decrease of $1.3 million, or 82.8%. The decrease is related to a reduction in sales and marketing spend. The company is currently evaluating distribution and sales channels into Canada. For the nine months ended September 30, 2023, our Canadian net sales were approximately $0.7 million, compared to approximately $4.3 million for the same period in 2022, representing a decrease of $3.6 million, or 83.9%. The decrease is related to a reduction in sales and marketing spend. The company is currently evaluating distribution and sales channels into Canada. Europe For the three months ended September 30, 2023, our European net sales were approximately $1.3 million, compared to approximately $1.3 million for the same period in 2022, representing a decrease of $0.0 million or 0.0%. The decrease in net sales was due primarily to major restructuring efforts to improve the profitability of our European operations. For the nine months ended September 30, 2023, our European net sales were approximately $3.5 million, compared to approximately $4.5 million for the same period in 2022, representing a decrease of $0.9 million, or 20.6%. The decrease in net sales was due primarily to major restructuring efforts to improve the profitability of our European operations. Liquidity and Capital Resources 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 equity issuances, such as our June 2022, October 2022 and July 2023 offerings, the Future Receivables Financings, and our ATM program, each as described and defined further in Note 2 of our unaudited condensed 38 consolidated financial statements included in Item 1, Part 1 of this Form 10-Q. As of September 30, 2023, we had approximately $2.4 million of cash, of which $0.2 million was held in foreign bank accounts, and approximately $6.4 million of working capital, which is calculated as total current assets minus total current liabilities, as compared to approximately $6.5 million of cash, of which $0.8 million was held in foreign bank accounts, and approximately $41.0 million of working capital as of December 31, 2022. 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. Based on our cash on hand and working capital at September 30, 2023, we may have insufficient cash to fund planned operations into the first quarter of 2024. ATM Program and Shelf Registration Statement While we have an effective shelf registration statement on Form S-3 (the "Shelf Registration Statement") to conduct securities offerings from time to time, for so long as our public float is less than $75 million, our ability to utilize the Shelf Registration Statement to raise capital is limited, as further described below. The Shelf Registration Statement registers the offer and sale of shares of our Class A common stock, preferred stock, $0.0001 par value per share (the "preferred stock"), depository shares representing our preferred stock, warrants to purchase shares of our Class A common stock, preferred stock or depository shares, and rights to purchase shares of our Class A common stock or preferred stock that may be issued by us in a maximum aggregate amount of up to $200 million. In August 2021, we filed a prospectus supplement and established an "at-the-market" equity offering program (the "ATM Program") that provides for the sale of shares of our Class A common stock having an aggregate offering price of up to $50 million, from time to time. 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 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 12 consecutive months may not exceed one-third of our public float. Since the launch of the ATM program in August 2021 and through December 31, 2022, we sold shares of our Class A common stock which generated gross proceeds of approximately $12.7 million and we paid fees to the sales agent of approximately $0.4 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 sold $2.2 million in securities pursuant to Instruction I.B.6 in the 12 calendar months preceding the date of filing of this Quarterly Report on Form 10-Q. In addition, due to the untimely filing of our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 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 12 full calendar months from the date when this Quarterly Report on Form 10-Q was required to be filed, which will limit our liquidity options in the capital markets. Common Stock and Warrant Offerings 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 58,500 shares of our Class A common stock, pre-funded warrants to purchase up to 49,500 shares of our Class A common stock (the “June 2022 Pre-Funded Warrants”) and warrants to purchase up to 108,000 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”). The June 2022 Offering generated gross proceeds of approximately $5.4 million and net proceeds to the Company of approximately $5.0 mil lion. All June 2022 Pre-Funded Warrants were exercised in July 2022, for de minimis net proceeds. 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 695,555 shares of our Class A common stock, pre-funded warrants to purchase up to 137,778 shares of our Class A Common Stock (the "October 2022 Pre-Funded Warrants") and warrants to purchase up to 1,666,667 shares of our Class A common stock (the "October 2022 Standard Warrants"). The October 2022 units were offered pursuant to a Registration Statement on Form S-1 (the "October 2022 Offering"). The October 2022 Offering generated gross proceeds of approximately $7.5 million and net proceeds to the Company of approximately $6.8 million. On June 29, 2023, we entered into securities purchase agreements with certain investors, pursuant to which we agreed to issue and sell an aggregate of 560,476 shares of our Class A common stock, pre-funded warrants to purchase up to 3,487,143 shares of our Class A Common Stock (the "July 2023 Pre-Funded Warrants") and warrants to purchase up to 8,095,238 shares of our Class A common stock (the "July 2023 Standard Warrants"). The July 2023 units were offered pursuant to a Registration Statement on Form S-1 (the "July 2023 Offering"). The July 2023 Offering generated gross proceeds of approximately $4.3 million and net proceeds to the Company of approximately $3.8 million and closed on July 3, 2023. Asset-Based Loan 39 On August 9, 2022, we entered into an asset-based loan agreement dated as of August 8, 2022 (the “Loan Agreement”), which made available to the Company a term loan of up to $15.0 million. On February 9, 2023, we entered into Amendment No. 2 to the Loan Agreement, in which we agreed to, among other things, voluntarily prepay approximately $6.6 million (inclusive of early termination fees and expenses) under the terms provided for under the Loan Agreement and the lenders under the Loan Agreement agreed to release $5.7 million in funds held in a blocked account pursuant to the terms of the Loan Agreement. On August 7, 2023, we repaid the approximately $4.3 million in aggregate principal amount (the “Loan Repayment”) which remained outstanding under the terms of the Loan Agreement. As a result of the Loan Repayment, the Company has been released from its obligations under the Loan Agreement, in accordance with the terms of the Loan Agreement. ERC Sale On February 16, 2023, two of our wholly owned subsidiaries, Warehouse Goods and Kim International LLC, entered into an agreement with a third-party institutional investor pursuant to which the investor purchased, for approximately $4.85 million in cash, an economic participation interest, at a discount, in our rights to payment from the United States Internal Revenue Service for certain periods with respect to the employee retention credits filed by us under the Employee Retention Credit program. Future Receivables Financings On July 31, 2023 and August 3, 2023, the Company received an aggregate of approximately $3.0 million in cash pursuant to the terms of future receivables financings (collectively, the “Future Receivables Financings”) entered into with two private lenders. The Company will make weekly payments under the Future Receivables Financings and is scheduled to repay the amounts due under the Future Receivables Financings in full in approximately six to eight months. The total amount to be repaid under the initial Future Receivables Financings was approximately $4.5 million. In connection with the Future Receivables Financings, the Company granted the lenders security interests in Company's accounts receivable equal to the amounts due thereunder, and in connection with any event of default, the lenders may file financing statements evidencing the security interests. Management Initiatives We have completed several initiatives to optimize our working capital requirements. We launched Groove, a new, innovative Greenlane Brands product line a nd we also rationalized our third-party brands product offering, which enables us to reduce inventory carrying costs and working capital requirements. In April 2023, we successfully entered into two strategic partnerships which management believes will help significantly reduce our overall cost structure, enhance our margins and further support our facilities consolidation initiatives while also servicing and providing solutions to our customers. First, we entered into a strategic partnership (the “MJ Packaging Partnership”) with A&A Global Imports d/b/a MarijuanaPackaging.com (“MJ Pack”), a leading provider of packaging solutions to the cannabis industry. As part of the MJ Packaging Partnership, we will no longer purchase additional packaging inventory and MJ Pack will become our strategic partner to continue providing and enhancing packaging solutions for our customers. As a result of the MJ Packaging Partnership, we are no longer seeking a purchaser for our packaging division. Second, we entered into a strategic partnership with an affiliate of one of our existing vape suppliers (“Vape Partner”) to service certain key customers with vaporizer goods and services (the “Vape Partnership”). As part of the Vape Partnership, we will introduce our Vape Partner to certain key customers, assist with the promotion and the sale of certain vaporizer goods and services, and help coordinate the logistics, storage and distribution of such vaporizer products. If our Vape Partner and key customer(s) enter into a direct relationship, the customers would directly purchase vaporizer goods and services, which we currently sell them, directly from our Vape Partner and we would no longer need to purchase such vape inventory on behalf of such key customer(s). In exchange we would earn quarterly and annual commission payments from our strategic partners. While the strategic partnerships may result in a decrease in top line revenue for these packaging and vape products, these partnerships combined with some of our other restructuring initiatives should allow us to reduce our overall cost-structure and enhance our margins and convert millions of dollars of existing inventory back into cash, thereby improving our balance sheet. We have made progress consolidating and streamlining our office, warehouse, and distribution operations footprint. The Company has incurred net losses of $27.8 million and $158.0 million for the nine months ended September 30, 2023 and the prior year comparable period, respectively. For the nine months ended September 30, 2023, cash used by operating activities was $1.2 million, and cash used in operating activities for the year ended December 31, 2022 was $26.5 million. The recent macroeconomic environment has caused weaker demand than contemplated under the Company's business 40 plan, resulting in a reduction in projected revenue and cash flows for the twelve-month period included in the going concern evaluation . As a result of our losses and our projected cash needs, combined with our current liquidity level, substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is contingent upon successful execution of management’s intended plan over the next twelve months to improve the Company’s liquidity and profitability, which includes, without limitation: • Further reducing operating costs expense by taking additional restructuring actions to align cost with revenue to achieve profitability. • Increasing revenue by introducing new products and acquiring new customers. • Execute on strategic partnerships accretive to margins and operating cash • Seeking additional capital through the issuance of equity securities or debt financing. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled “Risk Factors” in Item 1A of Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2022. 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. The consolidated financial statements do not include any adjustments that may result from the outcome of this going concern uncertainty. As of September 30, 2023, 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. Cash Flows 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: Nine Months Ended September 30, (in thousands) 2023 2022 Net cash provided by (used in) operating activities $ 1,192 $ (22,488) Net cash provided by (used in) investing activities (580) 12,500 Net cash provided by financing activities (10,528) 7,535 Net Cash Provide by (Used in) Operating Activities During the nine months ended September 30, 2023, net cash used in operating activities of approximately $1.2 million consisted of (i) net loss of $27.9 million, offset by non-cash adjustments to net loss of approximately $4.4 million, and (ii) a $24.7 million decrease in working capital primarily driven by increases in accounts payable, accrued expenses and customer deposits of approximately $4.9 million, offset by increases in accounts receivable, inventories, vendor deposits and other current assets of approximately $29.6 million. 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 $170.5 million, offset by non-cash adjustments to net loss of approximately $132.3 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. Net Cash Provided by (Used in) Investing Activities During the nine months ended September 30, 2023, net cash provided by investing activities of approximately $0.6 million , offset by cash used for development costs for our new enterprise resource planning (ERP) system of $0.6 million.. Net Cash Provided by Financing Activities During the nine months ended September 30, 2023, net cash provided by financing activities of approximately $10.5 million primarily consisted of cash proceeds of approximately $3.9 million from the issuance of Class A common stock through our ATM Program and the June 2022 Offering, offset primarily by approximately $2.5 million in payments on notes payable, 41 finance lease obligations and other long-term liabilities, and approximately $0.3 million in payments of contingent consideration related to the Eyce LLC acquisition. Critical Accounting Policies and Estimates See Note 2, “Summary of Significant Accounting Policies” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q and Part II, Item 7, "Critical Accounting Policies and Estimates" in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2022 for descriptions of the significant accounting policies and methods used in the preparation of our Condensed Consolidated Financial Statements. There have been no material changes to the Company’s critical accounting estimates since the Form 10-K/A for the year ended December 31, 2022. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required.