Restating 2017 Financialshttps://investors.lxrco.com/2018-08-14-LXRandCo-Inc-Announces-its-Intention-to-Restate-its-2017-Consolidated-Financial-Statements-and-Management-Discussion-and-Analysis LXRandCo, Inc. Announces its Intention to Restate its 2017 Consolidated Financial Statements and Management Discussion and Analysis News Release Issued: Aug 14, 2018 (7:00am EDT)
MONTREAL, Aug. 14, 2018 /CNW/ - LXRandCo, Inc. (TSX: LXR, LXR.WT) ("LXRandCo" or the "Company") announced today that it intends to restate its consolidated financial statements as at and for the years ended December 31, 2017 and 2016 (the "2017 Amended and Restated Financial Statements") and corresponding management discussion and analysis for the years ended December 2017 and 2016, as well as for the three and six months periods ended June 30, 2017.
Management has determined that a restatement of the originally filed consolidated financial statements was required for the stated periods in respect of the accounting treatment of the equity consideration resulting from the acquisition of LXR Produits de Luxe International Inc. ("LXR International") that occurred on June 9, 2017 (the "LXR Acquisition") as well as other identified changes.
The intended restatement has no impact on the past and current aggregate cash flows of the Company. Accordingly, the Company is providing disclosure of its intention to restate via this news release in the interest of transparency to shareholders and prospective investors and in compliance with applicable securities law.
Correction of Accounting Method for LXR Acquisition
With respect to the accounting for the acquisition of LXR International completed on June 9, 2017, which was accounted for as a reverse-take over transaction, the Company determined the fair value of the shares deemed to have been issued by LXR International to be $62,813,196, previously reported as $33,419,715, while no additional value was determined on existing Gibraltar Growth Corporation ("Gibraltar Growth") forfeitable shares and warrants. The Company has determined that a correction was required and the accounting treatment for the LXR Acquisition to be changed to adjust the calculation of fair value of the shares deemed to have been issued by LXR International, including the fair value of the Gibraltar Growth forfeitable shares and warrants.
Contemporaneously with the reassessment of the fair value of the equity consideration resulting from the LXR Acquisition, management identified an inconsistency in the accounting of the fair value of convertible preferred shares ($24,890,501, previously reported as $31,477,370), including warrants, of LXR International issued and outstanding prior to the LXR Acquisition. The reassessment of the fair value of the convertible preferred shares of LXR International also impacts the accounting for the reacquisition of control of an associate ($1,465,090, previously reported as $2,070,422), Groupe Global LXR Inc., as well as the accounting for the issuance of stock-based compensation ($1,236,291, previously reported as $1,621,168), since the fair value assumptions used in the accounting of these equity transactions were derived from the determination of the fair value of the convertible preferred shares of LXR International.
In addition to the corrections referred to above, the Company also decided to correct for certain non-material inventory write-offs amounting to $0.1 million. The Company also reclassified to net change in non-cash working capital balances $1 million for acquisitions of property and equipment that were not yet disbursed as at December 31, 2017 (with no impact on aggregate cash flow as of December 31, 2017). Finally, the Company reclassified certain amounts affecting accounts receivable and accounts payable and accrued liabilities amounting to $0.4 million.
As a result of the intended restatement of historical financial results, the Company believes that it may not be, or may cease to be, in compliance with certain of its covenants under its credit facilities, subject to any applicable cure periods. However, the Company believes that at no time did it fail to comply with the financial covenants contained in its credit facilities. The Company has initiated discussions with lenders under its credit facilities regarding the potential impact of these matters and the possible waivers of affected covenants. Accordingly, the Company reclassified its credit facility and line of credit from non-current to current.
The Company intends to restate its previously reported consolidated financial statements as at and for the years ended December 31, 2017 and 2016, and all related disclosures. The preliminary impact of the above-noted corrections on LXRandCo's consolidated financial statements for the affected years are as follows:
Restatement schedule for December 31, 2017 | | As reported | Adjustments | Restated
(unaudited) |
| Consolidated statement of financial position | $ | $ | $ |
| | | | |
| Assets | | | |
| Trade receivable | 4,968,344 | 412,000 | 5,380,344 |
| Inventory | 15,871,901 | (120,000) | 15,817,901 |
| Total current assets | 25,502,788 | 292,000 | 25,794,788 |
| Goodwill | 5,023,074 | (1,339,087) | 3,683,987 |
| Total assets | 34,345,078 | (1,047,087) | 33,297,991 |
| | | | |
| Liabilities and shareholders' equity |
| Credit facility and line of credit | — | 8,189,476 | 8,189,476 |
| Accounts payable and accrued liabilities | 5,829,675 | 412,000 | 6,241,675 |
| Total current liabilities | 6,665,580 | 8,601,476 | 15,267,056 |
| Credit facility and line of credit | 8,189,476 | (8,189,476) | — |
| | 15,253,933 | 412,000 | 15,665,933 |
| Shareholders' equity | | | |
| Share capital | 64,897,185 | 22,806,612 | 87,703,797 |
| Deficit | (46,913,803) | (23,880,822) | (70,794,625) |
| Additional paid-in capital | 1,621,168 | (384,877) | 1,236,291 |
| Total shareholders' equity | 19,091,145 | (1,459,086) | 17,632,058 |
| | 34,345,078 | (1,047,086) | 33,297,991 |
| | | | |
| | | | |
| | | | |
| | | | |
| | As reported | Adjustments | Restated
(unaudited) |
| Consolidated statement of loss and comprehensive loss | $ | $ | $ |
| | | | |
| Cost of sales | 26,741,928 | 120,000 | 26,861,928 |
| Gross profit | 10,327,209 | (120,000) | 10,207,209 |
| Selling, general and administrative expenses | 16,162,129 | (384,877) | 15,777,252 |
| Results from operating activities | (6,309,697) | 264,877 | (6,044,820) |
| Non-recurring gain on acquisition of an associate | (2,070,422) | 605,332 | (1,465,090) |
| Excess of fair value over net assets acquired | 14,363,558 | 29,393,481 | 43,757,039 |
| Gain on expiration of warrants | (3,195,459) | 794,057 | (2,401,402) |
Change in fair value of convertible redeemable preferred
shares | — | 226,101 | 226,101 |
| Convertible redeemable preferred shares dividends | 61,308 | (13,196) | 48,112 |
| Change in fair value of warrants | — | 257,532 | 257,532 |
| Net loss | (17,952,374) | (30,998,430) | (48,950,804) |
| Comprehensive loss | (18,292,955) | (30,998,430) | (49,291,385) |
| | | | |
| Loss per share | | | |
| Basic and fully diluted | (1.97) | (3.83) | (5.80) |
Weighted average number of shares outstanding – basic and
fully diluted | 9,293,676 | 792,264 | 8,501,412 |
| | | | |
| | | | |
| | | | |
| | | | |
| | As reported | Adjustments | Restated
(unaudited) |
| Consolidated statement of cash flows | $ | $ | $ |
| | | | |
| Operating activities | | | |
| Net loss for the year | (17,952,374) | (30,998,430) | (48,950,804) |
| Stock-based compensation | 1,780,265 | (384,877) | 1,395,388 |
| Non-recurring gain on acquisition of an associate | (2,070,422) | 605,332 | (1,465,090) |
| Gain on expiration of warrants | (3,195,459) | 794,057 | (2,401,402) |
Change in fair value of convertible redeemable preferred
shares | — | 226,101 | 226,101 |
| Convertible redeemable preferred shares dividends | 61,308 | (13,196) | 48,112 |
| Change in fair value of warrants | — | 257,532 | 257,532 |
| Excess of fair value over net assets acquired | 14,363,558 | 29,393,481 | 43,757,039 |
Net change in non-cash working capital balances related to
operations | (10,014,343) | (1,402,751) | (11,417,094) |
| Cash flows used in operating activities | (15,734,746) | (1,522,751) | (17,257,497) |
| Investing activities | | | |
| Acquisitions of property and equipment | (2,428,961) | 976,190 | (1,452,771) |
| Cash acquired from acquisition | 19,004,989 | (19,004,989) | — |
| Cash flows provided (used in) by investing activities | 16,864,619 | (18,028,799) | (1,164,180) |
| Financing activities | | | |
| Cash proceeds from acquisition | — | 19,551,550 | 19,551,550 |
| Cash flows provided by financing activities | 2,001,503 | 19,551,550 | 21,553,053 |
| Net increase in cash during the year | 4,015,025 | — | 4,015,025 |
Restatement schedule for December 31, 2016 | | As reported | Adjustments | Restated
(unaudited) |
| Consolidated statement of financial position | $ | $ | $ |
| | | | |
| Non-current liabilities | | | |
| Convertible redeemable preferred shares | 30,226,003 | (7,117,609) | 23,108,394 |
| Total liabilities | 41,149,885 | (7,117,609) | 34,032,276 |
| Shareholders' deficiency | | | |
| Deficit | (28,961,429) | 7,117,609 | (21,843,820) |
| Total shareholders' deficiency | (29,134,153) | 7,117,609 | (22,016,544) |
| | 12,015,732 | — | 12,015,732 |
| | | | |
| | | | |
| | | | |
| | | | |
| |
As reported |
Adjustments | Restated
(unaudited) |
| Consolidated statement of loss and comprehensive loss | $ | $ | $ |
| | | | |
Change in fair value of convertible redeemable preferred
shares | 17,277,928 | (4,332,537) | 12,845,391 |
| Convertible redeemable preferred shares dividends | 661,442 | (143,417) | 518,025 |
| Change in fair value of warrants | 9,582,300 | (2,641,654) | 6,940,646 |
| Net loss | (28,317,018) | 7,117,609 | (21,199,409) |
| Comprehensive loss | (28,305,478) | 7,117,609 | (21,187,869) |
| | | | |
| Loss per share | | | |
| Basic and fully diluted | (6.26) | 1.57 | (4.69) |
Weighted average number of shares outstanding – basic and
fully diluted | 4,584,080 | (63,299) | 4,520,781 |
| | | | |
| | | | |
| | | | |
| | | | |
| | As reported | Adjustments | Restated
(unaudited) |
| Consolidated statement of cash flows | $ | $ | $ |
| | | | |
| Operating activities | | | |
| Net loss for the year | (28,317,018) | 7,117,609 | (21,199,409) |
Change in fair value of convertible redeemable preferred
shares | 17,277,928 | (4,332,537) | 12,845,391 |
| Convertible redeemable preferred shares dividends | 661,442 | (143,417) | 518,025 |
| Change in fair value of warrants | 9,582,300 | (2,641,654) | 6,940,646 |
| Cash flows used in operating activities | (3,650,336) | — | (3,650,336) |
All of the amounts in respect of the restatement remain subject to audit. The adjustments presented above are an estimate, are preliminary in nature and may change as a result of additional work in the preparation of the 2017 Amended and Restated Financial Statements. In addition, there may be other items in the 2017 Amended and Restated Financial Statements that may be impacted by the restatement. All amounts are subject to change until the 2017 Restated Financial Statements are approved by the Board of Directors and refiled on SEDAR.
The Company intends to file the 2017 Amended and Restated Financial Statements as soon as practicable and are working closely with their independent auditors to provide remaining audit evidence to enable the release of the 2017 Amended and Restated Financial Statements.
Background On June 9, 2017, Gibraltar Growth, the predecessor of the Company, completed the acquisition of LXR International and closed a private placement (the "Private Placement") of Class B shares ("Class B Share") for gross proceeds of $25 million. Gibraltar Growth, a special purpose acquisition corporation ("SPAC") whose Class A restricted voting shares (each, a "Class A Restricted Voting Share") and warrants (each, a "Warrant") were listed on the Toronto Stock Exchange (the "TSX"), was incorporated under the
Business Corporations Act (Ontario) for the purpose of effecting an acquisition of one or more businesses or assets, by way of merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization, or other similar business combination involving Gibraltar Growth, referred to as its "qualifying acquisition". The LXR Acquisition constituted Gibraltar Growth's qualifying acquisition (the "Qualifying Acquisition"). In connection with the closing of the Qualifying Acquisition, Gibraltar Growth was renamed to LXRandCo, Inc.
While Gibraltar Growth was the legal acquirer of LXR International, LXR International was identified as the acquirer for accounting purposes. The LXR Acquisition is outside the scope of IFRS 3,
"Business Combinations" ("IFRS 3"), and it is accounted for as an equity-settled, share-based payment transaction in accordance with IFRS 2,
"Share-based Payments" ("IFRS 2"). LXRandCo is considered to be a continuation of LXR International with the net identifiable assets of Gibraltar Growth deemed to have been acquired by LXR International in exchange for shares of LXR International. Under IFRS 2, the transaction is measured at the fair value of the shares deemed to have been issued by LXR International in order for the ownership interest in the combined entity to be the same as if the transaction had taken the legal form of LXR International acquiring 100% of Gibraltar Growth. Any difference in the fair value of the shares deemed to have been issued by LXR International and the fair value of Gibraltar Growth's identifiable net assets represents a service received by LXR International, recorded through profit and loss. LXR International's historical financial statements as of and for the periods ended prior to the completion of the Qualifying Acquisition are presented as the historical financial statements of LXRandCo prior to the date of the completion of the Qualifying Acquisition.
About LXRandCo LXRandCo is an international omni-channel retailer of branded vintage luxury handbags and other personal luxury products. LXRandCo sources and authenticates high-quality, pre-owned products from iconic brands such as Herms, Louis Vuitton, Gucci and Chanel, among others, and sells them at attractive prices through: a retail network of stores located primarily in major department stores in the United States and Canada; wholesale operations primarily in the United States; and its own e-Commerce website,
www.lxrco.com.
Caution Regarding Forward-Looking Statements Certain statements in this press release are prospective in nature and constitute forward-looking information and/or forward-looking statements within the meaning of applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements generally, but not always, can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "could", "would", "will", "expect", "intend", "estimate", "forecasts", "project", "seek", "anticipate", "believes", "should", "plans" or "continue", or similar expressions suggesting future outcomes or events and the negative of any of these terms. Forward-looking statements in this news release include, but are not limited to, statements regarding the Company's planned adjustments to restate our historical consolidated financial statements and intention to file restated consolidated financial statements. Forward-looking statements reflect management's current beliefs, expectations and assumptions and are based on information currently available to management. With respect to the forward-looking statements included in this press release, management has made certain assumptions with respect to, among other things, the nature and magnitude of the restatement that needs to be made and other factors which management considers appropriate.
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur.
All forward-looking statements included in and incorporated into this press release are qualified by these cautionary statements. Unless otherwise indicated, the forward-looking statements contained herein are made as of the date of this press release, and except as required by applicable law, the Company does not undertake any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
Readers are cautioned that the actual results achieved will vary from the information provided herein and that such variations may be material. Consequently, there are no representations by LXRandCo that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements.
SOURCE LXRandCo, Inc.