OTTAWA, Canada–(BUSINESS WIRE)–Eureka 93 Inc. (CSE: ERKA, “Eureka93”) announced today that the current Board of Directors, after having reviewed strategic alternatives, has recommended that the company enter into an initial restructuring phase by reversing certain components of share transfer agreements, and entering to a share cancellation agreement, subject to partial revocation of the cease trade order issued by the Ontario Securities Commission, and also seeking exemptive relief regarding certain continuous disclosure matters.
Pursuant to the insolvent nature of the company, and to secured creditors being able to act on their security, the current Board of Directors of Eureka 93 Inc. (E93) resolved to agree to reverse the March 28, 2019 share transfer agreement concerning the acquisition of Acenzia Inc., and to accept a share cancellation agreement with certain Vitality Natural Health LLC shareholders to effectively reverse components of the definitive amalgamation share exchange agreement (Exchange Agreement) dated April 26, 2019 by and among Eureka 93 Inc. (formerly LiveWell Canada Inc.) and their respective shareholders, and Vitality Natural Health LLC, and their respective shareholders, [via Vitality CBD Natural Health Products Inc. (formerly Serenity CBD Canada Inc.) and Mercal Capital Corp.]. Both of these share transfer reversals and cancellations are material in nature and significantly improve the capitalization table of the company. Both are subject to a partial revocation of the cease trade order issued by the Ontario Securities Commission (OSC) on September 4, 2019, as well as obtaining exemptive relief from the OSC and CSE for continuous disclosure obligations for Q2 and Q3 2019 until such time as the company restructuring is completed.
On September 24, 2019, the former E93 executive management team including the CEO, CFO and COO, and the Board of Directors, except one Board member, all resigned and abandoned the company. At that time, it was evident to the former Board and executive management team that the E93 group of companies were insolvent, and that material impairments would be required to be disclosed both at Q2 ended June 30, 2019 and Q3 ended September 30, 2019 financial disclosures.
Since mid-October 2019, a new E93 Board was appointed and Co-CEOs were established as disclosed in press release. Since then, the new management team and Board of E93 have undertaken due diligence to review all former documents, asset impairments, and security agreements (to the extent that the information was available) with a view to undertake a comprehensive restructuring of the company.
The E93 Board and Co-CEOs have also been considering options and alternatives for a viable restructuring of the companies within the E93 group, with a focus on maintaining Artiva Inc. and it’s Cannabis license and related operations for the future.
Since mid-October 2019, other than to point out a material impairment in biomass inventory of Vitality LLC that the former management team was aware of, the new E93 Board and new management team have received virtually no assistance, nor transition knowledge transfer, in financial reporting matters, disclosures, asset impairments, and securities matters from the former CEO, CFO, and COO. The new management team was able to reconcile the unconsolidated financial statements for all companies within the E93 group for Q2 ended June 30, 2019 in CAD, and for Q3 ended September 30, 2019 in CAD (with the exception of Vitality LLC that is recorded in USD). This reconciliation included accruals for additional liabilities and asset impairments that may have subsequently existed from June 30, 2019 to December 4, 2019. At that time, a material caveat for such disclosures was that the complex capitalization table was not effectively reconciled beyond September 30, 2019.
Three material exceptions remain regarding the Q2 and Q3 unconsolidated financial reporting disclosures:
- Although the Q2 ended June 30, 2019 capitalization table was substantially reconciled and forwarded to the external auditors MNP for review on August 13, 2019, new management was not able to verify the complex capitalization table for the period from June 30th to September 30th and beyond, which requires specialized knowledge of agreements, warrants, and negotiated option knowledge that has not been transferred to the new management team;
- The new E93 Board resolved to record material impairments across the E93 group of companies under IFRS guidance, given subsequent event knowledge that the company now has and given the insolvent financial position of the group of companies finds itself in today. However new management was not able to confirm these impairments against an independent review by the external auditors MNP, as there is a significant outstanding balance owing to the auditors and further work could not continue; and
- Although the company engaged a senior financial advisor in late October 2019, the company has not had a CFO since the former CFO resigned on September 24, 2019.
Material changes and material fair value impairments that have been approved by the new Board of E93 for recognition in the draft Q2 and Q3 2019 unconsolidated financial statements of certain E93 group of companies include:
- September 1, 2019 – Further to the announced $15,000,000.00 USD financing for a one year term agreement, on Sep 1st the former management team agreed to extend “hedge funds” General Security Agreement (GSA) to all E93 assets in exchange for relief from the Sept. 1st payment to same, and agreed for release from escrow $3,600,000.00 USD of conditional financing, which reduced residual escrow amounts and long-term debt by the same amount in Eureka 93 Inc.
- September 4, 2019 – OSC issues Cease Trade Order against E93 for failing to file Q2 ended June 30, 2019 quarterly financial disclosures
- November 15, 2019 – the new E93 Board resolved that effective Q2 ended June 30-2019, that the Vitality Natural Health LLC biomass inventory be written-down for impairment in the amount of $19,309,710.60 USD.
- November 15, 2019 – the new Board resolved effective September 30, 2019 to record an impairment charge against the LiveWell Foods Quebec Inc. Property, Plant & Equipment Improvement asset in the amount of $5,000,000.00 CAD, as the company is not in a position to continue investing in the development of the Litchfield Innovation Centre Project, and the secured debt and registered liens are nearing or exceed the fair value of the property at this time, where certain contractors have filed statements of claim in Quebec Superior Court for $1,800,000.00CAD and the secured lender holds a first charge of $4,653,526.00 CAD.
- November 15, 2019 – the new Board resolved to reverse the accrued bonuses payable to the previous executive management team as at September 30, 2019 in the amount of $444,000.00 CAD in LiveWell Foods Canada Inc., that were initially accrued by the resigning executive management team.
- November 29, 2019 – The new Board was given notice by Surety Land Development, LLC (Surety), regarding UCA § 70A-9a-609 Notice of Taking Possession, that Surety has a perfected security interest in Vitality Natural Health LLC’s equipment situated at the 254 Truss Road, Eureka Montana processing facility. Surety LLC provided the former executive management team with formal written notice of default under its Loan Agreements, as amended, on or about July 15th and July 29, 2019. The new E93 management team was not made aware of these default notices provides back in July 2019. Despite the written notice of default, Vitality Natural Health LLC had not cured the default. Surety provided the new E93 Board with written notice of its intent to take possession, pursuant to Utah Code Ann. § 70A-9a-609, of all of the Montana Processing Plant Equipment on Friday, November 29, 2019, at 9:00 am MST. This represents either a partial release, or a full release, of the $18,500,000.00 USD of the secured debt instrument held by Surety against Vitality Natural Health LLC, which needs to be verified.
The initial restructuring phase has commenced with the reversing of certain components of share transfer agreement, and entering to a share cancellation agreement, as noted below:
- The new Board approved on November 27, 2019 the reversal of the Acenzia Inc. investment of $16,972,839.21 CAD and acceptance of forfeiture of 793,650 E93 common shares in return, valued at an originating agreement amount of $14,498,523.81 CAD, based upon mutual defaults under the original agreement signed on March 28, 2019, and subject to a secured creditor acting on their security in the matter. This share exchange is subject to a partial revocation of the OSC cease trade order, and release of GSA over Acenzia assets, as well a holding of such shares in escrow. This reversal also involved the write-down for impairment of $1,709,000.00 CAD in LiveWell Foods Canada Inc. for impaired Interco advances to Acenzia Inc., offset by the retirement in totality of a $2,049,863.01 CAD Note Payable due to the original Acenzia Inc. shareholders;
- The new Board on December 4, 2019 approved a share cancellation agreement with certain Vitality Natural Health LLC shareholders, subject to partial revocation of the cease trade order by the OSC, by forfeiting their shares stemming from the amalgamation share exchange agreement (Exchange Agreement) dated April 26, 2019 by and among Eureka 93 Inc. (formerly LiveWell Canada Inc.) and their respective shareholders, and Vitality Natural Health LLC, and their respective shareholders, [via Vitality CBD Natural Health Products Inc. (formerly Serenity CBD Canada Inc.) and Mercal Capital Corp.]. The certain Vitality LLC stockholders were ~ 43.5% controlling shareholders of E93 as a result of the amalgamation. As a holder of record of 31,836,465 of E93 shares of common stock and other warrants and stock options as yet unexcercised as at December 4, 2019, the certain Vitality LLC shareholders have agreed to enter into an Agreement to Cancel Shares, Warrants and Options, to forfeit and have E93 cancel an aggregate of 31,836,465 shares of common stock held by the certain Vitality LLC stockholders, and forfeiture of all outstanding warrants and stock options held by such stockholders; and
- The new Board on December 4, 2019 resolved to seek Exemptive Relief from the OSC and CSE regarding its continuous disclosure requirements for Q2 and Q3 2019 given the significantly material changes being affected by the restructuring of the E93 group of companies.
Given these material restructurings, changes and impediments to ongoing operations, and notwithstanding best efforts by the new management team and Board under very difficult circumstances, E93 management regretfully informed the OSC and CSE on November 29, 2019 that E93 was not in a position to provide fully USD consolidated financial statements and notes for the Q2 and Q3 2019 periods, that would include MD&As, and related certifications.
Furthermore, the new Board resolved to seek Exemptive Relief from the OSC and CSE regarding its continuous disclosure requirements for Q2 and Q3 2019 given the significantly material changes being affected by the restructuring of the E93 group of companies. E93 plans to be in a position to file the Q4 year-end financial statements on a new consolidation basis as a restructured company focused on Artiva Inc. and the Cannabis license reporting in CAD.
Eureka 93 Inc. (Eureka93) is an integrated life sciences company focused on the cultivation, extraction, and distribution of cannabis and hemp-derived cannabidiol (CBD) through it’s Health Canada licensed Artiva facility in Ottawa, Canada and subsidiary operations. For more information, please visit: Eureka93.com