ManifestSeven Could Go Under As Revenue Falls

Following the close of the market on Friday, ManifestSeven Holdings Corporation (OTC: MNFSF) reported its financial results for its fiscal second-quarter ending May 31, 2021, as revenue fell from last year and was flat sequentially. The total revenue for the quarter was $3.7 million, which dropped from last year’s $4.9 million for the same time period. It was flat from the first quarter’s revenue of $3.8 million. 

The net loss for the quarter increased from $1 million in 2020 to $1.7 million in 2021. M7 said it continued to optimize its cost structure, resulting in operating expenses of $2.7 million during the fiscal second quarter, representing a decrease of 23% from $3.5 million during the first fiscal quarter.

During the second fiscal quarter, M7 said it continued to place a greater emphasis on generating revenue from its regulated operations, with regulated product sales increasing by 4% quarter-over-quarter and expected to yield greater long-term revenue growth. The company’s gross profit margin increased from 30% during the first fiscal quarter to 33% during the second fiscal quarter, with gross profit margin for the company’s regulated segment increasing from 30% to 34% quarter-over-quarter.

Sturges Karban, M7’s Chief Executive Officer, said, “M7’s launch into 2021 demonstrated that our commitment to integrating our B2B and B2C operations into a singular, statewide cannabis superhighway has yielded a reliable, scalable, and frictionless commercial platform capable of supporting the legal cannabis industry’s increasing demand for distribution, retail, and delivery solutions. In this most recent quarter, M7 continued to build upon its focused strategy by further developing Highlanders’ distribution capabilities and strengthening the business processes and practices across the Company’s integrated regulated operations.”

Going Concern

The company also stated within its earnings release that it will need to raise additional capital during the next twelve months and beyond to support current operations and planned development. At the time of the filing, M7 only had $644,000 in cash on hand. “These factors indicate the existence of a material uncertainty that may cast significant doubt as to the Company’s ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with cash on hand and proceeds from a financing done
prior to the Merger.” The company said in a statement that it has initiated a strategic review process to explore, review and evaluate a broad range of potential alternatives for M7 focused on maximizing shareholder value.

M7 also reviewed its inability to make its interest payments due on the New H3O Note on July 1, 2021. “The Company announced that it has modified the terms of the New H3O Note to (a) clarify the rights of the parties thereto, (b) provide for additional security in consideration of the lender’s deferral of its right to immediately foreclose upon the pledged collateral, and (c) to amend certain other provisions of the New H3O Note to add the lender as a regulatory owner on H3O’s applicable cannabis licenses and escrow all documents required to completely transfer ownership of H3O over to the lender in the event of a subsequent default under the New H3O Note.”

“As consideration for this modification, the New H3O Note will accrue interest at the pre-existing default rate of 25% per annum from June 1, 2021, until paid in full pursuant to the terms of the New H3O Note (as modified). No payment of principal or interest shall be due before the maturity date, which shall remain January 1, 2022. In accordance with New H3O Note, the Company shall be entitled to prepay the principal amount, all accrued and unpaid interest, and costs plus a prepayment fee equal to the lesser of two additional months of interest or the amount of interest that would accrue between the date of prepayment and the maturity date.”

Despite revenue and going concern issues, in April 2021, M7 approved the issuance of 14,360,789 restricted stock units, 2,187,826 of which vest in October 2021 with the remainder vesting in April 2022. Stock-based compensation was $152,333 in the quarter versus $14,606 for the same time period last year.

Problems

As M7 tries to make strategic moves, it seems each attempt is thwarted. The company is in litigation over its acquisition of the cannabis delivery firm DPH. The value of the deal was $645,000. In July 2020, DPH claimed M7 failed to pay the money due to DPH and get regulatory approvals. DPH wants to cancel the agreement. M7 filed a countersuit in August 2020 and claimed DPH didn’t cooperate with M7 to get the approvals. The claims have not been resolved.

The company conducts, or, in the case of the Sacramento facility, plans to conduct, operations out of these facilities through certain of its wholly-owned subsidiaries, or, in the case of the Long Beach and Oakland facilities, through certain affiliated entities owned by the company’s CEO and director and controlled by the company by way of a management agreement. The company initially funded security deposits on these facilities, including the Long Beach and Oakland facilities. One location has apparently not worked out. M7 had placed a deposit of $65,000 on a facility in Monterey, but due to a change of operations and the assessment that it was not recoverable, the company has determined this deposit to be uncollectible and recorded a full write-off on the amount during the year ending November 30, 2020.

 

 

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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