UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
for the quarterly period ended
for the transition period from ____________ to ____________.
Commission file number:
(Exact name of registrant as specified in its charter)
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(State of incorporation) | (IRS Employer Identification No.) | |
(Address of principal executive offices) (Zip Code) | ||
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(Registrant’s Telephone Number, Including Area Code) | ||
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☑ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 9, 2023, there were
TREES CORPORATION
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2023 | December 31, 2022 | |||||
(unaudited) | ||||||
Assets |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance of $ |
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Inventories, net | | | ||||
Prepaid expenses and other current assets |
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Total current assets |
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Right-of-use operating lease asset | | | ||||
Property and equipment, net | | | ||||
Intangible assets, net | | | ||||
Goodwill | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Interest payable |
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Income tax payable | | | ||||
Operating lease liability, current | | | ||||
Finance lease liability, current | | | ||||
Accrued stock payable |
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Accrued dividends | | | ||||
Warrant derivative liability |
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Accrued legal fees - current | | — | ||||
Notes payable - current | | | ||||
Total current liabilities |
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Operating lease liability, non-current | | | ||||
Finance lease liability, non-current | | | ||||
Accrued legal fees, non-current | | — | ||||
Notes payable - non-current (net of unamortized discount) | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 10) | ||||||
Stockholders’ equity |
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Preferred stock, | | | ||||
Common stock, $ | | | ||||
Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
See Notes to unaudited condensed consolidated financial statements.
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TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2023 | 2022 | 2023 | 2022 | ||||||||||
Revenue |
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Retail sales | $ | | $ | | $ | | $ | | |||||
Cultivation sales | | | | | |||||||||
Total revenue | | | | | |||||||||
Costs and expenses | |||||||||||||
Cost of sales | | | | | |||||||||
Selling, general and administrative | | | | | |||||||||
Stock-based compensation | | | | | |||||||||
Professional fees | | | | | |||||||||
Depreciation and amortization | | ( | | | |||||||||
Total costs and expenses | | | | | |||||||||
Operating (loss) income | ( | | ( | ( | |||||||||
Other expenses (income) | |||||||||||||
Amortization of debt discount | | | | | |||||||||
Interest expense | | | | | |||||||||
(Gain) loss on derivative liability | ( | ( | ( | | |||||||||
Loss (gain) on sale of assets | | ( | | ( | |||||||||
Other (income) | ( | — | ( | — | |||||||||
Total other expenses, net | | | | | |||||||||
Net loss from continuing operations before income taxes | ( | ( | ( | ( | |||||||||
Provision for income taxes | — | — | | — | |||||||||
Loss from continuing operations | ( | ( | ( | ( | |||||||||
Income from discontinued operations, net of tax | — | — | — | | |||||||||
Net loss | $ | ( | ( | $ | ( | $ | ( | ||||||
Accrued preferred stock dividend | — | — | ( | — | |||||||||
Net loss attributable to common stockholders | $ | ( | ( | $ | ( | $ | ( | ||||||
Per share data - basic and diluted | |||||||||||||
Net loss from continuing operations per share | ( | ( | ( | ( | |||||||||
Net loss from discontinued operations per share | |||||||||||||
Net loss attributable to common stockholders per share | ( | ( | ( | ( | |||||||||
Weighted average number of common shares outstanding | | | | | |||||||||
See Notes to unaudited condensed consolidated financial statements.
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TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, | |||||
2023 | 2022 | ||||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Amortization of debt discount and equity issuance costs |
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Depreciation and amortization |
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Non-cash lease expense | | | |||
Bad debt expense | — | | |||
Loss (gain) on disposal of property and equipment | | ( | |||
(Gain) loss on derivative liability |
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Stock-based compensation |
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Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable |
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Prepaid expenses and other assets |
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Inventories |
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Income taxes | | — | |||
Accounts payable, accrued liabilities, and interest payable | | | |||
Operating lease liabilities | ( | ( | |||
Net cash used in operating activities |
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Cash flows from investing activities |
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Purchase of property and equipment |
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Acquisition of Station 2 assets | ( | — | |||
Proceeds for sale of equipment | — | | |||
Proceeds on notes receivable | — | | |||
Acquisition of Trees MLK | — | ( | |||
Net cash used in investing activities |
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Cash flows from financing activities |
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Payments on notes payable and finance lease | ( | ( | |||
Net cash used in financing activities |
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Net decrease in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | | $ | | |
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Supplemental schedule of cash flow information |
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Cash paid for interest | $ | | $ | | |
Cash paid for taxes | $ | | $ | — | |
Non-cash investing & financing activities |
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Operating lease right-of-use asset obtained in exchange for new operating lease liabilities | $ | | $ | | |
Non-cash debt issuance for acquisition of Station 2 assets | $ | | $ | — | |
Accrued dividends | $ | | $ | | |
See Notes to unaudited condensed consolidated financial statements.
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TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
For the three months ended June 30, 2023 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
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| Amount |
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| Paid-in Capital |
| Deficit |
| Total | ||||||
April 1, 2023 |
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Share-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss |
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June 30, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | | ||||||
For the three months ended June 30, 2022 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total | ||||||
April 1, 2022 | | | | | | ( | | ||||||||||||
Share-based compensation | | | |||||||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
June 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
| For the six months ended June 30, 2023 | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
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| Amount |
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January 1, 2023 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Dividends on preferred stock | — | — | — | — | — | ( | ( | ||||||||||||
Net loss | — | — | — |
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June 30, 2023 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
For the six months ended June 30, 2022 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
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| Amount |
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January 1, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Common stock issued for acquisition of Trees Waterfront LLC | — | — | | | | — | | ||||||||||||
Common stock issued for acquisition of Trees MLK LLC | — | — | | | | — | | ||||||||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss | — |
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June 30, 2022 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
See Notes to unaudited condensed consolidated financial statements.
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TREES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS, HISTORY, AND PRESENTATION
Nature of Operations
TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) is a cannabis retailer and cultivator in the States of Colorado and Oregon.
We presently operate
● | Englewood, Colorado |
o | 5005 S. Federal Boulevard – Recreational license only |
● |
o | 468 S. Federal Boulevard – Recreational license only |
o | East Hampden Avenue (formerly Green Man) –Recreational license only |
● | Longmont, Colorado |
o | 12626 N. 107th Street (formerly Green Tree/Ancient Alternatives) – Medical and Recreational licenses |
● | Berthoud, Colorado |
o | 1090 N. 2nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical and Recreational licenses |
● |
o | SW Corbett Avenue, Portland, OR – Medical and Recreational licenses |
o | NE 102nd Avenue, Portland, OR – Medical and Recreational licenses |
o | 7050 NE MLK, Portland, OR – Medical and Recreational licenses |
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We also operate
● | SevenFive Farm – 3705 N. 75th Street, Boulder – Retail cultivation license only |
● | 6859 N. Foothills Highway E-100 (formerly Green Tree/Hillside Enterprises) – Retail cultivation license only |
● | 1090 N. 2nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical cultivation license only |
Our principal business model is to acquire, integrate and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network.
Discontinued Operations - Operations Consulting and Products (“Operations Segment”)
Through Next Big Crop (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.
NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products included building materials, equipment, consumables, and compliance packaging. NBC also provided operational support for our internal cultivation. On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S. GAAP") can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2022, was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2022, which were included in the annual report on Form 10-K filed by the Company on April 17, 2023.
In the opinion of management, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results. The results for the three and six months ended June 30, 2023, are not necessarily indicative of the operating results for the year ending December 31, 2023, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.
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Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consisted primarily of cash and accounts receivable.
Customer and Revenue Concentrations – Cultivation Segment
During the three months ended June 30, 2023 and 2022,
During the three months ended June 30, 2023,
Going Concern
We incurred net losses of $
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our operations with proceeds from the issuance of debt. We expect our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our ability to continue as a going concern is dependent upon our ability to raise additional capital to fund operations, support our planned investing activities, and repay our debt obligations as they become due. If we are unable to obtain additional funding, we would be forced to delay, reduce, or eliminate some or all of our acquisition efforts, which could adversely affect our growth plans.
Summary of Significant Accounting Policies
See our Annual Report on Form 10-K for the year ended December 31, 2022, for discussion of the Company's significant accounting policies.
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Recently Issued Accounting Standards
FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. We adopted this ASU in the first quarter of 2022, and the adoption did not have a material effect on our financial statements.
NOTE 2. BUSINESS ACQUISITION
On December 12, 2022, we completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a Colorado limited liability company (collectively, the "Green Tree Entities”). We assumed certain operating obligations at closing, including certain manufacturing agreements between GT Creations and affiliates of the Green Tree Entities. Allyson Feiler, a principal owner of the Green Tree Entities, was also elected to our Board of Directors effective the date of acquisition.
We paid cash in the amount of $
The table below reflects the Company’s preliminary estimates of the acquisition date fair values of the assets acquired.
Cash |
| $ | |
Inventory | | ||
Fixed assets | | ||
Tradename | | ||
Goodwill |
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$ | |
We have not completed the allocation of the purchase price for the Green Tree Acquisition. As of June 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.
10
The accompanying consolidated financial statements include the results of the Green Tree Entities from the date of acquisition for financial reporting purposes, December 12, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows:
| Three months ended |
| Six months ended | |||
June 30, | June 30, | |||||
| 2022 |
| 2022 | |||
Total revenues | $ | | $ | | ||
Net income (loss) attributable to Common Stockholders | $ | | $ | | ||
Net income (loss) per common share | | | ||||
Weighted average number of basic and diluted common shares outstanding | | | ||||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods.
On December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of Green Man. We paid cash in the amount of $
The table below reflects the Company’s preliminary estimates of the acquisition date fair values of the assets acquired:
Cash |
| $ | |
Inventory | | ||
Fixed assets | | ||
Tradename | | ||
Goodwill |
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$ | |
We have not completed the allocation of the purchase price for the Green Man Acquisition. As of June 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.
The accompanying consolidated financial statements include the results of Green Man from the date of acquisition for financial reporting purposes, December 19, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows:
| Three months ended |
| Six months ended | |||
June 30, | June 30, | |||||
| 2022 |
| 2022 | |||
Total revenues | $ | | $ | | ||
Net income (loss) attributable to Common Stockholders | $ | ( | $ | ( | ||
Net income (loss) per common share | $ | ( | | |||
Weighted average number of basic and diluted common shares outstanding | | | ||||
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The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods.
NOTE 3. ASSET ACQUISITION
In February 2023, we completed the acquisition of the assets of Station 2, LLC. The assets consist of a medical and retail cannabis license for a dispensary located in Denver, CO. We also assumed responsibility of the operating lease for the dispensary and recorded the relating ROU asset which is disclosed separately on the accompanying consolidated balance sheets. The consideration paid by the Company consists of cash at closing equal to $
NOTE 4. DISCONTINUED OPERATIONS
On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all of the assets of NBC for a total of $
A summary of the discontinued operations for the Operations Segment is presented as follows:
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
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| 2022 |
| 2023 |
| 2022 | ||||||
Product revenues | $ | — | $ | — | $ | — | $ | |
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Service revenues | — | — | — | — | |||||||||
Total revenues | — | — | — | | |||||||||
Cost of sales | — | — |
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Selling, general and administrative | — | — |
| — |
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Professional fees | — | — |
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Depreciation and amortization | — | — | — | — | |||||||||
Total costs and expenses | — | — |
| — |
| ( | |||||||
Income from discontinued operations | $ | — | $ | — | $ | — | $ | | |||||
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