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, 2022, 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 | 21 | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2022 | December 31, 2021 | |||||
(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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Current portion of notes receivable, net of allowance of | — | |||||
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 | $ | | $ | | ||
Interest payable |
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Operating lease liability, current | | | ||||
Accrued stock payable |
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Warrant derivative liability |
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Notes payable - current | | | ||||
Total current liabilities |
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Operating lease liability, non-current | | | ||||
Notes payable - long-term (net of discount) | | | ||||
Related party long-term notes payable (net of discount) | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 9) | ||||||
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 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, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
Revenue |
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Retail sales | $ | | $ | — | $ | | $ | — | |||||
Cultivation sales | | | | | |||||||||
Interest | — | — | — | | |||||||||
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 income (loss) | | ( | ( | ( | |||||||||
Other expenses (income) | |||||||||||||
Amortization of debt discount and equity issuance costs | | | | | |||||||||
Interest expense | | | | | |||||||||
(Gain) loss on derivative liability | ( | ( | | | |||||||||
(Gain) loss on sale of assets | ( | — | ( | | |||||||||
Total other expenses, net | | | | | |||||||||
Net loss from continuing operations before income taxes | ( | ( | ( | ( | |||||||||
Provision for income taxes | — | — | — | — | |||||||||
Loss from continuing operations | ( | ( | ( | ( | |||||||||
Income (loss) from discontinued operations, net of tax | — | ( | | ( | |||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
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 condensed consolidated financial statements.
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TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, | ||||||
2022 | 2021 | |||||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in 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 | | ( | ||||
(Gain) loss on disposal of property and equipment | ( | | ||||
Loss on warrant 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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Accounts payable and accrued liabilities | | ( | ||||
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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Proceeds for sale of equipment | | — | ||||
Proceeds on notes receivable | | | ||||
Acquisition of TREES MLK | ( | — | ||||
Proceeds from sale of investment | — | | ||||
Net cash provided by (used in) investing activities |
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Cash flows from financing activities |
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Proceeds from exercise of stock options | — | | ||||
Proceeds from notes payable | — | | ||||
Payments on notes payable | ( | ( | ||||
Net cash provided by (used in) financing activities |
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Net increase (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 | $ | | $ | | ||
Non-cash investing & financing activities |
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Operating lease right-of-use asset/Operating lease liability | $ | | $ | — | ||
Issuance of accrued stock | $ | | $ | — | ||
Cashless warrant exercise | $ | — | $ | | ||
Beneficial conversion feature | $ | — | $ | | ||
$ | — | $ | | |||
Issuance of common stock to a consultant | $ | — | $ | |
See Notes to condensed consolidated financial statements.
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TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY (DEFICIT)
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 |
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Share-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss |
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June 30, 2022 |
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For the three months ended June 30, 2021 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
Shares |
| Amount | Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||
April 1, 2021 | — | $ | — | |
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Common stock issued upon exercise of stock options | — | — | |
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Warrants issued with | — | — | — | — | | — | | ||||||||||||
Beneficial conversion feature | — | — | — | — | | — | | ||||||||||||
Stock-based compensation | — | — | — | — | ( | — | ( | ||||||||||||
Net loss | — | — | — |
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June 30, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | |
| For the six months ended June 30, 2022 | ||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
| Shares |
| Amount | Shares |
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| Paid-in Capital |
| Deficit |
| Total | |||||||
January 1, 2021 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
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 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
For the six months ended June 30, 2021 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
Shares |
| Amount | Shares |
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| Paid-in Capital |
| Deficit |
| Total | ||||||||
January 1, 2020 | — | $ | — | | $ | | $ | | $ | ( | $ | | |||||||
Common stock issued to a consultant | — |
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Common stock issued upon exercise of stock options | — | — | | | | — | | ||||||||||||
Warrants issued with | — |
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Beneficial conversion feature | — |
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Cashless exercise of warrants | — |
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Stock-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss | — |
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June 30, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | |
See Notes to 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,”) (formerly, General Cannabis Corp), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. On June 8, 2022, our shareholders, upon recommendation of the Board, approved an amendment to our Amended and Restated Articles of Incorporation at our 2022 Annual Meeting of Stockholders. The amendment to our Amended and Restated Articles of Incorporation was filed with the Secretary of State of the State of Colorado on June 8, 2022 and formally changed the name of the Company to TREES Corporation. We currently trade on the OTCQB® Market under the trading symbol CANN. The trading symbol did not change with the name change. As of June 30, 2022, our operations are segregated into the following segments:
Retail (“Retail Segment”)
Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021 and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and
Cultivation (“Cultivation Segment”)
Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a
During the three months ended June 30, 2022 and 2021,
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 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
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("U.S. GAAP") can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2021, 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 consolidated financial statements and notes thereto of the Company for the year ended December 31, 2021, which were included in the annual report on Form 10-K filed by the Company on March 25, 2022.
In the opinion of management, these 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, 2022, are not necessarily indicative of the operating results for the year ending December 31, 2022, 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.
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 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. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations, and financial condition, including revenues, expenses, reserves and allowances, fair value measurements and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
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 $
On January 1, 2021, we discontinued our investments segment. As this is not a materially significant segment, we have not shown the effects of the discontinued segment in the financial statements.
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.
Going Concern
We incurred net losses of $
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The accompanying 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 convertible 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 independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about our ability to continue as a going concern. Our 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 support our planned investing activities. 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, 2021, for discussion of the Company's significant accounting policies.
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, 2021, although early adoption is permitted. We adopted this ASU in the first quarter of 2022. This ASU did not have a material effect on our condensed consolidated financial statements.
FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We adopted this ASU in the first quarter of 2021. This ASU did not have a material effect on our condensed consolidated financial statements.
NOTE 2. BUSINESS ACQUISITION
On September 2, 2021, we completed the acquisition of substantially all of the assets of TREES Englewood, representing a portion of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021, by and among the Company, seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”). We paid $
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The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Cash | $ | | |
Fixed assets |
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Inventory | | ||
Tradename | | ||
Goodwill |
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The accompanying condensed consolidated financial statements include the results of Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:
| Three months ended |
| Six months ended | ||||
June 30, | June 30, | ||||||
2021 | 2021 | ||||||
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, 2020, or to project potential operating results as of any future date or for any future periods.
On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC, representing a portion of the overall Trees Transaction, which consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”). We paid cash in the amount of $
The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Cash | $ | | |
Fixed assets |
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Inventory | | ||
Tradename | | ||
Goodwill |
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$ | |
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The accompanying consolidated financial statements include the results of Trees Oregon from the date of acquisition for financial reporting purposes, December 30, 2021. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:
| Three months ended | Six months ended | |||||
June 30, | June 30, | ||||||
2021 | 2021 | ||||||
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, 2020, or to project potential operating results as of any future date or for any future periods.
On January 5, 2022, we completed the acquisition of substantially all of the assets of Trees MLK Inc. (“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction. We paid cash in the amount of $
The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Fixed assets |
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Tradename | | ||
Goodwill |
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The accompanying consolidated financial statements include the results of Trees MLK from the date of acquisition for financial reporting purposes, January 5, 2022. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2021, are as follows:
| Three months ended |
| Six months ended | |||||||||
June 30, | June 30, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
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, 2021, or to project potential operating results as of any future date or for any future periods.
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NOTE 3. 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 $
Assets and liabilities of discontinued operations for the Operations Segment included the following:
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
Accounts receivable, net | $ | — | $ | — | ||
Prepaid expenses and other current assets |
| — |
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Current assets discontinued operations | — | — | ||||
Property and equipment, net | — | — | ||||
Noncurrent assets discontinued operations | — | — | ||||
Accounts payable and accrued expenses | — | — | ||||
Customer deposits | — | — | ||||
Current liabilities discontinued operations | $ | — | $ | — |
A summary of the discontinued operations for the Operations Segment is presented as follows: