TREES Corp (Colorado) 8-K/A, filed Oct 19, 2021
TREES Corp (Colorado) (CANN)
About this 8-K/A
TREES Corp (Colorado) filed this 8-K/A on October 19, 2021, reporting on events of September 2, 2021.
Items reported
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 18, 2021 (
(Exact Name of Registrant as Specified in Charter)
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Registrant’s telephone number, including area code: (
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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 provided pursuant to Section 13(a) of the Exchange Act. ◻
Explanatory Note
This Current Report on Form 8-K/A (this “Amendment”) amends the Current Report on Form 8-K (the “Original 8-K”) filed by General Cannabis Corp (the “Company”) dated September 2, 2021, and filed with the Securities and Exchange Commission on September 8, 2021. This Amendment is solely for the purpose of providing the financial statements and information required by Item 9.01(a) of Form 8-K and the pro forma financial information required by Item 9.01(b) of Form 8-K in connection with the Company’s previously reported acquisition of TDM, LLC.
This Amendment No. 1 on Form 8-K/A amends and supplements the Original 8-K to include the historical audited and unaudited financial statements of TDM, LLC and the pro forma combined financial information required by Item 9.01 of Form 8-K that were not included in the Original 8-K in reliance on the instructions to such item. Except as set forth herein, no modifications have been made to information contained in the Original 8-K, and the Company has not updated any information contained therein to reflect events that have occurred since the date of the Original 8-K.
Item 9.01Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The audited financial statements of TDM, LLC as of and for the year ended December 31, 2020 and 2019, with the accompanying notes, are filed herewith as Exhibit 99.1 to this Form 8-K/A.
(b) Pro forma financial information.
The unaudited pro forma financial statements of TDM, LLC for the year ended December 31, 2020 and for the six months ended June 30, 2021 and 2020, with the accompanying notes, are filed herewith as Exhibit 99.3 to this Form 8-K/A.
(d) The exhibits listed in the following Exhibit Index are filed as part of this Current Report on Form 8-K.
Exhibit No. |
| Description |
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| Audited financial statements of TDM, LLC as of and for the years ended December 30, 2020 and 2019. | |
| Unaudited interim condensed consolidated financial statements of TDM, LLC | |
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104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: October 18, 2021
| GENERAL CANNABIS CORP | |
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| By: | /s/ Adam Hershey |
| Name: | Adam Hershey |
| Title: | Interim Chief Executive Officer |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Form 8-K-A of our report dated October 18, 2021, relating to the financial statements of TDM, LLC as of December 31, 2020.
Certified Public Accountants
Lakewood, CO
October 18, 2021
Exhibit 99.1
TDM, LLC
Financial Statements
For the years ended December 31, 2020 and 2019
TDM, LLC
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October 18, 2021
TDM, LLC
Englewood, Colorado
Report on the Financial Statements
We have audited the accompanying financial statements of TDM, LLC, which comprise the statements of financial position as of December 31, 2020, and the related statements of activities and cash flows for the years then ended and the related notes to the financial statements.
Going Concern Uncertainty
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is dependent on financing that is not guaranteed, which raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
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Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TDM, LLC as of December 31, 2020, and the results of its operations and its cash flows.
Emphasis of a Matter
TDM, LLC has significant transactions and relationships with related party affiliates, including entities controlled by the Members, which are described in Note 7 to the financial statements. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis, as the requisite conditions of competitive, free market dealings may not exist. Our opinion is not modified with respect to this matter.
Certified Public Accountants
Lakewood, CO
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TDM, LLC
As of December 31, |
| 2020 |
| 2019 | ||
ASSETS | | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | 264,798 | | $ | 200,972 |
Inventory | | | 334,214 | | | 400,289 |
Prepaid expenses and other current assets | | | 4,358 | | | 5,076 |
Total current assets | | | 603,370 | | | 606,337 |
Non-current assets | | | | | | |
Property and equipment, net | | | 18,805 | | | 7,212 |
Operating lease right-of-use asset | | | 466,142 | | | 595,944 |
Other non-current assets | | | 7,500 | | | 7,500 |
Total non-current assets | | | 492,447 | | | 610,656 |
Total Assets | | | 1,095,817 | | | 1,216,993 |
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LIABILITIES AND MEMBER'S EQUITY | | | | | | |
Current liabilities | | | | | | |
Accounts payable | | | 327,607 | | | 257,182 |
Accrued expenses and other current liabilities | | | 351,638 | | | 480,446 |
Current portion of lease obligation | | | 129,875 | | | 122,089 |
Total current liabilities | | | 809,120 | | | 859,717 |
Long-term liabilities | | | | | | |
Lease obligation, net of current portion | | | 331,186 | | | 477,805 |
Total liabilites | | | 1,140,306 | | | 1,337,522 |
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Commitments and contingencies (see note 6) | | | - | | | - |
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Member's equity (deficit) | | | (44,489) | | | (120,529) |
Total liabilities and member's equity | | $ | 1,095,817 | | $ | 1,216,993 |
See accompanying independent auditor’s report and notes to the financial statements
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TDM, LLC
Statement of Income and Member’s Equity (Deficit)
For the year ended December 31, |
| 2020 |
| 2019 | ||
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Product sales, net | | $ | 13,500,618 | | $ | 10,708,913 |
Cost of goods sold | | | 9,785,330 | | | 6,900,349 |
Gross margin | | | 3,715,288 | | | 3,808,564 |
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Operating expenses | | | | | | |
Labor and benefits | | | 1,391,432 | | | 1,271,328 |
Occupancy costs | | | 213,843 | | | 182,699 |
Professional services | | | 383,825 | | | 421,965 |
Office supplies and equipment | | | 111,923 | | | 106,383 |
Advertising and promotion | | | 41,064 | | | 147,521 |
Depreciation | | | 2,807 | | | 1,912 |
Other operating expense | | | 288,206 | | | 336,657 |
Total operating expenses | | | 2,433,100 | | | 2,468,465 |
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Operating income | | | 1,282,188 | | | 1,340,099 |
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Other Income | | | 9,120 | | | 4,158 |
Net Income | | $ | 1,291,308 | | $ | 1,344,257 |
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Member's equity, beginning of the year | | | (120,529) | | | 222,909 |
Contributions from member | | | 59,000 | | | - |
Distributions to member | | | (1,274,268) | | | (1,687,695) |
Member's equity (deficit), end of the year | | $ | (44,489) | | $ | (120,529) |
See accompanying independent auditor’s report and notes to the financial statements
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TDM, LLC
For the year ended December 31, |
| 2020 |
| 2019 | ||
Cash flows from operating activities | | | | | | |
Net income | | $ | 1,291,308 | | $ | 1,344,257 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation | | | 2,807 | | | 1,912 |
Lease payments (greater than) less than lease expense | | | (9,031) | | | 9,450 |
Changes in operating assets and liabilities: | | | | | | |
Inventories | | | 66,075 | | | (59,081) |
Prepaid expenses and other current assets | | | 718 | | | 4,578 |
Accounts payable | | | 70,425 | | | 21,104 |
Accrued expenses and other current liabilities | | | (128,808) | | | 209,264 |
Net cash provided by operating activities | | | 1,293,494 | | | 1,531,484 |
Cash flows from investing activities | | | | | | |
Purchase of property and equipment | | | (14,400) | | | (4,800) |
Net cash used for investing activities | | | (14,400) | | | (4,800) |
Cash flows from financing activities | | | | | | |
Contributions from member | | | 59,000 | | | - |
Distributions to member | | | (1,274,268) | | | (1,687,695) |
Net cash used for financing activities | | | (1,215,268) | | | (1,687,695) |
Net increase (decrease) in cash and cash equivalents | | | 63,826 | | | (161,012) |
Cash and cash equivalents at the beginning of the year | | | 200,972 | | | 361,984 |
Cash and cash equivalents at the end of the year | | $ | 264,798 | | $ | 200,972 |
Supplemental cash flow Information | | | | | | |
Cash paid during the year for: |
| | 2020 |
| | 2019 |
Amounts included in the measurement of lease liabilities | | $ | 201,569 | | $ | 89,380 |
Supplemental non-cash financing activity |
| | 2020 |
| | 2019 |
ROU assets obtained in exchange for new lease liabilities | | | - | | $ | 671,197 |
See accompanying independent auditor’s report and notes to the financial statements
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1. |
TDM, LLC (“TDM” or the “Company”) is a single member limited liability company which was formed in October 2014 under the laws of Colorado. Under the terms of the operating agreement, TDM will continue in existence until the member makes a determination to dissolve the entity. The Company’s principal business is retail sales of recreational and medicinal cannabis products. The licensed retail store is located in Englewood, Colorado and the Company’s business office is located in Denver, Colorado.
The Company’s business is subject to legal risk. Even though the State of Colorado has granted licenses to the Company for retail distribution of marijuana products, these activities remain illegal under federal law. This causes difficulty in obtaining traditional banking and financing relationships. If the federal government elects to enforce the laws as currently written or changes the laws with respect to cannabis, it could have an adverse effect on the Company’s operations, including potential prosecution under the laws and liquidation of the Company. The Company is also subject to a variety of state laws, regulations, and local ordinances.
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. FDIC insured cash balances held in a bank are approximately $147,000 and $23,000 as of December 31, 2020 and 2019, respectively. The Company has not experienced any losses on this account, and management believes that the Company’s risk of loss is remote. The remainder of the Company’s recorded cash balances consist of cash on hand.
Inventories
Inventories consist of finished goods ready for sale to retail customers and are stated at the lower of cost or net realizable value. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. The Company periodically reviews physical inventory to specifically identify and adjust the value of excess, obsolete, and otherwise unsaleable items. Based on the low level of historical write-offs and frequent inventory turnover, management believes that obsolete inventory as of the fiscal year end is immaterial, and therefore no reserve for obsolete inventory is recorded as of December 31, 2020 or 2019.
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Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. When property and equipment is sold or retired, the cost and accumulated depreciation are eliminated from the accounts and gains or losses are recorded in the statements of income. Expenditures for maintenance and repairs are expensed as incurred.
Depreciation is determined using the straight-line method over the following estimated useful lives:
Leasehold Improvements |
| 3-5 years |
Equipment | | 5 years |
Impairment of Long-Lived Assets
GAAP requires that long-lived assets, such as property and equipment, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the asset is measured by comparison of its carrying amount to undiscounted future net cash flows the asset is expected to generate. Specifically, management projects undiscounted cash flows expected over the period to be benefited. If such assets are considered to be impaired, the impairment recognized is measured as the amount by which the carrying amount of the asset exceeds its fair value. Estimates of expected future cash flows represent management’s best estimate based on currently available information and reasonable, supportable assumptions. Any impairment recognized is permanent and may not be restored. As of December 31, 2020, and 2019, the Company believes no indicators of impairment exist.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers and all the related amendments (the “revenue standard” or “ASC 606”).
The Company generates revenue from the sale of cannabis to individual retail customers. It recognizes this revenue at a point in time when control of the goods has been transferred to the customer at an amount which reflects the consideration the Company receives in exchange for those goods. The Company’s sales consist of a single performance obligation for which the transaction price for a given product sold is equivalent to the price quoted for the product, net of any discounts or allowances applicable at a point in time.
The Company has elected to exclude from measurement of the transaction price all taxes (e.g., sales, use, value added and certain excise taxes) that are assessed by a governmental authority in connection with a specific revenue-producing transaction and collected by the Company from the customer. Accordingly, the Company recognizes revenue net of taxes.
The Company generally does not have contract assets or contract liabilities.
Cost of Goods Sold
Cost of goods sold includes the costs of inventory sold including the product packaging as well as any inventory shrink due to theft or waste.
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Advertising and Marketing costs
Advertising and marketing costs are expensed as incurred.
Income Taxes
The Company has elected to be taxed as an S-Corporation under the provisions of the United States Internal Revenue Code. Accordingly, taxable income and losses of the Company are reported on the income tax returns of the Company’s member and no provision for income taxes has been reflected in these financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842” or the “new lease standard”). The Company adopted ASC 842 as of January 1, 2019, using the effective date method.
ASC 842 requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset. The Company elected to apply the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurement requirements in the new lease standard. See Note 4 for further discussion of the Company’s leases.
Other accounting standards have been issued or proposed by the FASB that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
3. | PROPERTY AND EQUIPMENT |
Property and equipment consisted of the following:
As of December 31, |
| 2020 |
| 2019 | ||
Leasehold Improvements | | $ | 16,170 | | $ | 1,770 |
Equipment | | | 8,300 | | | 8,300 |
Total property and equipment | | | 24,470 | | | 10,070 |
Less: Acummulated depreciation | | | (5,665) | | | (2,858) |
Property and equipment, net | | $ | 18,805 | | $ | 7,212 |
4. | LEASES |
The Company has operating leases for office space (“office lease”) and for its retail building (“store lease”).
From January 2019 through October 2019, the store lease was with a third-party lessor. As the remaining term on this lease was less than 12 months upon adoption of ASC 842, the Company elected not to apply the recognition and measurement provisions of the new lease standard to this lease.
When the third-party store lease expired, the building was acquired by Bellewood Holdings, LLC (“Bellewood”), a related party company under common ownership. The Company entered a new 5- year lease with Bellwood. The Company’s office lease is a 4-year lease that commenced in December 2018. Both of the Company’s leases include
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options to extend the lease term, however these options are not reasonably certain to be exercised and therefore are not included in the determination of the lease obligation or ROU asset. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The weighted average remaining term of the Company’s leases is 3.1 years as of December 31, 2020.
In addition to the monthly base rent payments, the Company pays additional amounts to cover the cost of insurance, property taxes, and other operating expenses. These additional payments are variable and, in accordance with ASC 842, are excluded from the recognition and measurement of the lease obligation.
The Company’s operating lease liabilities and ROU assets are presented separately on the accompanying Balance Sheet. The leases do not have a stated interest rate, and therefore management used a discount rate of 10% to determine the present value of the lease obligation.
Lease expense is recognized on a straight-line bases over the term of the lease, with incremental variable lease payments are expensed as incurred. Lease expense is included in Occupancy costs in the accompanying Statement of Income and Member’s Equity. The components of lease expense are as follows:
For the year ended December 31, |
| 2020 |
| 2019 | ||
Operating lease cost | | $ | 184,726 | | $ | 160,188 |
Variable lease cost | | | 29,117 | | | 22,511 |
Total lease cost | | $ | 213,843 | | $ | 182,699 |
Maturity of Lease Obligation as of December 31, 2020 |
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2021 | | $ | 171,056 |
2022 | | | 186,680 |
2023 | | | 102,000 |
2024 | | | 85,000 |
Total lease payments | | | 544,736 |
Less: Interest | | | (83,675) |
Present value of lease obligation | | $ | 461,061 |
5. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Details of the Company’s accrued expenses and other current liabilities are as follows:
As of December 31, |
| 2020 |
| 2019 | ||
Sales tax accruals | | $ | 309,119 | | $ | 439,662 |
Payroll accruals | | | 41,389 | | | 40,090 |
Other expense accruals | | | 1,131 | | | 694 |
Total accrued liabilities and other current assets | | $ | 351,638 | | $ | 480,446 |
6. | COMMITMENTS AND CONTINGENCIES |
The Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company followed applicable local and state regulation for the years ended December 31, 2020 and 2019, and through the date of the financial
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statements, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.
7. | RELATED PARTY TRANSACTIONS |
As discussed above in Note 4, the Company’s current store lease is with a Bellwood, a related party. The initial term of the lease is five years and includes an option for two successive terms of three years each. The total lease payments to Bellwood were $102,000 and $8,500 for the years ended December 31, 2020 and 2019, respectively. The portion of the Company’s lease obligation and associated ROU asset attributable to the related party lease are as follows:
| 2020 |
| 2019 | |||
Lease obligation attributable to related party lease | | $ | 315,177 | | $ | 389,680 |
ROU asset attributable to related party lease | | $ | 317,161 | | $ | 381,464 |
The Company also compensates its owner for his role in managing the business. The Company paid the owner approximately $280,000 in both 2020 and 2019. These costs are included in Labor and benefits in the accompanying Statement of Income and Member’s Equity.
8. | SIGNIFICANT CONCENTRATIONS |
The Company’s operations consistent of a single retail store. Any events or circumstances that occur to prevent the store from operating for a significant period of time, or that affect the demand for its products or costs of operation in its geographic location, could have a material adverse impact on the Company’s results of operations.
9. | SUBSEQUENT EVENTS |
The Company has evaluated events through October 18, 2021, which is the date the consolidated financial statements were available to be issued. There were no material subsequent events that require recognition or disclosure in these consolidated financial statements other than those described below.
Acquisition
The Company, along with two affiliated entities, Trees Portland, LLC and Trees Waterfront, LLC, (all together “Trees”) entered into an Asset Purchase Agreement with General Cannabis Corporation, a Colorado Corporation (“the Acquirer”), pursuant to which the Acquirer purchased certain assets of Trees with the intent to assume its cannabis retail sales operations. Trees agreed to receive a portion of the Acquirer’s shares of common stock and $5 million of cash as consideration. The sale will became effective upon approval by the Colorado Marijuana Enforcement Division.
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TDM, LLC
UNAUDITED CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2021
TDM, LLC
TABLE OF CONTENTS
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Balance Sheets | 1 |
Statements of Income and Member's (Deficit) Equity | 2 |
Statements of Cash Flows | 3 |
Notes to Financial Statements | 4 |
BALANCE SHEETS
June 30, | December 31, | ||
2021 | 2020 | ||
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ASSETS | |||
Current Assets | |||
Cash and cash equivalents | $ 502,988 | $ 264,798 | |
Inventory | 417,277 | 334,214 | |
Prepaid expenses and other current assets | 11,086 | 4,358 | |
Total current assets | 931,351 |
| 603,370 |
Non-current assets | |||
Property and equipment, net | 16,017 | 18,805 | |
Operating lease right-of-use asset | 396,194 | 466,142 | |
Other non-current assets | 7,500 | 7,500 | |
Total non-current assets | 419,711 |
| 492,447 |
Total Assets | 1,351,062 |
| 1,095,817 |
LIABILITIES AND MEMBER'S DEFICIT | |||
Current liabilities | |||
Accounts payable | 401,799 | 327,607 | |
Accrued expenses and other current liabilities | 628,710 | 351,638 | |
Current portion of lease obligation | 138,420 | 129,875 | |
Total current liabilities | 1,168,929 |
| 809,120 |
Long-term liabilities | |||
Lease obligation, net of current portion | 250,909 | 331,186 | |
Total liabilities | 1,419,838 |
| 1,140,306 |
Commitments and contingencies (see note 5) | - | - | |
Member's deficit | (68,776) | (44,489) | |
Total liabilities and member's deficit | $ 1,351,062 |
| $ 1,095,817 |
See accompanying notes to the financial statements
STATEMENT OF INCOME AND MEMBER’S (DEFICIT) EQUITY
(Unaudited)
Three months ended June 30, | Six months ended June 30, | ||||||
| 2021 |
| 2020 | 2021 |
| 2020 | |
Product sales, net | $ 2,944,108 | $ 3,223,167 | $ 6,079,238 | $ 6,328,917 | |||
Cost of goods sold | 2,045,407 |
| 2,208,751 | 4,081,005 |
| 4,197,631 | |
Gross margin | 898,701 |
| 1,014,416 | 1,998,233 |
| 2,131,286 | |
Operating expenses | |||||||
Labor and benefits | 405,975 | 331,602 | 704,135 | 660,209 | |||
Occupancy costs | 53,526 | 53,291 | 107,052 | 107,014 | |||
Professional services | 101,973 | 82,070 | 266,815 | 188,058 | |||
Office supplies and equipment | 29,313 | 36,397 | 50,809 | 62,054 | |||
Advertising and promotion | 1,170 | 10,088 | 2,172 | 25,355 | |||
Depreciation | 1,394 | 530 | 2,788 | 1,060 | |||
Other operating expense | 78,407 | 44,730 | 228,240 | 151,944 | |||
Total operating expenses | 671,758 |
| 558,708 | 1,362,011 |
| 1,195,694 | |
Operating income | 226,943 |
| 455,708 | 636,222 |
| 935,592 | |
Other Income | 1,189 |
| 1,282 | 2,501 |
| 2,204 | |
Net Income | $ 228,132 |
| $ 456,990 | $ 638,723 |
| $ 937,796 | |
Member's (deficit) equity, beginning of the period | (76,053) | 212,629 | (44,489) | (120,529) | |||
Contributions from member | 200,000 | - | 200,000 | - | |||
Distributions to member | (420,855) |
| (320,663) | (863,010) |
| (468,311) | |
Member's (deficit) equity, end of the period | $ (68,776) |
| $ 348,956 | $ (68,776) |
| $ 348,956 | |
See accompanying notes to the financial statements
STATEMENTS OF CASH FLOWS
(unaudited)
For the six months ended June 30, | 2021 |
| 2020 |
Cash flows from operating activities | |||
Net income | $ 638,723 | $ 937,796 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation | 2,788 | 1,060 | |
Lease payments greater than lease expense | (1,784) | (8,982) | |
Changes in operating assets and liabilities: | |||
Inventories | (83,063) | 39,634 | |
Prepaid expenses and other current assets | (6,728) | (6,859) | |
Accounts payable | 74,192 | 23,698 | |
Accrued expenses and other current liabilities | 277,072 | (131,573) | |
Net cash provided by operating activities | 901,200 |
| 854,774 |
Cash flows from financing activities | |||
Contributions from member | 200,000 | - | |
Distributions to member | (863,010) | (468,311) | |
Net cash used for financing activities | (663,010) |
| (468,311) |
Net increase in cash and cash equivalents | 238,190 | 386,463 | |
Cash and cash equivalents at the beginning of the year | 264,798 | 200,972 | |
Cash and cash equivalents at the end of the year | $ 502,988 |
| $ 587,435 |
Supplemental cash flow Information | |||
Cash paid during the six months ended: | 2021 |
| 2020 |
Amounts included in the measurement of lease liabilities | $ 94,148 | $ 101,344 |
See accompanying notes to the financial statements
NOTES TO FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND Nature of Business |
TDM, LLC (“TDM” or the “Company”) is a single member limited liability company which was formed in October 2014 under the laws of Colorado. Under the terms of the operating agreement, TDM will continue in existence until the member makes a determination to dissolve the entity. The Company’s principal business is retail sales of recreational and medicinal cannabis products. The licensed retail store is located in Englewood, Colorado and the Company’s business office is located in Denver, Colorado.
The Company’s business is subject to legal risk. Even though the State of Colorado has granted licenses to the Company for retail distribution of marijuana products, these activities remain illegal under federal law. This causes difficulty in obtaining traditional banking and financing relationships. If the federal government elects to enforce the laws as currently written or changes the laws with respect to cannabis, it could have an adverse effect on the Company’s operations, including potential prosecution under the laws and liquidation of the Company. The Company is also subject to a variety of state laws, regulations, and local ordinances.
| 2. | Summary of Significant Accounting Policies |
Basis of Accounting
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to state fairly the financial position, results of operations, and cash flows of the Company at the dates and for the periods indicated. Interim results are not necessarily indicative of results for the full fiscal year. The comparative balance sheet as of December 31, 2020 was derived from the audited financial statements but does not include all disclosures required by GAAP.
These unaudited consolidated financial statements should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended December 31, 2020 and the notes thereto.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, and such results could be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. FDIC insured cash balances held in a bank were approximately $436,000 and $147,000 as of June 30, 2021 and December 31, 2020, respectively. The Company has not experienced any losses on this account, and management believes that the Company’s risk of loss is remote. The remainder of the Company’s recorded cash balances consist of cash on hand.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASC 842” or the “new lease standard”). The Company adopted ASC 842 as of January 1, 2019, using the effective date method.
ASC 842 requires companies leasing assets to recognize on their balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset. The Company elected to apply the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the
recognition and measurement requirements in the new lease standard. See Note 3 for further discussion of the Company’s leases.
Other accounting standards have been issued or proposed by the FASB that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
| 3. | LEASES |
The Company has operating leases for office space (“office lease”) and for its retail building (“store lease”).
In addition to the monthly base rent payments, the Company pays additional amounts to cover the cost of insurance, property taxes, and other operating expenses. These additional payments are variable and, in accordance with ASC 842, are excluded from the recognition and measurement of the lease obligation.
The Company’s operating lease liabilities and ROU assets are presented separately on the accompanying Balance Sheet. The leases do not have a stated interest rate, and therefore management used a discount rate of 10% to determine the present value of the lease obligation.
Lease expense is recognized on a straight-line bases over the term of the lease, with incremental variable lease payments are expensed as incurred. Lease expense is included in Occupancy costs in the accompanying Statement of Income and Member’s Equity. The components of lease expense are as follows:
For the three months ended June 30, | For the six months ended June 30, | ||||||
| 2021 |
| 2020 | 2021 |
| 2020 | |
Operating lease cost | $ 46,181 | $ 46,181 | $ 92,363 | $ 92,363 | |||
Variable lease cost | 7,345 |
| 7,110 | 14,689 |
| 14,651 | |
Total lease cost | $ 53,526 |
| $ 53,291 | $ 107,052 |
| $ 107,014 | |
The following table summarizes the maturity of the Company’s lease obligations as of June 30, 2021:
|
|
2021 (remaining 6 months) | $ 76,908 |
2022 | 186,680 |
2023 | 102,000 |
2024 | 85,000 |
Total lease payments | 450,588 |
Less: Interest | (61,259) |
Present value of lease obligation | $ 389,329 |
| 4. | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Details of the Company’s accrued expenses and other current liabilities are as follows:
June 30, | December 31, | ||
As of | 2021 |
| 2020 |
Sales tax accruals | $ 555,562 | $ 309,119 | |
Payroll accruals | 35,597 | 41,389 | |
Other expense accruals | 37,550 |
| 1,131 |
Total accrued liabilities | $ 628,710 |
| $ 351,638 |
| 5. | COMMITMENTS AND CONTINGENCIES |
The Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations. While management of the Company believes that the Company followed applicable local and state regulation for the for the year ended December 31, 2020 and the six months ended June 30, 2021, and through the date of the financial statements, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.
| 6. | related party transactions |
The Company’s current store lease is with a Bellewood, a related party. The initial term of the lease is five years and includes an option for two successive terms of three years each. The total lease payments to Bellewood were $51,000 for both the six months ended June 30, 2021 and June 30, 2020. The portion of the Company’s lease obligation and associated ROU asset attributable to the related party lease are as follows:
June 30, | December 31, | ||
As of | 2021 |
| 2020 |
Lease obligation attributable to related party lease | $ 279,627 | $ 315,177 | |
ROU asset attributable to related party lease | $ 282,461 |
| $ 317,161 |
| 7. | |
| 8. | SIGNIFICANT CONCENTRATIONS |
The Company’s operations consistent of a single retail store. Any events or circumstances that occur to prevent the store from operating for a significant period of time, or that affect the demand for its products or costs of operation in its geographic location, could have a material adverse impact on the Company’s results of operations.
| 9. | SUBSEQUENT EVENTS |
The Company has evaluated events through August 6, 2021, which is the date the consolidated financial statements were available to be issued. There were no material subsequent events that require recognition or disclosure in these consolidated financial statements.
GENERAL CANNABIS CORP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 and the unaudited pro forma condensed combined statements of operations for each of the six months ended June 30, 2021 and for the year ended December 31, 2020 combine the financial statements of General Cannabis Corp (“General Cannabis”) and TDM, LLC (dba TREES Englewood (“TREES Colorado”) giving effect to the transaction described in the Asset Purchase Agreement, as if they had occurred on January 1, 2020 in respect of the unaudited pro forma condensed combined statements of operations and on June 30, 2021 in respect of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information should be read in conjunction with:
| General Cannabis’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2020, as contained in the Form 10-K filed on April 1, 2021 with the United States Securities and Exchange Commission (the “SEC”) |
| ● | General Cannabis’s unaudited condensed consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2021 |
| ● | TREES Colorado audited financial statements as of and for the year ended December 31, 2020, contained elsewhere herein. |
| ● | TREES Colorado unaudited condensed financial statements as of and for the six months ended June 30, 2021 and 2020, contained elsewhere herein. |
| ● | The other information contained in or incorporated by reference into this filing. |
The final purchase consideration and the allocation of the purchase consideration may materially differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.
The unaudited pro forma adjustments give effect to events that are directly attributable to the transaction and are based on available data and certain assumptions that management believes are factually supportable. In addition, with respect to the unaudited condensed combined statements of operations, the unaudited pro forma adjustments are expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information is presented for informational purposes only and to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma condensed combined financial information described above has been derived from the historical financial statements of General Cannabis and TREES Colorado and the related notes included elsewhere in this Form 8-K. The unaudited pro forma condensed combined financial information is based on General Cannabis’s accounting policies. Further review may identify additional differences between the accounting policies of General Cannabis and TREES Colorado. The unaudited pro forma adjustments and the pro forma condensed combined financial information don’t reflect the impact of synergies or post-transaction management actions and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the transaction taken place on the dates noted, or of General Cannabis’s future financial position or operating results.
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2021
| | General | | TREES | Pro Forma | | Pro Forma | ||||
| | Cannabis | | Colorado | Adjustments | | Combined | ||||
Assets |
| |
|
| |
| |
|
| |
|
Current assets |
| |
|
| |
| |
|
| |
|
Cash and cash equivalents | | $ | 2,307,604 | | $ | 502,988 | $ | (470,047) | (A) | $ | 2,340,545 |
| | | — | | | — | | (1,155,256) | (B) | | (1,155,256) |
Accounts receivable, net | |
| 178,784 | |
| — |
| — | |
| 178,784 |
Inventories, net | | | 590,983 | | | 417,277 | | (417,277) | (A) | | 590,983 |
| | | | | | | | 586,495 | (C) | | 586,495 |
Prepaid expenses and other current assets | |
| 198,176 | |
| 11,086 |
| (11,086) | (A) |
| 198,176 |
Assets of discontinued operations - current portion | |
| 284,700 | |
| — |
| — | |
| 284,700 |
Total current assets | |
| 3,560,247 | |
| 931,351 |
| (1,467,171) | |
| 3,024,427 |
| | | | | | | | | | | |
Right-of-use operating lease asset | | | 1,816,632 | | | 396,194 | | — | | | 2,212,826 |
Property and equipment, net | | | 642,769 | | | 16,017 | | (16,017) | (A) | | 642,769 |
| | | | | | | | 59,335 | (D) | | 59,335 |
Intangible assets, net | | | 887,500 | | | — | | 5,000,000 | (E) | | 5,887,500 |
Goodwill | | | 2,484,200 | | | — | | 7,615,913 | (E) | | 10,100,113 |
Assets of discontinued operations | | | 35,178 | | | — | | — | | | 35,178 |
Other non-current assets | | | — | | | 7,500 | | (7,500) | (A) | | — |
Total assets | | $ | 9,426,526 | | $ | 1,351,062 | $ | 11,184,560 | | $ | 21,962,148 |
| | | | | | | | | | | |
Liabilities and Stockholders' Equity | |
| | |
| |
| | |
| |
| | | | | | | | | | | |
Current Liabilities | |
| | |
|
|
| | |
|
|
Accounts payable and accrued expenses | | $ | 856,093 | | $ | 1,030,509 | $ | (1,030,509) | (A) | $ | 856,093 |
Interest payable | |
| 296,207 | |
| — |
| — | |
| 296,207 |
Operating lease liability, current | | | 376,362 | | | 138,420 | | — | | | 514,782 |
Accrued stock payable | |
| 60,900 | |
| — |
| — | |
| 60,900 |
Warrant derivative liability | |
| 134,234 | |
| — |
| — | |
| 134,234 |
Liabilities of discontinued operations | |
| 138,461 | |
| — |
| — | |
| 138,461 |
Total current liabilities | |
| 1,862,257 | |
| 1,168,929 |
| (1,030,509) | |
| 2,000,677 |
| | | | | | | | | | | |
Operating lease liability, non-current | | | 1,495,394 | | | 250,909 | | — | | | 1,746,303 |
Long-term notes payable (net of discount) | | | 4,272,858 | | | — | | 1,732,884 | (B) | | 6,005,742 |
Related party long-term notes payable (net of discount) | | | 280,137 | | | — | | — | | | 280,137 |
Total Liabilities | | | 7,910,646 | | | 1,419,838 | | 702,375 | | | 10,032,859 |
Commitments and contingencies | | | — | | | — | | — | | | — |
| | | | | | | | | | | |
Stockholders’ Equity (Deficit) | |
|
| |
|
|
| | |
|
|
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding, respectively | | | — | | | — | | — | | | — |
Common stock, $0.001 par value; 200,000,000 shares authorized; 62,266,275 shares issued and outstanding | | | 62,264 | | | — | | — | | | 62,264 |
Additional paid-in capital | |
| 80,140,373 | |
| — |
| 10,406,844 | (B) |
| 90,547,217 |
Accumulated deficit | |
| (78,686,757) | |
| (68,776) |
| 75,341 | (A) |
| (78,680,192) |
Total Stockholders’ Equity | |
| 1,515,880 | |
| (68,776) |
| 10,482,185 | |
| 11,929,289 |
Total Liabilities and Stockholders’ Equity (Deficit) | | $ | 9,426,526 | | $ | 1,351,062 | $ | 11,184,560 | | $ | 21,962,148 |
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2021
| General | | TREES | | Pro Forma | | Pro Forma | ||||
| Cannabis | | Colorado | | Adjustments | | Combined | ||||
Revenue | | |
| | |
| | | | | |
Cultivation sales | | 1,347,941 | | | — | | | — | | | 1,347,941 |
Retail sales | | — | | | 6,079,238 | | | — | | | 6,079,238 |
Interest | | 14,472 | | | — | | | — | | | 14,472 |
Total revenue | | 1,362,413 | | | 6,079,238 | | | — | | | 7,441,651 |
| | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | |
Cost of sales | | 1,066,631 | | | 4,081,005 | | | — | | | 5,147,636 |
Selling, general and administrative | | 1,180,750 | | | 1,092,408 | | | — | | | 2,273,158 |
Stock-based compensation expense | | 62,284 | | | — | | | — | | | 62,284 |
Professional fees | | 616,148 | | | 266,815 | | | — | | | 882,963 |
Depreciation and amortization | | 190,469 | | | 2,788 | | | 253,146 | (A)(B) | | 446,403 |
Total costs and expenses | | 3,116,282 | | | 5,443,016 | | | 253,146 | | | 8,812,444 |
| | | | | | | | | | | |
Operating (loss) income | | (1,753,869) | | | 636,222 | | | (253,146) | | | (1,370,793) |
| | | | | | | | | | | |
Other expenses (income) | | | | | | | | | | | |
Amortization of debt discount and equity issuance costs | | 253,790 | | | — | | | — | | | 253,790 |
Interest expense | | 293,683 | | | — | | | — | | | 293,683 |
Loss on derivative liability | | 1,095,983 | | | — | | | — | | | 1,095,983 |
Loss on sale of assets | | 1,467 | | | — | | | — | | | 1,467 |
Other (income), net | | — | | | (2,501) | | | — | | | (2,501) |
Total other expenses (income), net | | 1,644,923 | | | (2,501) | | | — | | | 1,642,422 |
| | | | | | | | | | | |
Net (loss) income from continuing operations before income taxes | $ | (3,398,792) | | $ | 638,723 | | $ | (253,146) | | $ | (3,013,215) |
| | | | | | | | | | | |
Loss from discontinued operations | | (336,529) | | | — | | | — | | | (336,529) |
(Loss) income from operations before income taxes | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | — |
Net (loss) income | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
Deemed dividend | | — | | | — | | | — | | | — |
| | | | | | | | | | | |
Net (loss) income attributable to common stockholders | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Per share data - Basic and diluted | | | | | | | | | | | |
Net loss from continuing operations per share | $ | (0.05) | | | — | | $ | (0.01) | | $ | (0.04) |
Net loss from discontinued operations per share | $ | (0.01) | | | — | | $ | 0.00 | | $ | (0.00) |
Net loss attributable to common stockholders per share | $ | (0.06) | | | — | | $ | (0.01) | | $ | (0.04) |
Weighted average number of common shares outstanding | | 62,183,748 | | | — | | | 22,380,310 | | | 84,564,058 |
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
| General | | TREES | | Pro Forma | | Pro Forma | ||||
| Cannabis | | Colorado | | Adjustments | | Combined | ||||
Revenue | | |
| | |
| | | | | |
Cultivation sales | $ | 2,279,867 | | $ | — | | $ | — | | $ | 2,279,867 |
Retail sales | | — | | | 13,500,618 | | | — | | | 13,500,618 |
Interest | | 103,837 | | | — | | | — | | | 103,837 |
Total revenue | | 2,383,704 | | | 13,500,618 | | | — | | | 15,884,322 |
| | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | |
Cost of sales | | 1,388,626 | | | 9,785,330 | | | — | | | 11,173,956 |
Selling, general and administrative | | 2,901,931 | | | 2,046,468 | | | — | | | 4,948,399 |
Stock-based compensation expense | | 1,504,389 | | | — | | | — | | | 1,504,389 |
Professional fees | | 2,263,717 | | | 383,825 | | | — | | | 2,647,542 |
Depreciation and amortization | | 199,683 | | | 2,807 | | | 509,060 | (A)(B) | | 711,550 |
Total costs and expenses | | 8,258,346 | | | 12,218,430 | | | 509,060 | | | 20,985,836 |
| | | | | | | | | | | |
Operating (loss) income | | (5,874,642) | | | 1,282,188 | | | (509,060) | | | (5,101,514) |
| | | | | | | | | | | |
Other expenses (income) | | | | | | | | | | | |
Amortization of debt discount and equity issuance costs | | 295,256 | | | — | | | — | | | 295,256 |
Interest expense | | 453,522 | | | — | | | — | | | 453,522 |
Loss on extinguishment of debt | | 1,638,009 | | | — | | | — | | | 1,638,009 |
(Gain) on derivative liability | | (735,796) | | | — | | | — | | | (735,796) |
Other (income), net | | (97,948) | | | (9,120) | | | — | | | (107,068) |
Total other expenses (income), net | | 1,553,043 | | | (9,120) | | | — | | | 1,543,923 |
| | | | | | | | | | | |
Net (loss) income from continuing operations before income taxes | $ | (7,427,685) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,645,437) |
| | | | | | | | | | | |
Loss from discontinued operations | | (252,007) | | | — | | | — | | | (252,007) |
(Loss) income from operations before income taxes | $ | (7,679,692) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,897,444) |
| | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | — |
Net (loss) income | $ | (7,679,692) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,897,444) |
| | | | | | | | | | | |
Deemed dividend | | (830,494) | | | — | | | — | | | (830,494) |
| | | | | | | | | | | |
Net (loss) income attributable to common stockholders | $ | (8,510,186) | | $ | 1,291,308 | | $ | (509,060) | | $ | (7,727,938) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Per share data - Basic and diluted | | | | | | | | | | | |
Net loss from continuing operations per share | $ | (0.15) | | | — | | $ | (0.02) | | $ | (0.09) |
Net loss from discontinued operations per share | $ | (0.00) | | | — | | $ | 0.00 | | $ | (0.00) |
Net loss attributable to common stockholders per share | $ | (0.17) | | | — | | $ | (0.02) | | $ | (0.11) |
Weighted average number of common shares outstanding | | 50,895,301 | | | — | | | 22,380,310 | | | 73,275,611 |
GENERAL CANNABIS CORP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1.BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial information set forth herein is based upon the consolidated financial statements of General Cannabis Corp and TREES Colorado. The unaudited pro forma condensed combined financial information is presented as if the transaction had been completed on January 1, 2020 with respect to the unaudited pro forma condensed combined statements of operations for each of the six months ended June 30, 2021 and for the year ended December 31, 2020 and on June 30, 2021 in respect of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations had the transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the completion of the transactions.
We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are factually supportable and directly attributable to the transaction. Pro forma adjustments reflected in the pro forma condensed combined statements of operations are based on items that are factually supportable, directly attributable to the transaction and expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits from the transaction, including potential synergies that may be generated in future periods.
NOTE 2. DESCRIPTION OF THE TRANSACTION
On September 2, 2021, General Cannabis completed the acquisition of substantially all of the assets of TREES Colorado, representing a portion of the overall 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”). The cash paid by the Company in connection with the Englewood Closing consisted of $1,154,956.09 and the stock consideration shall be 22,380,310 shares of the Company’s Common Stock. Further, cash equal to $1,732,884.14 will be paid to Seller in equal monthly installments over a period of 24 months from the Englewood Closing.
NOTE 3.PURCHASE PRICE ALLOCATION
The preliminary allocation for the consideration recorded for the acquisition is as follows:
Cash | $ | 32,941 |
Fixed assets | | 59,335 |
Inventory | | 586,495 |
Tradename | | 5,000,000 |
Goodwill | | 7,615,913 |
Total Purchase Price Consideration | $ | 13,294,684 |
The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a valuation is finalized and the fair value and useful life of the assets acquired is determined. The amounts from the final valuation may significantly differ from the preliminary allocation.
NOTE 4.PRO FORMA ADJUSTMENTS
The following pro forma adjustments give effect to the transaction:
Unaudited Pro Forma Condensed Combined Balance Sheet – As of June 30, 2021
Note ATo remove TREES Colorado assets, liabilities, and equity that were not acquired or assumed
Note BTo record cash, additional paid in capital, common stock, and promissory note as consideration
Note CTo record certain inventory from TREES Colorado
Note DTo record certain property, plant, and equipment acquired from TREES Colorado
Note ETo record goodwill and intangibles from acquisition
Unaudited Pro Forma Condensed Statement of Operations – For The Six Months Ended June 30, 2021
Note ATo adjust depreciation expense to remove depreciation for assets not acquired
Note BTo record amortization of intangibles acquired from TREES Colorado
Unaudited Pro Forma Condensed Statement of Operations – For The Year Ended December 31, 2020
Note ATo adjust depreciation expense to remove depreciation for assets not acquired
Note BTo record amortization of intangibles acquired from TREES Colorado