CANN 10-Q
TREES Corp (Colorado) (CANN)
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 May 22, 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 | 23 | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TREES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 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 | | | ||||
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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Notes payable - current | | | ||||
Total current liabilities |
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Operating lease liability, non-current | | | ||||
Finance lease liability, 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.
3
TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31, | |||||||
2023 | 2022 | ||||||
Revenue | |||||||
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 | ( | ( | |||||
Other expenses (income) | |||||||
Amortization of debt discount | | | |||||
Interest expense | | | |||||
(Gain) loss on derivative liability | ( | | |||||
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.
4
TREES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31, | ||||||
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 | — | ( | ||||
(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) provided by 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 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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Non-cash debt issuance for acquisition of Station 2 assets | $ | | $ | — | ||
Issuance of accrued stock | $ | | $ | | ||
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 March 31, 2023 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total | ||||||
January 1, 2023 |
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| $ | |
| $ | |
| $ | ( |
| $ | | ||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Dividends on preferred stock | — | — | — | — | — | ( | ( | ||||||||||||
Net loss |
| — | — | — |
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March 31, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | | ||||||
For the three months ended March 31, 2022 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
Shares |
| Amount | Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||
January 1, 2022 | | $ | | |
| $ | |
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| $ | ( |
| $ | | |||
Common stock issue for acquisition of Trees Waterfront LLC | — | — | |
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Common stock issued for acquisition of Trees MLK LLC | — | — | | | | — | | ||||||||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
March 31, 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 D-300 (formerly Green Tree/Ancient Alternatives) – Medical and Retail cultivation licenses |
● | 6859 N. Foothills Highway C-100 (formerly Green Tree/Mountainside Industries) – Medical and Retail cultivation licenses |
● | 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 months ended March 31, 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. 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.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consisted primarily of cash, accounts receivable and revenue.
Customer and Revenue Concentrations
During the three months ended March 31, 2023,
During the three months ended March 31, 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 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 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.
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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.
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 March 31, 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.
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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 | |||||
March 31, | ||||||
2023 | 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 |
| | |
$ | |
We have not completed the allocation of the purchase price for the Green Man Acquisition. As of March 31, 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 | |||||
March 31, | ||||||
2023 | 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 | |||||||
March 31, | |||||||
| 2023 |
| 2022 | ||||
Product revenues | $ | — | $ | |
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Service revenues | — | — | |||||
Total revenues | — | | |||||
Cost of sales |
| — |
| — | |||
Selling, general and administrative |
| — |
| ( | |||
Professional fees |
| — |
| — | |||
Depreciation and amortization | — | — | |||||
Total costs and expenses |
| — |
| ( | |||
Income from discontinued operations | $ | — | $ | | |||
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NOTE 5. INVENTORIES, NET
Our inventories consisted of the following:
March 31, | December 31, | |||||
| 2023 |
| 2022 | |||
Raw materials | $ | | $ | | ||
Work-in-progress and finished goods | | | ||||
Inventories | $ | | $ | | ||
NOTE 6. LEASES
The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities.
All but
The operating lease expense for the three months ended March 31, 2023, and March 31, 2022, is as follows:
For the three months ended March 31, |
| 2023 |
| 2022 | ||
Straight-line operating lease expense | $ | | $ | | ||
Variable lease cost | | | ||||
Total operating lease expense | $ | | $ | | ||
The finance lease expense for the three months ended March 31, 2023, and March 31, 2022, was approximately $
Related party leases
As of March 31, 2023,
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Lease Maturities
Future remaining minimum lease payments were as follows:
Year ending December 31, |
| Operating leases | Finance lease | |||
2023 (remaining nine months) | $ | | $ | | ||
2024 |
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2025 |
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2026 |
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2027 | | | ||||
Thereafter |
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Total |
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Less: Present value adjustment |
| ( |
| ( | ||
Lease liability | | | ||||
Less: Lease liability, current | ( | ( | ||||
Lease liability, non-current | $ | | $ | | ||
The total remaining lease payments in the table above include $
As of March 31, 2023, the weighted average remaining term of the Company’s operating leases is
None of the Company’s leases contain residual value guarantees or restrictive covenants.
Supplemental cash flow information
For the three months ended March 31, |
| 2023 |
| 2022 | ||
Supplemental cash flow information | ||||||
Cash paid for amounts included in operating lease liability | $ | | $ | | ||
Cash paid for amounts included in finance lease liability | $ | | $ | — | ||
Supplemental lease disclosures of non-cash transactions: | ||||||
ROU assets obtained in exchange for operating lease liabilities | $ | | $ | | ||
NOTE 7. ACCRUED STOCK PAYABLE
The following tables summarize the changes in accrued common stock payable:
Number of | ||||||
| Amount |
| Shares | |||
Balance as of December 31, 2021 | $ | | | |||
Stock issued | ( | ( | ||||
Balance as of December 31, 2022 | $ | | | |||
Stock issued | ||||||
Balance as of March 31, 2023 | $ | | | |||
In December 2021, we completed the acquisition of Trees Waterfront. As part of the transaction, we granted
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The outstanding balance of accrued stock payable as of March 31, 2023 relates to a February 18, 2020 grant of
NOTE 8. NOTES PAYABLE
Our notes payable consisted of the following:
March 31, 2023 | December 31, 2022 | ||||||||||||||||
Third-party | Related-party | Total | Third-party | Related-party | Total | ||||||||||||
2022 12% Notes | $ | | $ | | $ | | $ | | $ | | $ | | |||||
2023 12% Notes | — | | | — | — | — | |||||||||||
Trees Transaction Notes | — | | | — | | | |||||||||||
Green Tree Acquisition Notes | | | | | | | |||||||||||
Green Man Acquisition Notes | | — | | | — | | |||||||||||
Unamortized debt discount | ( | ( | ( | ( | ( | ( | |||||||||||
Total debt | | | | | | | |||||||||||
Less: Current portion | ( | ( | ( | ( | ( | ( | |||||||||||
Long-term portion | $ | | $ | | $ | | $ | | $ | | $ | | |||||
Trees Transaction Notes
In January 2022, with the completion of the Trees MLK acquisition, we are obligated to pay the Seller cash equal to $
In December 2022, with the completion of the Green Tree Acquisition, we are obligated to pay the Seller cash equal to $
In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $
On September 15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “
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In connection with the
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
In connection with the acquisition of Station 2, LLC in February 2023, we agreed to issue and sell an additional
In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “
The relative fair value of the new funding on the
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For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
On April 20, 2021, we entered into a Securities Purchase Agreement with accredited
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The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
In September 2022, $
NOTE 9. WARRANT DERIVATIVE LIABILITY
On May 31, 2019, we received gross proceeds of $
During the first quarter of 2021 the warrant holders exercised
During the three months ended March 31, 2023, and 2022, we recognized a $
18
The following are the key assumptions that were used to determine the fair value of the 2019 Warrants
March 31, | December 31, |
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2023 | 2022 |
| |||||
Number of shares underlying the warrants | | | |||||
Fair market value of stock | $ | | $ | | |||
Exercise price | $ | | $ | | |||
Volatility | | % |
| | % | ||
Risk-free interest rate | | % |
| | % | ||
Warrant life (years) | |
| | ||||
The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:
March 31, | |||||||
| 2023 |
| 2022 | ||||
Beginning balance | $ | | $ | | |||
Warrant exercise | — | — | |||||
Change in fair value of warrants derivative liability | ( | | |||||
Ending balance | $ | | $ | | |||
NOTE 10. COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a party to various litigation matters incidental to the conduct of its business. The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows, except as set forth below.
In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”). We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of (3) years to commence on November 1, 2020. Monthly lease payments were to be $
We have taken the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic. We are vigorously defending this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.
We filed a motion to dismiss or a motion for summary judgment in the alternative. Plaintiff filed a response and cross-motion for summary judgment thereafter. In October 2022, the court denied the motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses, but has not specifically made any rulings on either party’s motion for summary judgment. On November 14, 2022, we timely filed a formal answer to the complaint, denying each of Plaintiff’s substantive claims. We also asserted appropriate affirmative defenses, including the force majeure clause of the lease, which provides that we are not liable under the lease in the event of a variety of events outside our control, including “pandemics.” In addition, we have asserted a counterclaim against the Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs. The trial is currently scheduled for September 2023.
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NOTE 11. STOCKHOLDERS’ EQUITY
2021 Preferred stock offering
On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $
| ● | Authorized Number of Shares – |
| ● | Voting Rights – |
| ● | Dividends – |
| ● | Conversion – Each share of Series A Preferred is mandatorily convertible into |
| ● | Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption |
The Preferred Warrants have a
The proceeds received in the sale of the Series A Preferred totaled $
As of March 31, 2023 we have recorded accrued dividends of $
Stock-based compensation
We use the fair value method to account for stock-based compensation on the grant date. We recorded $
During the year ended December 31, 2022, we granted options to purchase
20
The following summarizes Employee Awards activity:
Weighted- | ||||||||||
Weighted- | Average | |||||||||
Average | Remaining | |||||||||
Number of | Exercise Price | Contractual | Aggregate | |||||||
| Shares |
| per Share |
| Term (in years) |
| Intrinsic Value | |||
Outstanding as of December 31, 2022 | | $ | | $ | | |||||
Granted | — | — |
|
| ||||||
Forfeited or expired |
| — |
| — |
|
|
|
| ||
Outstanding as of March 31, 2023 |
| |
| $ | |
| $ | | ||
Exercisable as of March 31, 2023 |
| | $ | |
| $ | | |||
As of March 31, 2023, there was approximately $
On April 1, 2022 we entered into a Restricted Stock Unit Agreement with
NOTE 12. RELATED PARTY TRANSACTIONS
On September 16, 2022, the Company entered into a new consulting agreement with Adam Hershey, its Interim Chief Executive Officer, pursuant to which Mr. Hershey will continue to serve as the Company’s Interim Chief Executive Officer with compensation equal to $
In February 2023, the Company completed the acquisition of Station 2, LLC’s assets. Station 2, LLC is owned by a board member, who is also a shareholder and executive level employee of the Company. See Note 3 for additional information regarding the Station 2 asset acquisition.
The Company currently has a lease agreement with Dalton Adventures, LLC in which the Company leases
The Company currently has a lease agreement with JLA Enterprises, LLC in which the Company leases a retail dispensary in Longmont, Colorado. A board member and an executive level employee of the Company are owners of
21
JLA Enterprises, LLC. The Company also has a lease agreement with ALJ 1090, LLC in which the Company leases a building that has a retail dispensary and cultivation facility in Berthoud, Colorado. The same board member is an owner of ALJ 1090, LLC. These leases were assumed as part of the Green Tree Acquisition on December 12, 2022. We have incurred $
The Company had a lease agreement with Bellewood Holdings, LLC in which the Company leased retail space for the Trees Englewood retail store in Englewood, Colorado for $
NOTE 13. SEGMENT INFORMATION
Our operations are organized into
Three months ended March 31,
2023 |
| Retail |
| Cultivation |
| Eliminations | Total | |||||
Revenues | $ | | $ | | $ | ( | $ | | ||||
Costs and expenses | ( | ( | | ( | ||||||||
Segment operating income | $ | | $ | ( | $ | — | | |||||
Corporate expenses | ( | |||||||||||
Net loss from continuing operations before income taxes |
| $ | ( | |||||||||
2022 |
| Retail |
| Cultivation | Eliminations |
| Total | |||||
Revenues | $ | | $ | | $ | ( | $ | | ||||
Costs and expenses | ( | ( | | ( | ||||||||
Segment operating income | $ | | $ | ( | $ | — | | |||||
Corporate expenses |
|
|
|
| ( | |||||||
Net loss from continuing operations before income taxes |
| $ | ( | |||||||||
March 31, | December 31, | |||||
Total assets |
| 2023 |
| 2022 | ||
Retail | $ | | $ | | ||
Cultivation | | | ||||
Corporate |
| |
| | ||
Total assets - segments | | | ||||
Intercompany eliminations | ( | ( | ||||
Total assets - consolidated | $ | | $ | | ||
22
NOTE 14. SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date that the accompanying financial statements were issued and has determined that subsequent to March 31, 2023, the Company issued
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2022. The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.
When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to TREES Corporation (formerly, “General Cannabis Corp”).
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Our Products, Services, and Customers
TREES Corporation is a cannabis retailer and cultivator in the States of Colorado and Oregon.
We presently operate eight (8) cannabis dispensaries as follows:
● | Englewood, Colorado |
o | 5005 S. Federal Boulevard – Recreational license only |
● | Two (2) in Denver, Colorado |
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 |
● | Three (3) in Oregon |
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 |
We also operate five (5) cultivation facilities in Colorado as follows:
● | SevenFive Farm – 3705 N. 75th Street, Boulder – Retail cultivation license only |
● | 6859 N. Foothills Highway D-300 (formerly Green Tree/Ancient Alternatives) – Medical and Retail cultivation licenses |
● | 6859 N. Foothills Highway C-100 (formerly Green Tree/Mountainside Industries) – Medical and Retail cultivation licenses |
● | 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 |
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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. During the three months ended March 31, 2023, 88% of SevenFive’s revenue was with three customers. During the three months ended March 31, 2022, 45% of SevenFive’s revenue was with one customer. The customers in both 2023 and 2022 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.
During the three months ended March 31, 2023, 88% of Green Tree’s revenue was with three customers. The customers in 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.
Results of Operations
The following tables set forth, for the periods indicated, statements of operations data. The tables and the discussion below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto in this report.
Three months ended March 31, | Percent |
| ||||||||||
2023 | 2022 | Change | Change |
| ||||||||
Revenues |
| $ | 5,110,619 | $ | 3,573,308 |
| $ | 1,537,311 |
| 43 | % | |
Costs and expenses |
| (6,281,736) | (3,990,351) | (2,291,385) | 57 | % | ||||||
Other expense |
| (629,681) | (449,296) | (180,385) | 40 | % | ||||||
Net loss from continuing operations before income taxes |
| (1,800,798) | (866,339) | (934,459) | 108 | % | ||||||
Loss from discontinued operations |
| — | 5,283 | (5,283) | (100) | % | ||||||
Loss from operations before income taxes | $ | (1,800,798) | $ | (861,056) | $ | (939,742) | 109 | % | ||||
Revenues
The activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the increase in revenues for the three months ended March 31, 2023 compared to March 31, 2022.
Costs and expenses
Three months ended March 31, | Percent |
| ||||||||||
2023 | 2022 | Change | Change |
| ||||||||
Cost of sales |
| $ | 3,057,714 |
| $ | 2,074,888 |
| $ | 982,826 |
| 47 | % |
Selling, general and administrative |
| 2,296,240 |
| 1,326,116 |
| 970,124 |
| 73 | % | |||
Stock-based compensation |
| 27,396 |
| 76,117 |
| (48,721) |
| (64) | % | |||
Professional fees |
| 607,544 |
| 281,384 |
| 326,160 |
| 116 | % | |||
Depreciation and amortization |
| 292,842 |
| 231,846 |
| 60,996 |
| 26 | % | |||
$ | 6,281,736 | $ | 3,990,351 | $ | 2,291,385 |
| 57 | % | ||||
Cost of sales increased three and months ended March 31, 2023, as compared to March 31, 2022 due to the additional sales driven from Green Tree and Green Man.
Selling, general and administrative expense increased for the three months ended March 31, 2023, as compared to March 31, 2022, due to the increased expenses resulting from the acquisition of three dispensaries in the fourth quarter of 2022 and one additional dispensary in the first quarter of 2023. This resulted in an increase in employees and an increase in rent expense.
25
Professional fees consist primarily of accounting and legal expenses. Professional fees increased for the three months ended March 31, 2023 as compared to March 31, 2022 due to the acquisition activity in the first quarter of 2023.
Stock-based compensation included the following:
Three months ended March 31, | Percent |
| ||||||||||
2023 | 2022 | Change | Change |
| ||||||||
Employee awards |
| $ | 27,396 |
| $ | 76,117 |
| $ | (48,721) |
| (64) | % |
$ | 27,396 | $ | 76,117 | $ | (48,721) |
| (64) | % | ||||
Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020, and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015. Expense varies primarily due to the number of stock options granted and the share price on the date of grant. The decrease in expense for the three months ended March 31, 2023, as compared to 2022, is due to not issuing options in the first quarter of 2023.
Other Expense
Three months ended March 31, | Percent |
| ||||||||||
| 2023 |
| 2022 |
| Change |
| Change |
| ||||
Amortization of debt discount | $ | 181,677 | $ | 214,281 | $ | (32,604) | (15) | % | ||||
Interest expense |
| 449,311 | 174,351 | 274,960 | 158 | % | ||||||
(Gain) loss on derivative liability | (1,307) | 60,664 | (61,971) | (102) | % | |||||||
$ | 629,681 | $ | 449,296 | $ | 180,385 | 40 | % | |||||
Amortization of debt discount decreased during the three months ended March 31, 2023, as compared to March 31, 2022, due to the rollover and repayment of the 10% Notes. Interest expense increased during the three months ended March 31, 2023, as compared to March 31, 2022, due to the addition of the 12% Notes with an interest rate of 12% in Q3 2022. The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.
Retail
Three months ended March 31, | Percent |
| ||||||||||
| 2023 |
| 2022 |
| Change |
| Change |
| ||||
Revenues | $ | 5,110,619 | $ | 3,297,544 | $ | 1,813,075 |
| 55 | % | |||
Costs and expenses |
| (4,535,568) |
| (2,593,269) |
| (1,942,299) |
| 75 | % | |||
$ | 575,051 | $ | 704,275 | $ | (129,224) |
| (18) | % | ||||
With the addition of the TREES Englewood dispensary on September 2, 2021, Trees Portland and Trees Waterfront on December 30, 2021, and Trees MLK on January 5, 2022, we have established our retail footprint in the Colorado and Oregon markets and have become a vertically integrated company. The Retail Segment will provide positive cash flows which we anticipate will contribute to our working capital position.
26
Cultivation
Three months ended March 31, | Percent |
| ||||||||||
| 2023 |
| 2022 |
| Change |
| Change |
| ||||
Revenues | $ | 684,017 | $ | 518,280 | $ | 165,737 |
| 32 | % | |||
Costs and expenses |
| (1,139,573) |
| (707,549) |
| (432,024) |
| 61 | % | |||
$ | (455,556) | $ | (189,269) | $ | (266,287) |
| 141 | % | ||||
The increase in revenues for the three months ended March 31, 2023 compared to March 31, 2022 is attributed to the revenue driven from the cultivation spaces acquired in Q4 2022. The steady decline in the wholesale pricing of flower going forward may lead to lower revenue and lower margins in the cultivation segment.
Liquidity
Sources of liquidity
Our sources of liquidity include the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our significant uses of resources will include funding operations and developing infrastructure.
In September 2022, we received $10,587,250 in cash in a private placement with certain accredited investors pursuant to the 12% Notes to be used for acquisition of dispensaries and operating capital.
Sources and uses of cash
We had cash of $1,460,162 and $2,583,833 as of March 31, 2023 and December 31, 2022, respectively. Our cash flows from operating, investing and financing activities were as follows:
Three months ended March 31, | ||||||
2023 | 2022 | |||||
Net cash (used in) provided by operating activities |
| $ | (502,965) |
| $ | 45,223 |
Net cash used in investing activities | $ | (280,892) | $ | (190,153) | ||
Net cash used in financing activities | $ | (339,814) | $ | (258,057) | ||
Net cash used in operating activities increased in 2023 due to the increased net loss driven from the expenses described above.
Net cash used in investing activities for the three months ended March 31, 2023 increased from March 31, 2022, as a result of the purchase price of the additional license acquired in February 2023 exceeding the acquisition activity in the three months prior period, as well as a decrease in proceeds from notes receivable.
Net cash used in financing activities for the three months ended March 31, 2023 increased from March 31, 2022 due to an increase in payments on notes payable and finance leases.
Capital Resources
We had no material commitments for capital expenditures as of March 31, 2023. Part of our growth strategy, however, is to acquire operating businesses. We expect to fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.
27
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) attributable to common stockholders calculated in accordance with GAAP, adjusted for the impact of stock-based compensation expense, acquisition or disposal-related transaction costs , non-recurring professional fees in relation to litigation and other non-recurring expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest expense, income taxes and certain other non-cash items. Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure, which is net loss per share.
We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations. We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our unaudited condensed consolidated financial statements.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.
Three months ended March 31, | ||||||
2023 | 2022 | |||||
Net loss from continuing operations |
| $ | (1,886,534) |
| $ | (866,339) |
Adjustment for loss from discontinued operations |
| — |
| 5,283 | ||
Net loss |
| (1,886,534) |
| (861,056) | ||
Adjustments: |
|
|
|
| ||
Stock-based compensation |
| 27,396 |
| 76,117 | ||
Depreciation and amortization | 292,842 | 231,846 | ||||
Amortization of debt discount and equity issuance costs |
| 181,677 |
| 214,281 | ||
Interest expense |
| 449,311 |
| 174,351 | ||
(Gain) loss on derivative liability |
| (1,307) |
| 60,664 | ||
Severance | — | 4,731 | ||||
Acquisition related expenses | — | 7,500 | ||||
Provision for income taxes | 85,736 | — | ||||
Total adjustments |
| 1,035,655 |
| 769,490 | ||
Adjusted EBITDA | $ | (850,879) | $ | (91,566) | ||
Off-balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023, the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2023.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting during the first quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, which have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actions in the ordinary course of business. Other than as set forth below, we are not currently involved in any material legal proceedings outside the ordinary course of our business.
In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”). We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020. Monthly lease payments were to be $12,866.66. In 2020, we made initial payments (first month’s rent, last month’s rent, and security deposit) of $39,633.32; but subsequently did not take possession of the premises and have made no further payments in respect thereof, as a direct result of the COVID-19 pandemic. The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’
We have taken the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic. We are vigorously defending this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.
We filed a motion to dismiss; or a motion for summary judgment in the alternative. Plaintiff filed a response and cross-motion for summary judgement thereafter. In October 2022, the court denied the motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses, but has not specifically made any rulings on either party’s motion for summary judgment. On November 14, 2022, we timely filed a formal answer to the complaint, denying each of Plaintiff’s substantive claims. We also asserted appropriate affirmative defenses, including the force majeure clause of the lease, which provides that we are not liable under the lease in the event of a variety of events outside our control, including “pandemics.” In addition, we have asserted a counterclaim against Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs. The trial is currently scheduled for September 2023.
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
30
ITEM 6. EXHIBITS
Exhibits |
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | |
99.2 | |
99.3 | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
31
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.
TREES CORPORATION | ||
|
| |
Date: May 22, 2023 | /s/ Adam Hershey | |
| Adam Hershey, Interim Chief Executive Officer | |
| Principal Executive Officer | |
| ||
| /s/ Edward Myers | |
| Edward Myers, Interim Chief Financial Officer | |
| Principal Financial and Accounting Officer | |
32