TREES CORPORATION This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("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 Condensed Consolidated
Financial Statements and related notes and MD&A appearing in our Annual Report
on Form 10-K for the year ended
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the financial statements and related notes, contain 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, except required by law.
When this report uses the words "we," "us," "our," or "GCC" and the "Company,"
they refer to
COVID-19
The recent outbreak of the novel coronavirus disease ("COVID-19"), was labeled a
global pandemic by the
The full extent of the pandemic, related business and travel restrictions,
governmental regulations and changes to consumer behavior intended to reduce its
spread are uncertain as of the date of this Quarterly Report on Form 10-Q, and
the timing of the peak of the pandemic and its ultimate impact on the
Our Products, Services and Customers
Through our two reporting segments
Through Next Big Crop ("NBC"), we deliver comprehensive consulting services to
the cannabis industry that include obtaining licenses, compliance, cultivation,
retail operations, logistical support, facility design and construction, and
expansion of existing operations. During the three months ended
There are generally multiple suppliers for the products we sell; however, there are a limited number of manufacturers of certain high tech cultivation equipment.
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Capital Investments ("Investments Segment")
As a publicly traded company, we have access to capital that may not be available to businesses operating in the cannabis industry. Accordingly, we may provide debt or equity capital through (a) loans or revolving lines of credit, or (b) investing in businesses using cash or shares of our common stock.
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 condensed consolidated financial statements and the notes thereto appearing in Item 8 in this Report.
Consolidated Results
Three months ended March 31, Percent
2020 2019 Change Change
Revenues $ 1,664,188 $ 794,922 $ 869,266 109%
Costs and expenses (3,665,437) (3,680,355) 14,918 0%
Other income (expense) 139,928 (1,282,569) 1,422,497 (111)%
Net loss from continuing (1,861,321) (4,168,002) 2,306,681 (55)%
operations
Loss from discontinued (152,858) (345,693) 192,835 (56)%
operations
Net loss $ (2,014,179) $ (4,513,695) $ 2,499,516 (55)%
Revenues
Revenue increased for both our
Costs and expenses
Three months ended March 31, Percent
2020 2019 Change Change
Cost of service revenues $ 192,567 $ 186,775 $ 5,792 3%
Cost of goods sold 1,231,413 388,074 843,339 217%
Selling, general and 1,039,934 1,053,551 (13,617) (1)%
administrative
Share-based compensation 572,574 1,492,496 (919,922) (62)%
Professional fees 597,036 540,055 56,981 11%
Depreciation and 31,913 19,404 12,509 64%
amortization
$ 3,665,437 $ 3,680,355 $ (14,918) 0%
Cost of service revenues typically fluctuates with the changes in revenue for our Operation Consulting Segment. Cost of goods sold varies with changes in product sales, including an increase in products sold by our Operation Consulting Segment, which have smaller margin. See Segment discussions below for further details.
Selling, general and administrative expense stayed relatively static for the
three months ended
Share-based compensation included the following:
Three months ended March 31, Percent
2020 2019 Change Change
Employee awards $ 342,248 $ 1,298,845 $ (956,597) (74)%
Consulting awards 71,015 9,777 61,238 626%
Feinsod Agreement 159,311 183,874 (24,563) (13)%
$ 572,574 $ 1,492,496 $ (919,922) (62)%
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Employee awards are issued under our 2014 Equity Incentive Plan, which was
approved by shareholders on
The decrease in expense for the three month ended
Professional fees consist primarily of accounting and legal expenses and increased for the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 due to legal and accounting fees spent on acquisitions. Other Expense Three months ended March 31, Percent 2020 2019 Change Change Amortization of debt discount and equity issuance costs $ 66,321$ 1,171,556 $ (1,105,235) (94)% Interest expense 171,048 111,013 60,035 54% Gain on derivative liability (1,375,620) - (1,375,620) (100)% Loss on extinguishment of debt 1,137,428 - 1,137,428 100% Gain on sale of building (139,105) - (139,105) (100)%$ (139,928) $ 1,282,569 $ (1,422,497) (111)%
Amortization of debt discount was lower in 2020 compared to 2019, due to the
The gain on warrant derivative liability reflects the change in the fair value
of the 2019 Warrants. The loss on extinguishment of debt is due to the
conversion and extension of the SBI debt and the exchange of the 12% Notes into
the 15% Notes. The gain on the sale of the building is the gain we recognized
as a result of the sale of our building in
Three months ended March 31, Percent
2020 2019 Change Change
Revenues $ 1,647,459 $ 780,101 $ 867,358 111%
Costs and expenses (1,616,487) (677,381) (939,106) 139%
$ 30,972 $ 102,720 $ (71,748) 70%
Increased revenues in 2020 are primarily related to increased product sales and license application fees, offset by a decrease in recurring consulting fees. Costs and expenses increased in 2020 due to increased product sales, offset by a reduction in employee costs.
Investments
Three months ended March 31, Percent
2020 2019 Change Change
Revenues $ 16,729 $ 14,821 $ 1,908 13%
Costs and expenses - (40,075) 40,075 (100)%
$ 16,729 $ (25,254) $ 41,983 (166)%
The slight increase in revenues in 2020 is related to a full quarter of interest revenue in 2020 as compared to 2019. All revenue is from interest and loan origination fees related to these new notes. The expense in 2019 was legal fees incurred for the new notes receivable agreements.
Liquidity Sources of liquidity
Our sources of liquidity include cash generated from operations, the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our more significant uses of resources will include funding operations, developing infrastructure, as well as potential loans, investments, and business and real property acquisitions.
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In May and
During January through March of 2020, we received
Sources and uses of cash
We had cash of
Three months ended March 31,
2020 2019
Net cash used in operating activities
1,418,123 (645,209)
investing activities
Net cash provided by financing $ 615,000 $ -
activities
Net cash used in operating activities decreased in 2020 by
Net cash provided by investing activities in 2020 relates primarily to the sale
of our building in
Net cash provided by financing activities in 2020 is in relation to exercises of warrants and new debt, offset by debt payments.
Capital Resources
We have no material commitments for capital expenditures as of
Part of our growth strategy, however, is to acquire businesses. We would fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.
Non-GAAP Financial Measures
Adjusted EBITDA per share is a non-GAAP financial measure. We define Adjusted EBITDA per share as (a) net income (loss) calculated in accordance with GAAP, adjusted for the impact of share-based expense, depreciation and amortization, impairment of investments, amortization of debt discounts, and certain other non-cash items; divided by (b) the weighted average shares outstanding, adjusted for the shares related to the calculation of Adjusted EBITDA. Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure.
We believe that the disclosure of Adjusted EBITDA per share 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 condensed consolidated financial statements.
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The following table reconciles Adjusted EBITDA to the most directly comparable
GAAP measure.
Three months ended
March 31,
2020 2019
Net loss $ (2,014,179) $ (4,513,695)
Adjustment for loss from discontinued operations 152,858 345,693
Loss from continuing operations attributable to common stockholders
(1,861,321) (4,168,002)
Adjustments:
Acquisition-related expense 308,196 - Share-based expense 572,574 1,492,496 Depreciation and amortization 31,913 19,404 Amortization of debt discount 66,321 1,171,556 Interest expense 171,048 111,013 Loss on extinguishment of debt 1,137,428 - Gain on sale of building (139,105) - Gain on warrant derivative liability (1,375,620) - Total adjustments 722,755 2,794,469 Adjusted EBITDA$ (1,088,566) $ (1,373,533) Per share: Net loss - Basic and Diluted$ (0.05) $ (0.12) Adjusted EBITDA - Basic and Diluted (0.03) (0.04) Weighted-average shares outstanding: Net loss - Basic and Diluted 39,694,890 36,222,752 Adjusted EBITDA - Basic and Diluted 39,497,480 36,222,752
Off-balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies
Our condensed consolidated financial statements and accompanying notes have been
prepared in accordance with
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