Forward-Looking Statements
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Except as required by applicable law
including the securities laws of
In this quarterly report, unless otherwise specified, our financial statements are expressed inUnited States Dollars (US$) and are prepared in accordance withUnited States generally accepted accounting principles. All references to "common shares" refer to the common shares in our capital stock. Unless expressly indicated or the context requires otherwise, the terms "Redwood Green ," the "Company," "we," "us," and "our" refer toRedwood Green Corp. , aNevada corporation, and, where appropriate, its wholly owned subsidiaries.
General Overview Subsequent to the quarter-end, members of the Board of Directors met with representatives of significant shareholders regarding the progress of its buy and build strategy and the need for additional working capital to implement this strategy. While there were many discussions with potential acquisition targets, management of the Company was not able to reach agreement on the broad outlines of any such agreement, and it became apparent that any of such acquisition and the capital to finance such acquisitions would result in unacceptable dilution to the Company's shareholders. In order to preserve value to the shareholders to the best extent possible, it was determined to abandon this strategy in order to evaluate strategic alternatives. With very limited funds to operate, these shareholders were approached to obtain funds to operate during this process. Management of the Company was able to obtain a convertible loan in the amount of$250,000 from one such shareholder, but such loan was conditioned upon the Company divesting itself of the Good Meds business to obtain additional working capital and provide funds for its new strategy. The Company anticipates announcement of a new strategic direction in the coming weeks. The convertible loan will provide enough funds to operate through the end of August but not beyond. It is in discussion with other potential financing sources and potential acquirors for the Good Meds business but there can be no assurance that any of these discussions will be successful on terms satisfactory to the Company, if at all.Redwood Green Corp began asAuto Tool Technologies Inc. , which was incorporated under the laws of theState of Nevada onMay 10, 2011 . The Company's name was changed toAFC Building Technologies Inc. effectiveJanuary 10, 2014 . EffectiveApril 26, 2018 , the Company changed its name toFirst Colombia Development Corp. Subsequently, effectiveOctober 14, 2019 , the Company changed its name toRedwood Green Corp. The Company operates from its corporate headquarters located inDenver, Colorado . InApril 2018 , the Company effected a forward stock split of our authorized and issued and outstanding shares of common stock on a one (1) old for two (2) new basis. Upon effect of the forward split, authorized capital increased from 250,000,000 shares of common stock to 500,000,000 shares of common stock and correspondingly, the issued and outstanding shares of common stock increased from 34,760,008 to 73,520,016 shares of common stock, all with a par value of$0.001 . The stock split was subsequently reviewed and approved by theFinancial Industry Regulatory Authority (FINRA) onApril 26, 2018 . 21
OnMay 10, 2018 , the Company acquired all the issued and outstanding share capital of First Colombia Devco S.A.S. ("Devco") a Colombian company, and began to establish various business ventures inColombia in the agriculture and real estate development, tourism, and infrastructure sectors before commencing to phase them out inApril 2019 . OnJuly 1, 2019 , the Company acquired 100% of the membership interests inGeneral Extract, LLC ("General Extract"), aColorado limited liability company. General Extract was founded in 2015 as an importer, distributor, broker and postprocessor of hemp and hemp derivatives. The Company acquired all of the issued and outstanding membership interests, including business plans and access to contacts. In consideration of the sale and transfer of the membership interests, the Company delivered 299,170 shares, representing 100% of the ownership of First Colombia Devco. OnJuly 15, 2019 , the Company, through its wholly owned subsidiaryGood Acquisition Co. , entered into a Membership Interest Purchase Agreement to acquire cannabis brands and other assets ofCritical Mass Industries , LLC DBA Good Meds ("CMI"), aColorado limited liability company ("CMI Transaction"). CMI is licensed by theMarijuana Enforcement Division of Colorado Department of Revenue to produce cannabis and cannabis products under its six licenses. These licenses allow for cultivation, manufacturing of infused products and retail distribution. At the time,Colorado law prohibited public companies, including the Company, from owning cannabis licenses. Therefore, CMI spun off assets acquired by the Company into two new entities,Good Holdco, LLC andGood IPCo, LLC . Under the terms of the Membership Interest Purchase Agreement, CMI retained the cannabis licenses, inventory and accounts receivable and will continue to operate the cannabis business related to these assets under the agreements entered into withRedwood Green . In consideration for the transfer of the acquired assets, the Company delivered 13,553,233 shares of the Company common stock, in addition to$1,999,770 in cash paid to CMI. Effective in 2020, public companies are permitted to own cannabis licenses inColorado , and the Company is in the process of acquiring the remaining assets of CMI in exchange for 1,500,000 shares of Common Stock of the Company. Update on COVID-19 InDecember 2019 , a novel strain of coronavirus was reported to have surfaced inWuhan, China , which has spread throughout the world, includingthe United States . OnJanuary 30, 2020 , theWorld Health Organization declared the outbreak of COVID-19 a "Public Health Emergency of International Concern," and onMarch 11, 2020 , it characterized the outbreak as a "pandemic". The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic has introduced significant volatility in the financial markets and is having a widespread adverse effect on the cannabis industry, including reductions in certain consumer demand and production of THC-dominant and CBD-dominant cannabis that the Company specializes in. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions, both domestic and international, closing of borders and business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted the Company's business. Although deemed an essential business during the pandemic, many dispensaries and cannabis manufacturers have suspended or reduced operations on a temporary basis due to market conditions and matters associated with COVID-19. The COVID-19 pandemic and responses to this crisis, including actions taken by federal, state and local governments, have had an impact on the operations of the Company, including, without limitation, the following: reduced staffing due to employee suspected conditions and social distancing measures; constraints on productivity; management and staff non-essential business-related travel was constrained due to stay-at-home orders; most employees have shifted to remote work resulting in loss of productivity; consumers visiting dispensaries operated under license impacted by stay-at-home orders. Management has made reasonable alternative arrangements, including attempts to render meetings and other workflow processes more efficient despite remote work; however, these have had limited success, as at-home working conditions differ and certain employees' roles are not amenable to work from home. Management continues to monitor the COVID-19 pandemic situation and federal, state and local recommendations and will provide updates as appropriate. 22 Our Current Business
Our business portfolio includes the accounts of General Extract, which is
controlled by the Company through its 100% ownership interest, and CMI, a
variable interest entity ("VIE") for which the Company is deemed to be the
primary beneficiary and therefore is a consolidated entity of
InJune 2020 , the Company's board of directors redirected the Company's business strategy to exit the cultivation, manufacturing of infused products and retail distribution businesses. Therefore, the Company's operations and financial results relating to CMI, a VIE of the Company, has been reported as discontinued operations held for sale.
Results of Operations for the Three Months Ended
Our operating results for the three months endedJune 30, 2020 and 2019 are summarized as follows: For the Three Months Ended June 30, Change 2020 2019 Dollars Percentage Net sales$ 769,555 $ -$ 769,555 100 % Cost of goods sold, inclusive of depreciation 310,695 - 310,695 100 % Gross profit 458,860 - 458,860 100 % Total operating expenses 1,150,425 222,238 928,187 418 % Loss from operations (691,565 ) (222,238 ) (469,327 ) 211 % Total other expenses (16,011 ) 16 (16,027 ) -100,169 % Net loss from continuing operations, before taxes (707,576 ) (222,222 ) (485,354 ) 218 % Income taxes 5,117 - 5,117 100 %
Net loss from continuing operations
218 % Net loss from discontinued operations, net of tax$ (60,315 ) $ 991 $ (61,306 ) -6,186 % Net loss$ (773,008 ) $ (221,231 ) $ (551,777 ) 247 %
Our operating results for the three months endedJune 30, 2020 , relating to our variable interest entity, CMI, are classified as discontinued operations above and summarized as follows: For the Three Months Ended June 30, Change 2020 2019 Dollars Percentage Net sales $ 1,746,977 $ -$ 1,746,977 100 %
Cost of goods sold, inclusive of depreciation 1,249,875 - 1,249,875 100 % Gross profit 497,102 - 497,102 100 % Total operating expenses 458,664 - 458,664 100 % Loss from operations 38,438 - 38,438 100 % Total other expenses (98,753 ) - (98,753 ) 100 % Net loss, before taxes (60,315 )
- (60,315 ) 100 % Income taxes - - - 0 % Net loss $ (60,315 ) $ -$ (60,315 ) 100 % 23
Net sales for the three months endedJune 30, 2020 were$769,555 , which represented an increase of$769,555 , or 100%, compared to no net sales for the three months endedJune 30, 2019 . Revenue generating activities for continuing operations are attributable to General Extract, which was acquired afterJune 30, 2019 . CMI net sales were$1,746,977 for the three months endedJune 30, 2020 , of which$1,205,330 was related to medical retail,$336,776 was related to medical wholesale, and$204,871 was related to recreational wholesale. Revenue generating activities for discontinued operations are attributable to CMI. Cost of goods sold for the three months endedJune 30, 2020 primarily consisted of the cost of CBD isolate. Cost of goods sold increased by$310,695 for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . There was no cost of goods sold for the three months endedJune 30, 2019 , as the Company did not engage in sales activities. CMI's cost of goods sold for the three months endedJune 30, 2020 primarily consisted of allocated salaries and wages of employees directly related to the production process, and allocated depreciation directly related to the production process, cultivation supplies, rent and utilities. CMI's cost of goods sold were$1,249,875 for the three months endedJune 30, 2020 . CMI was acquired afterJune 2019 , resulting in no cost of goods sold for the three months endedJune 30, 2019 . Operating Expenses
Operating expenses encompass personnel costs, sales and marketing, general and administrative expenses, and legal and professional fees. Total operating expenses were$1,150,425 for the three months endedJune 30, 2020 as compared to$222,238 for the three months endedJune 30, 2019 . The increase of$928,187 , or 418%, was primarily attributable to the following changes in operating expenses of:
? Personnel costs -
? Sales and marketing -
? General and administrative expenses -
? Legal and professional fees -
The$687,573 increase in personnel costs resulted fromRedwood Green Corp. hiring employees and an increase in consulting expenses as its operations began. The$243,561 increase in legal and professional fees primarily resulted from costs associated with expanded operations attributable to acquiring CMI and the strategic direction of the Company. CMI operating expenses encompass personnel costs, sales and marketing, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were$458,664 for the three months endedJune 30, 2020 . CMI was acquired afterJune 30, 2019 , resulting in no operating expenses for the three months endedJune 30, 2019 . Other Expense
Other expense consisted of foreign exchange gain/loss. Other expense during the three months endedJune 30, 2020 and 2019 was$16,011 loss and$16 gain, respectively. The$16,027 increase was a result of foreign currency exchange loss for transactions with General Extract's supplier. CMI's other expense consisted of interest expense. CMI's other expense during the three months endedJune 30, 2020 was$98,753 . CMI was acquired afterJune 30, 2019 , resulting in no other expenses for the three months endedJune 30, 2019 . 24 Net Loss For the foregoing reasons, we had a net loss of$773,008 for the three months endedJune 30, 2020 , or$0.01 net loss per common share - basic and diluted, compared to$221,231 for the three months endedJune 30, 2019 , or$0.00 net loss per common share - basic and diluted.
Results of Operations for the Six Months Ended
Our operating results for the six months endedJune 30, 2020 and 2019 are summarized as follows: For the Six Months Ended June 30, Change 2020 2019 Dollars Percentage
Net sales$ 781,455 $ -$ 781,455 100 % Cost of goods sold, inclusive of depreciation 744,279 - 744,279 100 % Gross profit 37,176 - 37,176 100 % Total operating expenses 4,158,616 269,860
3,888,756 1,441 % Loss from operations (4,121,440 ) (269,860 ) (3,851,580 ) 1,427 % Total other expenses (16,011 ) (430 ) (15,581 ) 3,623 % Net loss from continuing operations, before taxes (4,137,451 ) (270,290 ) (3,867,161 ) 1,431 % Income taxes 5,117 - 5,117 0 % Net loss from continuing operations$ (4,142,568 ) $ (270,290 ) $ (3,872,278 ) 1,431 % Net loss from discontinued operations, net of tax$ (227,749 ) $ (22,279 ) $ (205,470 ) 922 % Net loss$ (4,370,317 ) $ (292,569 ) $ (4,077,748 ) 1,392 % Our operating results for the six months endedJune 30, 2020 , relating to our variable interest entity, CMI, are included above and summarized as follows: For the six Months Ended June 30, Change 2020 2019 Dollars Percentage Net sales$ 3,328,867 $ -$ 3,328,867 100 % Cost of goods sold, inclusive of depreciation 2,628,051
- 2,628,051 100 % Gross profit 700,816 - 700,816 100 % Total operating expenses 828,340 - 828,340 100 % Loss from operations (127,524 ) - (127,524 ) 100 % Total other expenses (100,225 ) - (100,225 ) 100 % Net loss, before taxes (227,749 ) - (227,749 ) 100 % Income taxes - - - 0 % Net loss$ (227,749 ) $ -$ (227,749 ) 100 %
Net sales for the six months endedJune 30, 2020 were$781,455 , which represented an increase of$781,455 , or 100%, compared to no net sales for the six months endedJune 30, 2019 . Revenue generating activities for continuing operations are attributable to General Extract, which was acquired afterJune 30, 2019 . CMI net sales were$3,328,867 for the six months endedJune 30, 2020 , of which$2,272,184 was related to medical retail,$599,227 was related to medical wholesale,$454,715 was related to recreational wholesale, and$2,741 was related to other revenues. Revenue generating activities for discontinued operations are attributable to CMI. 25 Cost of goods sold for the six months endedJune 30, 2020 primarily consisted of the cost of CBD isolate and the provision for inventory loss. Cost of goods sold increased by$744,279 for the six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 . There was no cost of goods sold for the six months endedJune 30, 2019 , as the Company did not engage in sales activities. CMI's cost of goods sold for the six months endedJune 30, 2020 primarily consisted of allocated salaries and wages of employees directly related to the production process, and allocated depreciation directly related to the production process, cultivation supplies, rent and utilities. CMI's cost of goods sold were$2,628,051 for the three months endedJune 30, 2020 . CMI was acquired afterJune 2019 , resulting in no cost of goods sold for the six months endedJune 30 ,
2019. Operating Expenses
Operating expenses encompass personnel costs, sales and marketing, general and administrative expenses, and legal and professional fees. Total operating expenses were$4,158,616 for the six months endedJune 30, 2020 as compared to$269,860 for the six months endedJune 30, 2019 . The increase of$3,888,756 , or 1,441%, was primarily attributable to the following increases in operating expenses of:
? Personnel costs -
? Sales and marketing -
? General and administrative expenses -
? Legal and professional fees -
The$1,416,685 increase in personnel costs resulted fromRedwood Green Corp. hiring employees and an increase in consulting expenses as its operations began. The$1,529,902 increase in general and administrative expenses is a result of stock-based compensation expense of$1,372,656 . The$927,315 increase in legal and professional fees primarily resulted from costs associated with expanded operations attributable to acquiring CMI and the strategic direction of the Company. CMI operating expenses encompass personnel costs, sales and marketing, general and administrative, legal and professional fees, and amortization expense. Total operating expenses for CMI were$828,340 for the six months endedJune 30, 2020 . CMI was acquired afterJune 30, 2019 , resulting in no operating expenses for the three months endedJune 30, 2019 . Other Expense Other expense consisted of loss on foreign exchange. Other expense during the six months endedJune 30, 2020 and 2019 was$16,011 and$430 , respectively. The$15,581 or 3,623% increase in other expense was a result of foreign currency exchange loss for transactions with General Extract's supplier. CMI's other expense consisted of interest expense. CMI's other expense during the six months endedJune 30, 2020 was$100,225 . CMI was acquired afterJune 30, 2019 , resulting in no other expenses for the six months endedJune 30, 2019 . Net Loss For the foregoing reasons, we had a net loss of$4,370,317 for the six months endedJune 30, 2020 , or$0.04 net loss per common share - basic and diluted, compared to$292,569 for the six months endedJune 30, 2019 , or$0.00 net loss per common share - basic and diluted. 26
Liquidity, Capital Resources and Cash Flows
The board of directors of the Company has refocused the Company to seek financing for general operating expenses from the Company's current shareholders in the form of either convertible debt, stock options, or share subscriptions, pending determination of a new business strategy and sale of the Good Meds assets. It is unknown at this time what the financial requirements of a new business strategy will be or how it will be funded. The Company expects substantial proceeds from the sale of the Good Meds assets which will at least partially offset the cost of the new business strategy, as well as general operating expenses. As ofJune 30, 2020 , the Company had working capital of$10,094,488 and cash balance of$611,863 . There can be no assurance that the Company will be able to source financing to fund its new business strategy, when determined, or that it will be able to sell the Good Meds assets on reasonable terms. COVID-19 has resulted in, and may continue to result in, significant disruption of financial markets, which may reduce the Company's ability to access capital or its customers' ability to pay the Company for past or future purchases, which could negatively affect the Company's liquidity. The Company believes that the cash balances and cash from operations will be sufficient to satisfy its cash needs for the next few months until it can obtain new long-term financing or other sources of capital. If we are unable to attain additional financing, we will have to seek additional strategic alternatives and relief from our additional liabilities accumulated during COVID-19. The impact of COVID-19 developments and uncertainty with respect to the economic effects of the pandemic have introduced significant volatility in the financial markets and are having a widespread adverse effect on the cannabis industry, including reductions in consumer demand and production of THC-dominant and CBD-dominant cannabis. While the full extent of the impact is unknown and the current situation is still evolving, the Company intends to evaluate further ways to control costs in position with sales levels. The uncertainties associated with COVID-19 related to our industry present risk and doubt about the Company's ability to continue as a going concern. Going Concern
Management believes that we will continue to incur losses for the immediate future. Therefore, we may either need additional equity or debt financing until we can achieve profitability and positive cash flows from operating activities, or proceeds from the sale of assets. These conditions raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to this uncertainty and as to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern. Capital Resources
The following table summarizes total current assets, liabilities and working capital for the periods indicated:
June 30, December 31, 2020 2019 Current assets$ 13,408,751 $ 15,760,006 Current liabilities 3,314,263 2,668,283 Working capital$ 10,094,488 $ 13,091,723
As of
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