What changed in this filing

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Item 1. Financial Statements

2020-08-20 compared with 2020-07-07 · 976 added, 379 removed, 239 unchanged (85% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

December 31, 2019

Current Assets

1 unchanged sentence

Accounts receivable, net

Notes receivable, net current portion

Note receivable, net –

current portion

Prepaid expenses and other current assets

Assets held for sale

Assets of discontinued operations

Assets of discontinued operations –

current portion

Total current assets

Note receivable, net

Right-of-use asset

Property and equipment, net

Assets held for sale

Intangible assets, net

Assets of discontinued operations

LIABILITIES & STOCKHOLDERS EQUITY

LIABILITIES AND STOCKHOLDERS’

Current Liabilities

1 unchanged sentence

Interest payable

Income tax payable

Customer deposits

Lease liability - current

Accrued stock payable

2 unchanged sentences

Warrant derivative liability

Liabilities held for sale

Liabilities of discontinued operations

Stock put liability

Total current liabilities

Commitments and Contingencies (Note 8)

Stockholders Equity (Deficit)

Lease liability –

Notes payable –

Related party note payable –

Total liabilities

Stockholders’

(Deficit) Equity

Preferred stock, no par value;

5,000,000 shares authorized;

no shares issued and outstanding at March 31, 2020 and December 31, 2019

no shares issued and outstanding at June 30, 2020 and December 31, 2019

Common Stock, $0.001 par value;

100,000,000 shares authorized;

40,281,881 shares and 39,497,480 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively.

51,188,564 and 39,497,480 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated deficit

Total Stockholders Deficit

Total Liabilities & Stockholders Equity (Deficit)

See Notes to condensed consolidated financial statements.

(71,226,830 )

(67,271,744 )

Total Stockholders’

(Deficit) Equity

Total Liabilities and Stockholders’

See Notes to condensed consolidated financial

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED CONSOLIDATED STATEMENTS OF

Three months ended

Rent and interest

Six months ended

Cultivation sales

Interest income

Product sales

10 unchanged sentences

OTHER (INCOME) EXPENSE

Amortization of debt discount

Loss on extinguishment of debt

Amortization of debt discount and equity issuance costs

Interest expense, net

Gain on warrant derivative liability

Debt extinguishment

Gain (loss) on warrant derivative liability

Gain on sale of building

Total other (income) expense , net

Total other expense, net

NET LOSS FROM CONTINUING OPERATIONS

Loss from discontinued operations

PER SHARE DATA Basic and diluted

$ (1,905,605 )

$ (2,448,226 )

$ (3,766,926 )

$ (6,616,228 )

Gain (loss) from discontinued operations

NET LOSS BEFORE INCOME TAXES

$ (1,900,372 )

$ (2,894,802 )

$ (3,914,551 )

$ (7,408,497 )

Deemed dividend

NET LOSS ATTRIBUTABLE TO STOCKHOLDERS

PER SHARE DATA –

Basic and diluted

Net loss from continuing operations per share

2 unchanged sentences

Weighted average number of common shares outstanding

See Notes to condensed consolidated financial statements.

See Notes to condensed consolidated financial

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended

CONDENSED CONSOLIDATED STATEMENTS OF

Six months ended June 30,

OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Amortization of debt discount

Amortization of debt discount and equity issuance costs

Depreciation and amortization expense

Amortization of loan origination fees

Noncash lease expense

Bad debt expense

Share-based payments

Gain on warrant derivative liability

Loss on extinguishment of debt

Gain on discontinued operations

Gain on sale of building

Loss on disposal of assets

Share-based payments

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other assets

Accounts payable and accrued liabilities

Accounts payable and other current liabilities

Operating lease liabilities

Net cash used in operating activities:

5 unchanged sentences

FINANCING ACTIVITIES

Proceeds from the exercise of warrants

Net proceeds from the

sale of common stock and warrants

Proceeds from the sale

of common stock and warrants –

Accrued stock payable

Proceeds from exercise of warrants

Proceeds from exercise of stock options

Proceeds from notes payable

Payments on notes payable

Net cash provided by financing activities

Net cash provided by (used in) financing activities

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

3 unchanged sentences

Cash paid for interest

Cash paid for taxes

NON-CASH INVESTING AND FINANCING ACTIVITIES

NON-CASH TRANSACTIONS

Deemed dividend from 8.5% Warrants repricing

Operating lease right-of-use asset / Operating lease liability

3 unchanged sentences

Beneficial conversion feature

Cashless exercise

Issuance of common stock to an employee

See Notes to condensed consolidated financial statements.

Stock issued in connection with SevenFive Farm acquisition

See Notes to condensed consolidated financial

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

CONDENSED CONSOLIDATED STATEMENTS OF

IN STOCKHOLDERS’

(DEFICIT) EQUITY

FOR THE THREE MONTHS ENDED JUNE 30,

2020 AND 2019

Paid-in Capital

January 1, 2020

Warrants issued with the 15% Notes

Common stock issued upon exercise of warrants

Common stock issued to an employee for services

April 1, 2020

$ (69,285,923 )

$ (5,694,820 )

Common stock issued for acquisition of SevenFive Farm

Common stock issued upon conversion of debt

Expense in relation to beneficial conversion feature

Stock options granted to employees and consultants

March 31, 2020

Cashless exercise of warrants

June 30, 2020

$ (71,226,830 )

$ (3,769,385 )

$ (56,301,642 )

of common stock, net of issuance costs

stock issued for property and equipment

stock issued upon exercise of stock options

options granted to employees and consultants

$ (59,196,444 )

See Notes to condensed consolidated financial

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF

IN STOCKHOLDERS’

(DEFICIT) EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2020

Paid-in Capital

January 1, 2020

$ (67,271,744 )

$ (5,764,212 )

Sale of common stock, net of issuance costs

Common stock issued upon conversion of debt

Common stock issued for acquisition of SevenFive Farm

Stock options granted to employees and consultants

March 31, 2019

See Notes to condensed consolidated financial statements.

Beneficial conversion feature

Warrants exercised

Warrants issued with the 15% Notes

Cashless exercise of warrants

June 30, 2020

$ (71,226,830 )

$ (3,769,385 )

$ (51,787,947 )

of common stock, net of issuance costs

stock issued for property and equipment

stock issued upon exercise of stock options

options granted to employees and consultants

$ (59,196,444 )

See Notes to condensed consolidated financial

GENERAL CANNABIS CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS, HISTORY AND PRESENTATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NATURE OF OPERATIONS, HISTORY AND

Nature of Operations

General Cannabis Corp, a Colorado Corporation (the Company, we, us, our, or GCC) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry.

We currently trade on the OTCQB® Venture Market.

As of March 31, 2020, our operations are segregated into the following two segments:

Operations Consulting and Products (Operations Segment)

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 March 31, 2020 and 2019, 73% and 76% of NBCs revenue was with three customers and one customer, respectively.

NBC oversees our wholesale equipment and supply business, operated under the name GC Supply, which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities.

General Cannabis Corp, a Colorado Corporation (the “Company,”

“we,”

“us,”

“our,”

or “GCC”) (formerly, Advanced Cannabis Solutions, Inc.), was

incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry.

We currently trade on the

Venture Market.

As of June 30, 2020, our operations are segregated into the following three segments:

Operations Consulting and Products (“Operations Segment”)

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 6 months ended June 30, 2020 and 2019,

75% and 76% of NBC’s revenue was with four and three customers, respectively.

NBC oversees our wholesale equipment and supply business, operated

under the name “GC Supply,”

which provides turnkey sourcing and stocking services to cultivation, retail and infused

products manufacturing facilities.

Our products include building materials, equipment, consumables and compliance packaging.

There are generally multiple suppliers for the products we sell;

however, there are a limited number of manufacturers of certain high-tech cultivation equipment.

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 and (b) investing in businesses using cash or shares of our common stock.

Discontinued Operations - Security and Cash Transportation Services (Security Segment)

We provided advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators, cannabis processing facilities and retail shops, under the business name Iron Protection Group (IPG) in California and Colorado, and security services to non-cannabis customers in Colorado, such as hotels, apartment buildings and retail.

On December 26, 2019, the board of directors and management made the strategic decision to investigate a possible buyer for the security segment and if no buyer could be found, cease operations of the security segment.

We transferred all our Colorado security contracts and employees to a company on January 16, 2020, in exchange for which we will receive $1.00 per man hour worked on existing contracts for a period of one year.

On February 6, 2020 we cancelled all our security contracts in California.

Discontinued Operations - Consumer Goods and Marketing Consulting (Consumer Goods Segment)

Our apparel business, Chiefton, had two primary revenue streams.

Chiefton Supply strived to create innovative, unique t-shirts, hats, hoodies and accessories.

Our apparel was sold through our on-line shop, cannabis retailers, non-cannabis retailers, and specialty t-shirt and gift shops.

Chiefton Design provided design, branding and marketing strategy consulting services to the cannabis industry, which frequently included sourcing and selling customer-specific apparel and accessories.

On December 26, 2019, the board of directors and management made the strategic move to cease operations of Chiefton.

All operations of Chiefton were abandoned on December 31, 2019.

Our CBD retail business, STOA Wellness, opened in July of 2019.

STOA Wellness offered a curated collection of high quality CBD products for athletes and general wellness.

On December 26, 2019, the board of directors committed to a plan to cease operations of STOA Wellness.

We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease of the STOA retail front.

are generally multiple suppliers for the products we sell;

however, there are a limited number of manufacturers of certain high-tech

cultivation equipment.

Cultivation (“Cultivation Segment”)

Through our new acquisition of SevenFive Farm (“SevenFive”),

we operate a licensed indoor cultivation facility.

We believe our production capability is sufficient to meet the diverse needs

of our recreational consumers in Colorado, from cost-effective, high-yield inputs to sophisticated and dried cannabis flower.

Capital Investments (“Investments

Segment”)

As a publicly traded company, we believe that 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 investing in businesses using cash

or shares of our common stock.

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission (SEC), 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.

can be condensed or omitted.

The condensed consolidated balance sheet for the year ended December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by U.S.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2019 which were included in the Annual Report on Form 10-K filed by the Company with the SEC on May 14, 2020.

In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Companys financial position and operating results.

The results for the three months ended March 31, 2020 are not necessarily indicative of the operating results for the year ending December 31, 2020, or any other interim or future periods.

These unaudited condensed consolidated financial statements

have been prepared following the requirements of the Securities and Exchange Commission (“SEC”), 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, 2019 was derived from audited financial statements but does not include all disclosures

required by U.S.

The information included in this quarterly report on Form 10-Q should be read in conjunction with

the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2019 which were included

in the annual report on Form 10-K/A filed by the Company on July 7, 2020.

In the opinion of management, these condensed consolidated

financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of

the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation

of the Company’s financial position and operating results.

The results for the three and six months ended June 30, 2020

are not necessarily indicative of the operating results for the year ending December 31, 2020, or any other interim or future

Use of Estimates

The preparation of our condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.

Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Companys 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.

The preparation of our condensed consolidated financial statements

in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets,

liabilities, revenues and expenses.

Although these estimates are based on our knowledge of current events and actions we may undertake

in the future, actual results may ultimately differ from these estimates and assumptions.

Furthermore, when testing assets for

impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may

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.

Going Concern

The condensed consolidated financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for at least the twelve months from the date these condensed consolidated financial statements are issued.

As of March 31, 2020 our cash of approximately $600,000 is not sufficient to absorb our operating losses and repay our debt of $2.7 million.

The warrants associated with this debt, if exercised in cash, would provide sufficient funds to retire the debt;

however, there is no guarantee that these warrants will be exercised in cash or at all.

Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due.

Management believes that (a) we will be successful obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern.

While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances that we will be successful in such efforts.

Accordingly, there is substantial doubt about our ability to continue as a going concern.

The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

The condensed consolidated financial statements have been prepared

on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course

of business for at least the twelve months from the date these condensed consolidated financial statements are issued.

of June 30, 2020, our cash balance of approximately $1.2 million is not sufficient to absorb our operating losses and repay our

notes payable of $2.3 million, of which $1.7 million is short-term.

The warrants associated with this debt, if exercised

in cash, would provide sufficient funds to retire the debt;

however, there is no guarantee that these warrants will be exercised

in cash or at all.

Our ability to continue as a going concern is dependent upon our generating profitable operations in the

future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business

operations when they come due.

Management believes that (a) we will be successful obtaining additional capital and (b) actions

presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company

to continue as a going concern.

While we believe in the viability of our strategy to generate additional revenues and

our ability to raise additional funds, there can be no assurances that we will be successful in such efforts.

there is substantial doubt about our ability to continue as a going concern.

The accompanying condensed consolidated financial

statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Related Parties

Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company.

We disclose related party transactions that are outside of normal compensatory agreements, such as salaries or board of director fees.

Related part ies are any entities

or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the

management and policies of the Company.

We disclose related party transactions that are outside of normal compensatory agreements,

such as salaries or board of director fees.

We consider the following individuals / companies to be related parties:

Michael Feinsod Executive Chairman of our Board of Directors (Board).

Infinity Capital West, LLC (Infinity Capital) An investment management company that was founded and is controlled by Michael Feinsod.

Peter Boockvar Audit committee chairman.

Seth Oster Board member

Significant Accounting Policy Updates

See our Annual Report on Form 10-K for the year ended December 31, 2019 for discussion of the Companys significant accounting policies.

Since the date of the Annual Report, there have been no material changes to the Companys significant accounting policies.

Feinsod –

Former Board member, resigned July 9, 2020.

Capital, LLC and Infinity Capital West, LLC (together “Infinity Capital”)

Investment management companies that were founded and controlled by Michael Feinsod.

Boockvar –

Audit committee chairman.

Mark Green –

Board member.

Oster –

Board member.

Hershey –

Board member.

Dalton Adventures, LLC –

An LLC in which the sole

owner is a principal shareholder of the Company.

Summary of Significant Accounting

See our Annual Report on Form 10-K for the year ended

December 31, 2019, as amended, for discussion of the Company’s significant accounting policies.

Since the date of the

Annual Report, there have been no material changes to the Company’s significant accounting policies.

Recently Issued Accounting Standards

FASB ASU 2019-12 Income Taxes (Topic 740) In December 2019, the Financial Accounting Standards Board (FASB) issued guidance which simplifies certain aspects of accounting for income taxes.

The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted.

We do not expect adoption of this ASU to have a material effect on our consolidated financial statements.

FASB ASU 2018-13 Fair Value Measurement (Topic 820)- In August 2018, the FASB issued new disclosure guidance on fair value measurement.

This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements.

Some of these disclosure changes must be applied prospectively while others retrospectively depending on requirement.

We adopted ASU 2018-13 as of January 1, 2020.

FASB ASU 2019-12 –

“Income Taxes (Topic

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance

which simplifies certain aspects of accounting for income taxes.

The guidance is effective for interim and annual

reporting periods beginning after December 15, 2020, and early adoption is permitted.

We do not expect adoption of this

ASU to have a material effect on our consolidated financial statements.

FASB ASU 2018-13 –

“Fair Value Measurement

(Topic 820)”- In August 2018, the FASB issued new disclosure guidance on fair value measurement.

This new guidance

modifies the disclosure requirements on fair value measurements, including removal and modifications of various current

disclosures as well as some additional disclosure requirements for Level 3 fair value measurements.

Some of these disclosure

changes must be applied prospectively while others retrospectively depending on requirement.

We adopted ASU 2018-13 as

of January 1, 2020.

There was no material impact to our financial statements or disclosures.

BUSINESS ACQUISITION

On May 13, 2020, we received approval of the transaction and

transfer of the Dalton Adventures, LLC (“Seller”) license from the Colorado Marijuana Enforcement Division.

25, 2020, we finalized the acquisition, pursuant to which we had acquired the assets of the Seller that constitute the business

of SevenFive Farm, a cultivation facility in Boulder, Colorado, whereby we acquired fixed assets, inventory, a cultivation license

and the tradename.

The purchase price paid by us to the Seller was 8,859,117 shares of common stock.

The shares issued

have not been registered and are restricted shares under applicable U.S.

federal and state securities laws and their resale may

be made only pursuant to registration under the Securities Act or an available exemption from registration.

Accordingly, a downward

adjustment of 15% is applied to the fair value of consideration due to a lack of marketability.

The closing price of General Cannabis’

common stock on May 13 th , 2020, the date of license transfer, was $0.38 per share, as such, fair value of consideration

is $2,861,495.

Dalton Adventures, LLC may require us to repurchase in cash 25% of the shares issued to the owner of Dalton Adventures,

LLC for a period up to one year or May 25, 2021, at a repurchase price equal to the same volume weighted average price (“VWAP”)

used to determine the number of shares issued to the owner of Dalton Adventures, LLC at closing.

In accordance with the agreement,

we would be required to repurchase 2,214,779 shares at a price of $0.43 per share.

The Company has recorded a stock put liability

for the possibility of the buyback of these shares in the amount of $958,114.

We have not completed the allocation of the purchase price.

As of June 30, 2020, the condensed 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 preliminary purchase price allocation is as follows:

Cultivation license

The accompanying consolidated financial statements include

the results of SevenFive from the date of acquisition for financial reporting purposes, May 13, 2020.

The pro forma effects of the acquisition on the results

of operations as if the transaction had been completed on January 1, 2019, are as follows:

Three months ended

Six months ended

Total revenues

Net loss attributable to common stockholders

Net loss per common share:

Basic and diluted

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, 2019, or to project potential operating results as of any future date

or for any future periods.

DISCONTINUED OPERATIONS

Security Segment

On December 26, 2019, our board of directors and management made the strategic decision to investigate a possible buyer for the Security Segment and if no buyer could be found, cease operations of the security segment.

On February 6, 2020 we cancelled all our security contracts in California.

The assets and liabilities classified as held for sale for the security segment are presented separately in the balance sheet as of March 31, 2020 and December 31, 2019 and as discontinued operations as of March 31, 2020 and the operating results for the three months ended March 31, 2020 and 2019, respectively, are presented as discontinued operations.

Assets and liabilities of discontinued operations for the security segment included the following:

On December 26, 2019, our board of directors and management

made the strategic decision to investigate a possible buyer for the Security Segment and if no buyer could be found, cease operations

of the security segment.

We transferred all our Colorado security contracts and employees to a company on January 16, 2020, in

exchange for which we will receive $1.00 per man hour worked on existing contracts for a period of one year.

On February 6, 2020

we cancelled all our security contracts in California.

The assets and liabilities classified as held for sale for the security

segment are presented separately in the balance sheet as of June 30, 2020 and December 31, 2019 and as discontinued operations

as of June 30, 2020 and the operating results for the six months ended June 30, 2020 and 2019, respectively, are presented as

discontinued operations.

Assets and liabilities of discontinued operations for the security

segment included the following:

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Prepaid expenses and other current

Current assets discontinued

Property and equipment, net

Noncurrent assets discontinued operations

Noncurrent assets discontinued

Accounts payable and accrued expenses

Customer deposits

Current liabilities discontinued operations

A breakdown of the discontinued operations is presented as follows:

Three months ended

Current liabilities discontinued

A breakdown of the discontinued operations is presented as

Service revenues

2 unchanged sentences

Depreciation and amortization

Professional fees

Total costs and expenses

OPERATING LOSS

OPERATING INCOME (LOSS)

Interest expense, net

NET LOSS FROM DISCONTINUED OPERATIONS

The cash flows related to discontinued operations have not been segregated, and are included in the consolidated statements of cash flows.

The following table provides selected information on cash flows related to discontinued operations for the three months ended March 31, 2020 and 2019, respectively.

Three months ended

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

The cash flows related to discontinued operations have not

been segregated and are included in the consolidated statements of cash flows.

The following table provides selected information

on cash flows related to discontinued operations for the three and six months ended June 30, 2020 and 2019, respectively.

Prepaids and other

4 unchanged sentences

Consumer Goods Segment

On December 26, 2019, our board of directors and management made the strategic move to cease operations of Chiefton.

On December 26, 2019, our board of directors committed to a plan to cease operations of STOA Wellness.

We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease of the STOA retail front.

The assets and liabilities classified as discontinued operations for the consumer goods segment are presented separately in the balance sheet as of March 31, 2020 and December 31, 2019 and the operating results for the three months ended March 31, 2020 and 2019, respectively, are presented as discontinued operations.

Assets and liabilities of discontinued operations included the following:

On December 26, 2019, our board of directors and management

made the strategic move to cease operations of Chiefton.

On December 26, 2019, our board of directors committed to a plan to cease

operations of STOA Wellness.

We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for

the release on the outstanding lease of the STOA retail front.

The assets and liabilities classified as discontinued operations

for the consumer goods segment are presented separately in the balance sheet as of June 30, 2020 and December 31, 2019 and the

operating results for the three and six months ended June 30, 2020 and 2019, respectively, are presented as discontinued operations.

Assets and liabilities of discontinued operations included

the following:

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Prepaid expenses and other current

Current assets

discontinued operations

Right to use asset

Noncurrent assets discontinued operations

assets discontinued operations

Accounts payable and accrued expenses

Operating lease liability current portion

Current liabilities discontinued operations

A breakdown of the discontinued operations is presented as follows:

Three months ended

Operating lease liability –

current portion

Current liabilities

discontinued operations

A breakdown of the discontinued operations is presented as

Product Revenues

4 unchanged sentences

Depreciation and amortization

Total costs and expenses

OPERATING LOSS

NET LOSS FROM DISCONTINUED OPERATIONS

The cash flows related to discontinued operations have not been segregated, and are included in the consolidated statements of cash flows.

The following table provides selected information on cash flows related to discontinued operations for the three months ended March 31, 2020 and 2019.

Three months ended

Total costs and

OPERATING INCOME (LOSS)

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

The cash flows related to discontinued operations have not

been segregated and are included in the consolidated statements of cash flows.

The following table provides selected information

on cash flows related to discontinued operations for the three and six months ended June 30, 2020 and 2019.

Prepaids and other

3 unchanged sentences

Customer deposits

ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS

ACCOUNTS RECEIVABLE AND CUSTOMER

Our accounts receivable consisted of the following:

1 unchanged sentence

Allowance for doubtful accounts

We record bad debt expense when we conclude the credit risk of a customer indicates the amount due under the contract is not collectible.

We recorded bad debt recovery of $508 during the three months ended March 31, 2020 and bad debt expense of $20,000 during the three months ended March 31, 2019.

Our customer deposit liability had the following activity:

December 31, 2019

We record bad debt expense when we conclude the credit risk

of a customer indicates the amount due under the contract is not collectible.

We recorded bad debt expense of $2,000 and $71,262,

respectively, during the three months ended June 30, 2020 and 2019 and $53,571 and $103,182, respectively, during the six months

ended June 30, 2020 and 2019.

Our deferred revenue and customer deposit liability had the

following activity:

January 1, 2020

Additional deposits received

Deposits recognized as revenue

March 31, 2020

Refunds to customers

June 30, 2020

As of June 30, 2020, and December 31, 2019, the Company had

$152,469 and $0, respectively, of total inventory.

Approximately $142,469 represents work-in-process and $10,000 represents raw

The Company records inventory at the lower of net realizable value or cost which is determined by the FIFO inventory

valuation method.

As of June 30, 2020, the Company did not recognize any impairment for obsolescence within its inventory.

NOTES RECEIVABLE

Our notes receivable consisted of the following:

As of June 30, 2020, our notes receivable consisted of the

Total principal

Allowance for doubtful accounts

Unamortized loan origination fee

1 unchanged sentence

Long-term portion

In March 2019, we agreed to loan $375,000 to Consolidated C.R., LLC (CCR) pursuant to the terms of a convertible promissory note (CCR Note), bearing interest at 12% per annum, collateralized by virtually all of the assets of CCR and a maturity date of September 2020.

Interest is due on the first of every month starting in November 2019.

CCR is a vertically integrated medical cannabis company located in San Juan, Puerto Rico.

As of March 31, 2020, we had loaned an aggregate of $375,000 to CCR pursuant to the CCR Note.

The CCR Note included a loan origination fee of $15,000, which is being recognized as interest income over the term of the agreement.

On January 3, 2019, we loaned $100,000 to Beacher Brewing, LLC (BB) pursuant to the terms of a promissory note (BB Note), bearing interest at 11% per annum and a maturity date of January 3, 2020.

In March 2019, we agreed to loan an aggregate of up to $375,000

to Consolidated C.R., LLC (“CCR”) pursuant to the terms of a convertible promissory note (“CCR Note”),

bearing interest at 12% per annum, collateralized by substantially all of the assets of CCR and subject to a maturity date of September

As of May 30, 2019, we had loaned the entire available amount of $375,000 to CCR pursuant to the CCR Note.

CCR is a vertically

integrated medical cannabis company located in San Juan, Puerto Rico.

As of June 30, 2020, the outstanding amount of the loan was

The CCR Note included a loan origination fee of $15,000, which is being recognized as interest income over the term of

the agreement.

As of June 30, 2020, this loan is in default.

A notice of default was sent to the borrower in April 2020.

have a first priority security interest in substantially all of the assets of CCR, and since the CCR Note is in default we have

recognized an allowance in the amount of $125,000 for the quarter ended June 30, 2020.

On January 3, 2019, we loaned $100,000 to Beacher Brewing, LLC

(“BB”) pursuant to the terms of a promissory note (“BB Note”), bearing interest at 11% per annum and an

initial maturity date of January 3, 2020.

Interest is due in advance at the beginning of each quarter.

On December 13, 2019, we agreed to extend the maturity date of the BB Note to January 3, 2021.

On December 13, 2019, we

agreed to extend the final maturity date of the BB Note to January 3, 2021.

OPERATING LEASE RIGHT-OF-USE ASSET / OPERATING LEASE

On May 13, 2020, we entered into a commercial real estate

lease with a related party (see Note 13) for 17,000 square feet of greenhouse space in Boulder, CO, with an initial term of

five years and, at our option, two additional terms of five years each.

Rent is $30,000 per month with 1.5% annual

escalations, as well as our portion of real estate taxes.

We determined the present value of the future lease payments using

a discount rate of 12% over a 15 year term, our incremental borrowing rate based on outstanding debt, resulting in an initial right-of-use asset

and lease liability of $2,721,069 which are being applied ratably over the term of the lease.

As of June 30, 2020, the

balance of the right-of-use asset and lease liability was $2,697,802 and $2,703,130, respectively.

Future remaining minimum

lease payments were as follows:

Year ending December 31,

Present value adjustment

Operating lease liability

ACCRUED STOCK PAYABLE

The following tables summarize the changes in accrued common stock payable:

The following tables summarize the changes in accrued common

stock payable:

December 31, 2019

Employee stock issuance

Consultant stock award accrual

March 31, 2020

On January 29, 2019, we granted an employee $100,000 worth of our common stock, with 50% vesting on July 29, 2019 and the remaining amount vesting over eighteen months.

Based on a stock price of $2.34 on the date of grant, the employee would receive 42,736 shares of our common stock upon vesting.

We are recognizing the value of the grant ratably over the vesting periods.

In February 2020, the vesting was accelerated, and we issued all of the common stock associated with this transaction.

On February 18, 2020 we granted a consultant 100,000 fully vested shares for consulting services.

Based on a stock price of $0.61 on the date of grant, the consultant will receive $60,900 worth of our common stock.

As of March 31, 2020, none of the stock had been issued.

Employee stock award -- accrual

Consultant stock award

Investor stock award –

June 30, 2020

On February 18, 2020 we granted a consultant 100,000 fully

vested shares for consulting services.

Based on a stock price of $0.61 on the date of grant, the consultant will receive

$60,900 worth of our common stock.

As of June 30, 2020, none of the stock had been issued.

On May 29, 2020, we entered into a subscription agreement with

Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively, the “Investor”) with respect to the sale of

shares of common stock.

The first closing occurred on May 29, 2020, in which 2,008,536 shares of common stock were granted.

June 3, 2020, the second closing occurred in which we granted 3,477,278 shares of common stock.

As of June 30, 2020, none of the

stock had been issued.

We issued the stock in July 2020.

We have included this accrued stock in our earnings per share calculations

in the condensed consolidated statement of operations.

See Note 12 for further details of the stock transaction.

NOTES PAYABLE

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Long-term portion

In July 2019, we completed a $855,000 private placement pursuant to a promissory note (SBI Note) with SBI Investments LLC, 2014-1 (SBI), bearing interest at 10% with principal due on October 18, 2019.

On October 18, 2019, SBI agreed to an extension of the maturity date of the SBI Note to November 1, 2019.

In July 2019, we completed a $855,000 private placement pursuant

to a promissory note (“SBI Note”) with SBI Investments LLC, 2014-1 (“SBI”), bearing interest at 10% with

principal due on October 18, 2019.

On October 18, 2019, SBI agreed to an extension of the maturity date of the SBI Note

to November 1, 2019.

On November 1, 2019, SBI agreed to another extension of the maturity date to November 15, 2019.

On November 15, 2019, SBI agreed to another extension of the maturity date to November 29, 2019 with an increase in principal amount of the note from $855,000 to $905,000.

November 15, 2019, SBI agreed to another extension of the maturity date to November 29, 2019 with an increase in principal amount

of the note from $855,000 to $905,000.

On November 27, 2019, SBI agreed to an extension of the maturity date to December

On December 13, 2019, SBI agreed to extend the maturity date to December 20, 2019.

On December 30, 2019 SBI agreed to extend the maturity date of the note to January 31, 2020, upon the payment of $195,911, of which $40,911 was for accrued interest and $155,000 towards the outstanding principal of the SBI Note.

On February 18, 2020, we entered into a promissory note exchange agreement with SBI pursuant to which the original SBI Note was exchanged for a new convertible promissory note (the Convertible Note).

The Convertible Note has a principal amount of $934,000, an interest rate of 10% per annum and a maturity date of February 18, 2021.

The Convertible Note may be converted at the option of SBI into shares of common stock at a conversion price equal to 80% of the Market Price;

provided that the conversion price shall in no event be less than $0.45 per share.

The exchange of the SBI Note for the Convertible Note is treated as a debt extinguishment.

The additional $184,000 of principal was treated as a debt extinguishment and included in our condensed consolidated statement of operations.

We determined that the Convertible Note should be accounted for in accordance with FASB ASC 470-20 which addresses Accounting for Convertible Securities with Beneficial Conversion Features.

The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price of $0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.61, multiplied by the number of shares into which the debt is convertible).

The valuation of the beneficial conversion feature recorded

cannot be greater than the face value of the note issued.

We recorded $233,500 as additional paid in capital and as a debt extinguishment and included in our condensed consolidated statement of operations.

During the quarter ended March 31, 2020, SBI converted $250,000 aggregate principal amount of the Convertible Note into 541,666 shares of our common stock.

In December 2019, we completed a private placement of with certain accredited investors pursuant to an unsecured promissory note (the 15% Notes) with an aggregate principal amount of $300,000.

In February and March 2020, we completed private placements with certain accredited investors, including holders of $1,506,000 aggregate principal amount of our 2019 12% Notes (as defined below), of 15% Notes with an aggregate principal amount of $2,031,000 in exchange for $525,000 of new funding and the cancellation of $1,506,000 aggregate principal amount of the 2019 12% Notes.

The 15% Notes have an annual interest rate of 15% and mature on January 31, 2021.

The 15% Notes provide that they shall be repaid in full out of the proceeds of any new debt or equity capital raise with net proceeds of more than $5,000,000.

In connection with the issuance of the 15% Notes, each holder of 15%Notes received three warrants (i.e., a 2020 A Warrant, a 2020 B Warrant and a 2020 C Warrant) to acquire shares of common stock at an exercise price equal to $0.45 per share, with the number of shares subject to each warrant equal to one share for each $1.00 of principal amount of 15% Notes issued to the noteholder.

The 2020 A Warrants have an expiration date of December 31, 2020, the 2020 B Warrants have an expiration date of December 31, 2021, and the 2020 C Warrants have an expiration date of December 31, 2022 (collectively, the 15% Warrants).

By way of example, if an investor was issued a 15% Note with a principal amount of $250,000, such noteholder would receive a 2020 A Warrant to purchase 250,000 shares of common stock, a 2020 B Warrant to purchase 250,000 shares of common stock and a 2020 C Warrant to purchase 250,000 shares of common stock.

Accordingly, as of March 31, 2020, the Company has issued 15% Warrants to purchase a total of 6,993,000 shares of common stock to the holders of 15% Notes.

We received $300,000 of cash in December 2019 and an additional $525,000 of cash January 2020 through March 2020 for issuing the 15% Notes.

The relative fair value of the new funding on the 15% Warrants was recorded as a debt discount and additional paid-in capital of $333,056.

The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $668,335.

For the three months ended March 31, 2020 and 2019, amortization of debt discount expense was $69,159 and $0, respectively, from the 15% Notes.

The 15% Notes are otherwise treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 15% Warrants as of March 2020, were:

On December 30, 2019,

SBI agreed to extend the maturity date of the note to January 31, 2020, upon the payment of $195,911, of which $40,911 was for

accrued interest and $155,000 towards the outstanding principal of the SBI Note.

On February 18, 2020, we entered

into a promissory note exchange agreement with SBI pursuant to which the original SBI Note was exchanged for a new convertible

promissory note (the “Convertible Note”).

The Convertible Note has a principal amount of $934,000, an interest

rate of 10% per annum and a maturity date of February 18, 2021.

The Convertible Note may be converted at the option of SBI

into shares of common stock at a conversion price equal to 80% of the Market Price;

provided that the conversion price shall in

no event be less than $0.45 per share.

If at any time, the borrower issues or sells any shares of common stock for a consideration

per share less than the conversion price in effect on the date of such issuance, the holder shall have the right to utilize the

price per share of the dilutive issuance as the conversion price for such conversion.

On May 29, 2020, we issued shares at $0.40

per share, and as such, the conversion price was decreased to a floor of $0.40 per share.

The exchange of the SBI Note for

the Convertible Note is treated as a debt extinguishment.

The additional $184,000 of principal was treated as a debt extinguishment

and included in our condensed consolidated statement of operations.

We determined that the Convertible Note should be accounted

for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion

Features”.

The beneficial conversion feature is calculated at its intrinsic value (that is, the difference between

the conversion price of $0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible

at the commitment date, per share being $0.61, multiplied by the number of shares into which the debt is convertible).

valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.

recorded $233,500 as additional paid in capital and as a debt extinguishment and included in our condensed consolidated statement

of operations.

During the six months ended June 30, 2020, SBI converted $934,000 aggregate principal amount of the Convertible

Note and approximately $23,000 of accrued interest into 2,215,892 shares of our common stock.

In December 2019, we completed a private placement with

certain accredited investors pursuant to an unsecured promissory note (the “15% Notes”) with an aggregate

principal amount of $300,000.

In February and March 2020, we completed private placements with certain accredited

investors, including holders of $1,506,000 aggregate principal amount of our 2019 12% Notes (as defined below), of 15% Notes

with an aggregate principal amount of $2,031,000 in exchange for $525,000 of new funding and the cancellation of $1,506,000

aggregate principal amount of the 2019 12% Notes.

The 15% Notes have an annual interest rate of 15% and mature on

January 31, 2021.

The 15% Notes provide that they shall be repaid in full out of the proceeds of any new debt or equity

capital raise with net proceeds of more than $5,000,000.

In connection with the issuance of the 15% Notes, each holder

of 15% Notes received three warrants (i.e., a 2020 A Warrant, a 2020 B Warrant and a 2020 C Warrant) to acquire shares of

common stock at an exercise price equal to $0.45 per share, with the number of shares subject to each warrant equal to one

share for each $1.00 of principal amount of 15% Notes issued to the noteholder.

The 2020 A Warrants have an expiration

date of December 31, 2020, the 2020 B Warrants have an expiration date of December 31, 2021, and the 2020 C Warrants have an

expiration date of December 31, 2022 (collectively, the “15% Warrants”).

By way of example, if an investor

was issued a 15% Note with a principal amount of $250,000, such noteholder would receive a 2020 A Warrant to purchase 250,000

shares of common stock, a 2020 B Warrant to purchase 250,000 shares of common stock and a 2020 C Warrant to purchase 250,000

shares of common stock.

Accordingly, as of June 30, 2020, the Company has issued 15% Warrants to purchase a total of

6,993,000 shares of common stock to the holders of 15% Notes.

The exercise price of these warrants is subject to adjustment

as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise

price of the 15% Warrants.

As a result of such subsequent issuances of securities by the Company during the second quarter of

2020, the exercise price of the 15% Warrants had decreased to $0.40 per share, resulting in a $98,000 deemed dividend as of

June 30, 2020.

We received $300,000 of cash in December 2019 and an additional

$525,000 of cash during January 2020 through March 2020 for issuing the 15% Notes.

The relative fair value of the new funding

on the 15% Warrants was recorded as a debt discount and additional paid-in capital of $333,056.

The relative fair value of

the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $668,335.

For the three months ended June 30, 2020, amortization of debt discount expense was $72,516, from the 15% Notes.

six months ended June 30, 2020, amortization of debt discount expense was $138,837, from the 15% notes.

The 15% Notes are

otherwise treated as conventional debt.

In May 2020, three of the note

holders agreed to extend the terms of their notes to a new maturity date of January 31, 2022.

The amount of these notes totaled

The extension of the note terms resulted in a debt extinguishment of the remaining note discount in the amount of $48,908.

In addition, if the majority of the note holders extend the maturity date to January 31, 2022, then the expiration dates for the

note holders warrants will each be extended by one year.

If the majority of the note holders do not extend, the expiration date

for the warrants for the note holders that did extend will be changed to December 31, 2023.

Further, the subscription

agreement between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP (the “Investor”)

provides that the Company shall, during the 90-day period ending September 1, 2020 endeavor

to cause the existing holders of such promissory notes to extend the maturity date of such notes to a date that is not earlier

than January 31, 2022.

If, at the end of such 90-day period, all of the existing notes have not been amended to extend the

maturity dates thereof, then, in the absence of a waiver from the Investor to the contrary, the Company shall issue to the Investor

additional warrants to purchase shares of common stock.

See Note 12, “2020 Capital Raise”.

For purposes of determining the debt discount, the underlying

assumptions used in the binomial lattice model to determine the fair value of the 15% Warrants were:

Current stock price

2 unchanged sentences

Risk-free interest rate

0.68 - 1.62 %

Expected dividend yield

1 unchanged sentence

Expected volatility

2019 12% Notes

In September 2019, we completed a private placement with certain accredited investors, including holders of $1,106,000 aggregate principal amount of our 8.5% Notes, pursuant to (a) a senior unsecured promissory note, bearing interest at 12% payable quarterly, with principal due October 31, 2020, with an option for us to extend the due date to October 31, 2021 (2019 12% Notes) and (b) warrants with an exercise price of $1.30 per share and a life of 1.1 years;

however, if we prepay the 2019 12% Notes at any time the life extends to October 31, 2022 (2019 12% Warrants) (combined the 2019 12% Agreements).

Pursuant to the 2019 12% Agreements, we could prepay the 2019 12% Notes at any time, but in any event were required to pay at least one year of interest.

In February 2020, we issued $1,506,000 aggregate principal amount of 15% Notes to the holders of the outstanding 12% Notes in exchange for the cancellation of the outstanding 12% Notes.

Loan on Building

On January 8, 2020 we entered a $975,000 deed of trust (the Mortgage Loan) secured by a first mortgage lien on the property located in Denver, Colorado.

The Mortgage Loan matures on December 31, 2020 and accrues interest at a rate of equal to the greater of 5.25% in excess of the Prime Rate or 10% per annum, payable on a monthly basis.

This loan was paid in full on March 20, 2020 with the sale of our building.

WARRANT DERIVATIVE LIABILITY

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (2019 Warrants) to purchase shares of our common stock (together 2019 Units) in a registered direct offering for $1.00 per 2019 Unit (combined the 2019 Capital Raise).

On May 31, 2019 we received gross proceeds of $3 million by

issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of

our common stock (together “2019 Units”) in a registered direct offering for $1.00 per 2019 Unit (combined the “2019

Capital Raise”).

The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability.

The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside of the control of management, such as a change of control.

The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on

the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside

of the control of management, such as a change of control.

The original exercise price of the 2019 Warrants was $1.30 per share.

The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants.

As a result of such subsequent issuances of securities by the Company during 2019, the exercise price of the 2019 Warrants had decreased to $0.45 per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019.

In February 2020, one of the warrant holders exercised 200,000 warrants.

We received $90,000 in cash for the exercise and booked an adjustment to the derivative liability of $82,241 as a result of the transaction.

As of March 31, 2020 there were 8,466,666 of these warrants outstanding.

The following are the key assumptions that were used to determine the fair value of the 2019 Warrants:

March 31, 2020

The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the

Company at a price below the exercise price of such warrants.

As a result of such subsequent issuances of securities by the Company

during 2019, the exercise price of the 2019 Warrants had decreased to $0.45 per share and the number of shares subject to the 2019

Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019.

In May 2020, we issued securities at a price

lower than the $0.45 per share above.

As a result, the exercise price of the 2019 Warrants decreased to $0.40 per share and the

number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock.

In February 2020, one of the warrant holders exercised 200,000

We received $90,000 in cash for the exercise and booked an adjustment to the derivative liability of $82,241 as a result

of the transaction.

During the three months ended June 30, 2020, one of the warrants holders exercised 2,137,726 warrants into

373,340 shares of our common stock through cashless exercises.

We booked an adjustment to the derivative liability of $821,538

As of June 30, 2020, there were 7,453,888 of these warrants outstanding.

The following are the key assumptions

that were used to determine the fair value of the 2019 Warrants:

Number of shares underlying the warrants

3 unchanged sentences

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:

Three months ended

Beginning balance as of December 31

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:

months ended June 30,

Beginning balance

Recognition of warrant derivative liability on May 31, 2019

Warrant exercise

2 unchanged sentences

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.

STOCKHOLDERS EQUITY

Michael Feinsod recently resigned as our Executive

Chairman, claiming that his resignation was for “Good Reason”

under the terms of his employment agreement.

If it is ultimately determined that his resignation was, in fact, for “Good Reason”, rather than a

voluntary act absent “Good Reason”, it could enable certain potential claims for entitlements under his

employment agreement, as well as for the vesting of his unvested options and/or for the extension of the term within which he

can exercise his options in the future.

Having reviewed the matter, however, we do not believe that Mr.

Feinsod’s

resignation was for “Good Reason”.

Accordingly, we believe that Mr.

Feinsod’s resignation was voluntary,

and that any such potential claims, if asserted, would be without foundation.

Although the outcome of legal proceedings is

subject to uncertainty, the Company will vigorously defend any future claims made by Mr.

Feinsod alleging a “Good

Reason”

On August 18, 2020, two investors of certain promissory notes and common stock purchase warrants of General Cannabis Corp.

(the “Company”),

filed a lawsuit against the Company and its current Board of Directors seeking, principally, rescission rights and the associated return

of their outstanding investment of $145,000.

Based upon our preliminary evaluation of the matter, we have concluded that the Company remains

in compliance with the terms of the notes that are not otherwise due until January 2021, and that the lawsuit has no merit.

intends to vigorously defend the matter.

Nevertheless, due to the early stage of the proceeding, we are unable to express an opinion as

to the likely outcome of the matter.

STOCKHOLDERS’

2020 Capital Raise

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants to purchase shares of our common stock in a registered direct offering for $1.00 per 2019 Unit.

The 2019 Warrants had an exercise price of $1.30 per share at issuance and are exercisable for five years from the date of issuance.

The number of shares issuable pursuant to the warrants granted under the 2019 Warrants, as well as the exercise price of those warrants, is subject to adjustment as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise price of the 2019 Warrants.

As a result of such subsequent issuances of securities by the Company during the fourth quarter of 2019, the exercise price of the 2019 Warrants had decreased to $0.45 per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019.

As of March 31, 2020, there were 8,466,666 of these warrants outstanding.

We received cash of $2,604,355 which is net of $395,645 of issuance costs.

On May 29, 2020, we entered into a subscription agreement with

Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively, the “Investor”) with respect to the sale of

shares of common stock and warrants to purchase common stock (collectively, the “securities”).

The sales of the

securities to the Investor consists of a minimum of $2,185,000 of securities and a maximum of $3,000,000 of securities, as described

further below.

The purchase price of the securities at each closing is as follows:

(i) the purchase price of each share of

common stock is $0.3983 per share, and (ii) for each one dollar invested by the Investor, the Investor receives a warrant to purchase

a number of shares of common stock equal to 75% of the number of shares of common stock purchased by the Investor at an exercise

price per share equal to $0.5565.

The warrants have a term of five years.

The subscription agreement provides for the sale

of securities in three closings.

At the first closing, which occurred on May 29, 2020, we sold $800,000 of securities to

the Investor, representing 2,008,536 shares of common stock and warrants to purchase 1,506,402 shares of common stock at a purchase

price of $0.56 per share.

At the second closing, which occurred on June 3, 2020, we sold to the Investor $1,385,000, representing

3,447,278 shares of common stock and warrants to purchase 2,607,958 shares of common stock for a purchase price of $0.56 per share.

Subsequent to June 30, 2020, the third closing occurred, in which there was a sale of $815,000 of the securities.

This represented

2,076,196 shares of common stock and warrants to purchase 1,534,647 shares of common stock for a purchase price of $0.56 per share.

The warrants were recorded as equity and equity issuance costs in the amount of $1,738,032.

Notwithstanding the foregoing, the subscription agreement provides that the Investor’s investment

shall not exceed 20% or more of the common stock (or securities convertible into or exercisable for common stock) or the voting

power of the Company on a post-transaction basis.

The subscription agreement

also provides the Investor with certain participation rights in future financings of the Company until the one-year anniversary

of the second closing.

The subscription agreement further provides that the Company shall, during the 90-day period immediately

following the second closing, which ends on September 1, 2020 (the “negotiation period”), endeavor to cause the existing

holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $2,331,000 as of June

1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than

January 31, 2022.

As of June 30, 2020, $600,000 of the $2,331,000 outstanding notes have extended the maturity date.

at the end of such 90-day negotiation period, all of the existing notes have not been amended to extend the maturity dates thereof,

then the Company shall issue to the Investor additional warrants to purchase shares of common stock.

Any such additional

warrants will be for a number of shares of common stock based on the dollar amount of the outstanding balance (as of the first

closing) of the existing notes that were not extended, with each one dollar of existing notes that were not extended representing

one share subject to such additional warrant.

The exercise price of any such additional warrants will be equal to 100% of

the 30-day volume weighted average price of the Company’s common stock on the last day of the negotiation period, provided

that such exercise price shall not be lower than $0.45 per share nor higher than $0.56 per share.

2019 Capital Raise

On May 31, 2019 we received gross proceeds of $3 million by

issuing three million shares of our common stock and three million warrants to purchase shares of our common stock in a registered

direct offering for $1.00 per 2019 Unit.

The 2019 Warrants had an exercise price of $1.30 per share at issuance and are exercisable

for five years from the date of issuance.

The number of shares issuable pursuant to the warrants granted under the 2019 Warrants,

as well as the exercise price of those warrants, is subject to adjustment as a result of certain future equity issuances of securities

by the Company at a price below the then-effective exercise price of the 2019 Warrants.

As a result of such subsequent issuances

of securities by the Company during the fourth quarter of 2019, the exercise price of the 2019 Warrants had decreased to $0.45

per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December

In May 2020, we issued securities at a price lower than the $0.45 per share above.

As a result, the exercise price of

the 2019 Warrants decreased to $0.40 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares

of common stock.

This down round adjustment is recorded through the mark to market adjustment made as of June 30, 2020 and is recorded

as a gain/loss on warrant derivative liability on the condensed consolidated statement of operations.

As of June 30, 2020, there

were 7,453,888 of these warrants outstanding.

We received cash of $2,604,355, which is net of $395,645 of

issuance costs.

Of the gross proceeds, we recorded $2,416,422 as a warrant derivative liability, as discussed in Note 10.

1 unchanged sentence

We use the fair value method to account for stock-based compensation.

We recorded $572,574 and $1,492,496 in compensation expense, for the three months ended March 31, 2020 and 2019, respectively.

This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period.

We recorded $434,367 and $752,467 in compensation expense, for the three months ended June 30, 2020 and 2019, respectively, and

$926,698 and $2,244,963, for the six months ended June 30, 2020 and 2019, respectively.

This includes expense related to options

issued in prior years for which the requisite service period for those options includes the current period as well as options issued

in the current period.

The fair value of these instruments was calculated using the Black-Scholes option pricing method.

As of March 31, 2020, there was approximately $605,729 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of eleven months.

Feinsod Employment Agreement

On August 6, 2019, we entered into an agreement (the Feinsod Agreement) with Michael Feinsod for his service as Chief Executive Officer.

Pursuant to the agreement, Mr.

Feinsod received 1,000,000 stock options that vest when our stock price has a trading price of equal to or above $4.51 per share for five consecutive days.

The options have an exercise price of $0.83 per share and a ten-year life.

These options were issued under the Incentive Plan.

The options were valued using the Monte Carlo method.

For the three months ended March 31, 2020, we recognized approximately $57,000 of share-based compensation expense related to these options.

The underlying assumptions used in the Monte Carlo simulations to determine the fair value of options were:

August 6, 2019

Current stock price

The following summarizes Employee Awards activity:

Exercise Price

Risk-free interest rate

Expected term (in years)

Expected volatility

Term (in years)

Intrinsic Value

Outstanding at December 31, 2019

Forfeited or expired

Outstanding at June 30, 2020

Exercisable at June 30, 2020

As of June 30, 2020, there was approximately $404,262 of total

unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average

period of eleven months.

RELATED PARTY TRANSACTIONS

On June 3, 2020, the

Company entered into a consulting agreement with Adam Hershey, a board member and investor, pursuant to which he would act as

a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of M&A deals, strategic

capital and strategic partnerships or joint ventures.

Hershey is paid an initial monthly rate of $8,333 for the services,

subject to certain adjustments.

We have spent $8,333 for the three and six months ended June 30, 2020.

the subscription agreement between the Company and Hershey Strategic Capital, LP

and Shore Ventures III, LP (the “Investor”) provides that the Company shall,

during the 90-day period ending September 1, 2020 endeavor to cause the existing holders of the promissory notes of the Company

having an outstanding balance in the amount of approximately $2,331,000 as of June 1, 2020 that are due on or about January 31,

2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022.

If, at the end of such

90-day period, all of the existing notes have not been amended to extend the maturity dates thereof, then, in the absence of a

waiver from the Investor to the contrary, the Company shall issue to the Investor additional warrants to purchase shares of common

See Note 12, “2020 Capital Raise”.

We currently have a lease agreement with Dalton Adventures,

LLC in which we rent 17,000 square foot of greenhouse space in Boulder, CO for $33,680 a month, of which $30,000 is base rent and

$3,680 is in relation to property taxes.

The owner of Dalton Adventures, LLC is a principal shareholder of the Company.

We have spent approximately $81,000 for the three and six months ended June 30, 2020.

We currently have a note payable to one of our board members

in the amount of $100,000.

This note is included in the 15% Notes discussed in Note 9.

We have paid approximately $4,000 in interest

for the three and six months ended June 30, 2020.

SEGMENT INFORMATION

Our operations are organized into two segments:

Our operations are organized into three segments:

Operations Consulting and Products;

and Capital Investments.

All revenue originates, and all assets are located in the United States.

All revenue originates, and all assets are located

in the United States.

Segment information is presented in accordance with ASC 280, "

Segments Reporting."

This standard is based on a management approach that requires segmentation based upon the Companys internal organization and disclosure of revenue and certain expenses based upon internal accounting methods.

The Companys financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP.

The following information is presented net of discontinued operations.

For more information see Note 3.

Three months ended March 31

Rent and interest

Reporting."

This standard is based on a management approach that requires segmentation based upon the

Company’s internal organization and disclosure of revenue and certain expenses based upon internal accounting methods.

The Company’s financial reporting systems present various data for management to run the business, including internal

profit and loss statements prepared on a basis not consistent with GAAP.

The following information is presented net of

discontinued operations.

For more information regarding discontinued operations see Note 3.

Three months ended June 30

Cultivation sales

Interest income

Total revenues

Costs and expenses

Rent and interest

Total revenue

$ (1,946,140 )

Interest income

Total revenues

Costs and expenses

Six months ended June 30

Cultivation sales

Interest income

Total revenues

Costs and expenses

$ (3,807,461 )

Interest income

Total revenues

Costs and expenses

$ (6,653,227 )

$ (6,616,228 )

SUBSEQUENT EVENTS

On April 7, 2020, we entered into an Asset Purchase Agreement (the Agreement) with The Organic Seed, LLC, doing business under the name Cannasseur (the Seller), pursuant to which we agreed to acquire the assets of the Seller which includes a recreational retail dispensary, a 12,000 square foot light deprivation greenhouse, and a manufacturing facility based in Pueblo West, Colorado.

The Agreement provides the purchase price to acquire Cannasseur is $2,350,000 (the Purchase Price).

The purchase price will be paid by issuing to the Seller shares of common stock of the Company equal to the purchase price divided by the volume weighted average per share price of the Companys shares for 30 consecutive trading days ending on the second trading day prior to the closing (the VWAP);

provided that if the VWAP exceeds $0.55 per share, then the VWAP will equal $0.55 per share for purposes of the foregoing calculation;

and if the VWAP is less than $0.45 per share, then the VWAP will be adjusted to equal $0.45 for the purposes of the foregoing calculation.

The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, as well as other customary closing conditions.

On May 25, 2020, following receipt of approval of the transaction by the Colorado Marijuana Enforcement Division, we closed the acquisition of Dalton Adventures, LLC, pursuant to which the we had acquired the assets of Dalton Adventures, LLC that constitute the business of SevenFive Farm, a cultivation facility in Boulder, Colorado.

The purchase price paid by us to the Dalton Adventures, LLC was 8,859,117 shares of common stock.

Dalton Adventures, LLC may require us to repurchase in cash 25% of the shares issued to Dalton Adventures, LLC at the closing at a repurchase price equal to the same VWAP used to determine the number of shares issued to Dalton Adventures, LLC at closing.

On May 29, 2020, we entered into a subscription agreement with Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively, the Investor) with respect to the sale of shares of common stock and warrants to purchase common stock (collectively, the securities).

The sales of the securities to the Investor consists of a minimum of $2,185,000 of securities and a maximum of $3,000,000 of securities, as described further below.

The purchase price of the securities at each closing is as follows:

(i) the purchase price of each share of common stock is $0.3983 per share, and (ii) for each one dollar invested by the Investor, the Investor receives a warrant to purchase a number of shares of common stock equal to 75% of the number of shares of common stock purchased by the Investor at an exercise price per share equal to $0.5565.

The warrants have a term of five years.

The subscription agreement provides for the sale of securities in three closings.

At the first closing, which occurred on May 29, 2020, we sold $800,000 of securities to the Investor, representing 2,008,536 shares of common stock and warrants to purchase 1,506,402 shares of common stock.

At the second closing, which occurred on June 3, 2020, we sold to the Investor $1,385,000 of the securities at the same price sold in the first closing.

A third closing will be held with respect to the sale of $815,000 of the securities if Adam Hershey, the managing member of the Investor, is Approved for Suitability within one year of the date of the subscription agreement by State of Colorados Marijuana Enforcement Division (MED).

Accordingly, a total of 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock may be sold pursuant to the subscription agreement with the Investor.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Managements 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 December 31, 2019.

The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.

On July 9, 2020, Michael Feinsod resigned from our Board of

On July 13, 2020, Adam Hershey was appointed to our Board of

On July 28, 2020, the third and final closing in relation to

the subscription agreement with the Investor occurred.

We sold $815,000 of securities to the Investor, representing 2,046,196 shares

of common stock and warrants to purchase 1,534,647 shares of common stock.

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 Condensed 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, 2019, as amended.

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, 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 managements existing beliefs about present and future events outside of managements 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 General Cannabis Corp (formerly, Advanced Cannabis Solutions, Inc.).

The recent outbreak of the novel coronavirus disease (COVID-19), was labeled a global pandemic by the World Health Organization in March 2020 and has led to material and adverse impacts on the U.S.

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

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,”

“our,”

or “GCC”

and the “Company,”

they refer to General Cannabis Corp (formerly, “Advanced

Cannabis Solutions, Inc.”).

The recent outbreak of the novel coronavirus disease (“COVID-19”),

was labeled a global pandemic by the World Health Organization in March 2020 and has led to material and adverse impacts on the

and global economies and created widespread uncertainty, including locations where we do business.

As of the date of this Quarterly Report on Form 10-Q, we have not experienced significant disruption in our operations as a result of the COVID-19 pandemic and are conducting business with modifications to employee travel and employee work locations, among other modifications.

We will continue to actively monitor the development of the COVID-19 pandemic and may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, clients, partners, and stockholders.

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 U.S.

As of the date of this

Quarterly Report on Form 10-Q, we have experienced disruption in our operations as a result of the COVID-19 pandemic

and are conducting business with modifications to employee travel and employee work locations, among other modifications.

continue to actively monitor the development of the COVID-19 pandemic and may take further actions that alter our business operations

as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, clients,

partners, and stockholders.

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 U.S.

and global economies remains uncertain.

Therefore, the full extent to which the COVID-19 pandemic may impact our results of operations, liquidity or financial position is uncertain.

In addition, the COVID-19 pandemic has had and is likely to continue to have adverse effects on our clients, suppliers and third-party business partners.

Management continues to monitor the impact that the COVID-19 pandemic is having on the Company and the economies in which we operate.

We anticipate that our liquidity may be materially impacted by the COVID-19 pandemic and we expect that the effect of the COVID-19 pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

Therefore, the full extent to which the COVID-19 pandemic may impact our results

of operations, liquidity or financial position is uncertain.

In addition, the COVID-19 pandemic has had and is likely

to continue to have adverse effects on our clients, suppliers and third-party business partners.

Management continues to

monitor the impact that the COVID-19 pandemic is having on the Company and the economies in which we operate.

anticipate that our liquidity may be materially impacted by the COVID-19 pandemic and we expect that the effect of the COVID-19

pandemic will not be fully reflected in our results of operations and overall financial performance until future periods.

Our Products, Services and Customers

Through our two reporting segments Operations Consulting and Products;

and Capital Investments, we provide products, services and capital to the regulated cannabis industry and non-cannabis customers, which include the following:

Operations Consulting and Products (Operations Segment)

During the three months ended March 31, 2020 and 2019, 73% and 76% of NBCs revenue was with three customers and one customer, respectively.

Through our three reporting segments Operations Consulting

and Products;

Cultivation and Capital Investments, we provide products, services and capital to the regulated cannabis

industry and non-cannabis customers, which include the following:

Operations Consulting and Products (“Operations Segment”)

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 six months ended June 30, 2020 and

2019, 75% and 76% of NBC’s revenue was with four and three customers, respectively.

NBC oversees our wholesale equipment and supply business, operated

under the name “GC Supply,”

which provides turnkey sourcing and stocking services to cultivation, retail and infused

products manufacturing facilities.

Our products include building materials, equipment, consumables and compliance packaging.

There are generally multiple suppliers for the products we sell;

are generally multiple suppliers for the products we sell;

however, there are a limited number of manufacturers of certain high-tech cultivation equipment.

NBC provides a competitive advantage as we plan to evaluate and operate licensed cultivation facilities.

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.

NBC provides a competitive advantage as we plan to evaluate

and operate licensed cultivation facilities.

Cultivation (“Cultivation Segment”)

Through our new acquisition of SevenFive Farm (“SevenFive”),

we operate a licensed indoor cultivation facility.

We believe our production capability is sufficient to meet the diverse needs

of our recreational consumers in Colorado, from cost-effective, high-yield inputs to sophisticated and dried cannabis flower.

During the six months ended June 30, 2020, 34% of SevenFive’s

revenue was with two customers.

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 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.

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,

Three months ended June 30,

Costs and expenses

Other income (expense)

Other expense

Net loss from continuing operations

Loss from discontinued operations

Revenue increased for both our Operation Consulting and Investments segments.

See Segment discussions below for further details.

$ (1,900,372 )

$ (2,894,802 )

Six months ended June 30,

Costs and expenses

Three months ended March 31,

Other expense

Net loss from continuing operations

Loss from discontinued operations

$ (3,914,551 )

$ (7,408,497 )

Revenue increased for both our Operation Consulting and Investments

The addition of our Cultivation segment contributed to the increase in sales.

See Segment discussions below for further

Costs and expenses

Three months ended June 30,

Cost of service revenues

4 unchanged sentences

Depreciation and amortization

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 March 31, 2020 as compared to the three months ended March 31, 2019.

Six months ended June 30,

Cost of service revenues

Cost of goods sold

Selling, general and administrative

Share-based compensation

Professional fees

Depreciation and amortization

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 has a smaller margin than cost of service revenues.

Cost of goods sold

also includes costs associated with cultivation sales, which typically fluctuates with the changes in cultivation revenues.

Segment discussions below for further details.

Selling, general and administrative expense stayed relatively

static for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019.

Share-based compensation included the following:

Three months ended March 31,

months ended June 30,

Employee awards

1 unchanged sentence

Feinsod Agreement

Employee awards are issued under our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015, and 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 month ended March 31, 2020 as compared to March 31, 2019 is due to the restructuring we did at the end of 2019 and beginning of 2020.

We decreased our employee count by over 50% resulting in a sharp decrease in employee award expense.

Consulting awards are granted to third parties in lieu of cash for services provided.

The Feinsod Agreement expense represents share-based compensation pursuant to agreements with Michael Feinsod for serving as the Executive Chairman of our Board.

Professional fees consist primarily of accounting and legal expenses and increased for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 due to legal and accounting fees spent on acquisitions.

months ended June 30,

Employee awards

$ (1,181,913 )

Consulting awards

Feinsod Agreement

$ (1,238,024 )

Employee awards are issued under our 2014 Equity Incentive

Plan, which was approved by shareholders on June 26, 2015, and 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 and six months ended June 30, 2020 as compared

to June 30, 2019 is due to the continued restructuring of the Company and the reduction in employees.

We decreased our employee

count by over 50% resulting in a sharp decrease in employee award expense.

Consulting awards are granted to third parties

in lieu of cash for services provided.

The Feinsod Agreement expense represents share-based compensation pursuant to agreements

with Michael Feinsod for serving as the Executive Chairman of our Board.

Professional fees consist primarily of accounting and legal

expenses and increased for the three months ended June 30, 2020 as compared to the three months ended June 30, 2019 due to legal

and accounting fees spent on acquisitions.

Other Expense

Three months ended March 31,

months ended June 30,

Amortization of debt discount and equity issuance costs

Interest expense

Gain on derivative liability

Gain on warrant derivative liability

Loss on extinguishment of debt

Gain on sale of building

Amortization of debt discount was lower in 2020 compared to 2019, due to the April 2018 debt paid off in the second quarter of 2019.

This was offset slightly by new debt issued in the third and fourth quarters of 2019 and the first quarter of 2020.

Interest expense increased in 2019 due to the new debt entered in the third and fourth quarters of 2019 and the first quarter of 2020.

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 March 2020.

Six months ended June 30,

Amortization of debt discount and equity issuance costs

$ (1,754,938 )

Interest expense

Gain on warrant derivative liability

Loss on extinguishment of debt

Gain on sale of building

$ (1,600,373 )

Amortization of debt discount was lower in 2020 compared

to 2019, due to the April 2018 debt paid off in the second quarter of 2019.

This was offset slightly by new debt issued in

the third and fourth quarters of 2019 and the first quarter of 2020.

Interest expense increased in 2019 due to the new debt

entered in the third and fourth quarters of 2019 and the first quarter of 2020.

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, the exchange of the 12% Notes into the 15% Notes and the extension of a portion of the 15% Notes.

gain on the sale of the building is the gain we recognized as a result of the sale of our building in March 2020.

Operations Consulting and Products

Three months ended March 31,

ended June 30,

Costs and expenses

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.

Three months ended March 31,

ended June 30,

Costs and expenses

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.

The increase in NBC revenues is primarily related to an increase

in product sales throughout 2020 with COVID-related decreases in services and application fees completed in 2020.

Ongoing management

revenue remained consistent with prior year.

The lower margin is in relation to increased product sales and a decrease in applications.

The increase in expenses is directly related to the increase in product sales, as well as an addition of a new salesman toward

the end of the first quarter.

Three months ended June 30,

Costs and expenses

Six months ended June 30,

Costs and expenses

This is a new segment as of June 30, 2020;

therefore all amounts

are an increase from the prior year.

Three months ended June 30,

Costs and expenses

Six months ended June 30,

Costs and expenses

The increase in investments revenue is related to three

new notes receivables that were executed in the first quarter of 2019.

The increase in 2020 is due to a full quarter in 2020

as compared to only a partial quarter in 2019.

All revenue is interest, and loan origination fees related to these new

The increase in costs and expenses in 2020 is due to an allowance on one of our note receivables due to

the note going into default in the second quarter of 2020.

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.

In May and June 2020, we received $2,185,000 in cash by issuing 5,485,814 shares of our common stock and 4,114,360 warrants to purchase common stock.

During January through March of 2020, we received $525,000 in cash in a private placement with certain accredited investors pursuant to the 15% Notes.

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 and developing infrastructure.

In July 2020, we received $815,000 in cash by issuing 2,046,196

shares of our common stock and 1,534,647 warrants to purchase common stock.

In May and June 2020, we received $2,185,000 in cash by issuing

5,485,814 shares of our common stock and 4,114,360 warrants to purchase common stock.

During January through March of 2020, we received $525,000

in cash in a private placement with certain accredited investors pursuant to the 15% Notes.

Sources and uses of cash

We had cash of $775,289 and $224,994, respectively, as of March 31, 2020 and December 31, 2019.

We had cash of approximately $1,198,120 and $224,994, respectively,

as of June 30, 2020 and December 31, 2019.

Our cash flows from operating, investing and financing activities were as follows:

Three months ended March 31,

months ended June 30,

Net cash used in operating activities

$ (3,168,581 )

$ (3,133,986 )

Net cash provided by (used in) investing activities

Net cash provided by financing activities

Net cash used in operating activities decreased in 2020 by $240,889 compared to 2019, primarily due to a reduction of cash-based expenses, such as salaries for reduced personnel.

Net cash provided by investing activities in 2020 relates primarily to the sale of our building in March 2020.

2019 related primarily to issuing notes receivable, along with purchasing fixed assets.

Net cash provided by financing activities in 2020 is in relation to exercises of warrants and new debt, offset by debt payments.

Net cash provided by (used in) financing activities

Net cash used in operating activities increased in 2020 due

to a significant increase in revenue as well as the acquisition of SevenFive Farm which provides positive operating cash flows.

Net cash provided by investing activities in 2020 relates primarily

to the sale of the office building in Denver, CO.

2019 activity primarily consisted of issuing notes receivable as well as purchasing

fixed assets.

Net cash provided by financing activities related to proceeds

of $1,500,000 from a notes payable offset by payment on a notes payable of $975,000.

We also received $2,185,000 in proceeds related

to the sale of our common stock.

Net cash used in financing activities in 2019 related to the payment on notes payable and proceeds

from the sale of common stock and warrants.

Capital Resources

We have no material commitments for capital expenditures as of March 31, 2020.

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.

We had no material commitments for capital expenditures as of

June 30, 2020.

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.

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.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure.

We define Adjusted EBITDA per share as (a) net income (loss) attributable to common stockholders calculated in accordance with

GAAP, adjusted for the impact of share-based expense, depreciation and amortization, impairment of investments, amortization of

debt discounts and equity issuance costs, interest expense, income taxes 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, which is net income (loss) per share.

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

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.

The following table reconciles Adjusted EBITDA to the most

directly comparable GAAP measure, which is net income (loss).

Three months ended

Six months ended

Net loss attributable to common stockholders

Adjustment for loss from discontinued operations

Loss from continuing operations attributable to common stockholders

Acquisition-related expense

Share-based expense

Acquisition-related expenses

Depreciation and amortization

Amortization of debt discount

Amortization of debt discount and equity issuance costs

Interest expense

Loss on extinguishment of debt

Gain on sale of building

Gain on warrant derivative liability

Gain on sale of building

Total adjustments

Adjusted EBITDA

Net loss Basic and Diluted

Adjusted EBITDA Basic and Diluted

Net loss –

Basic and Diluted

Adjusted EBITDA –

Basic and Diluted

Weighted-average shares outstanding:

Net loss Basic and Diluted

Adjusted EBITDA Basic and Diluted

Net loss –

Basic and Diluted

Adjusted EBITDA –

Basic and Diluted

Off-balance Sheet Arrangements

1 unchanged sentence

Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

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, 2019, and Note 1 to the Condensed Consolidated Financial Statements in this Form 10-Q.

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.

Our condensed consolidated financial statements and accompanying

notes have been prepared in accordance with U.S.

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, 2019, as amended, and Note 1 to the Condensed Consolidated Financial Statements in this Form 10-Q.

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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements