TREES Corp (Colorado) 10-Q

ITEM 1. FINANCIAL STATEMENTS GENERAL CANNABIS CORP CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2020 (Unaudited) December 31, 2019 ASSETS Current Assets Cash and cash equivalents $ 594,480 $ 122,390 Accounts receivable, net 65,930 85,204 Notes receivable, net – current portion 470,820 375,000 Prepaid expenses and other current assets 840,922 546,970 Assets held for sale – 375,218 Assets of discontinued operations 231,902 47,453 Total current assets 2,204,054 1,552,235 Note receivable, net – 93,333 Property and equipment, net 204,623 1,507,327 Investment 250,000 250,000 Assets held for sale – 15,584 Assets of discontinued operations – 83,525 Total Assets $ 2,658,677 $ 3,502,004 LIABILITIES & STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued expenses $ 1,280,602 $ 1,221,194 Interest payable 92,340 93,375 Customer deposits 893,604 562,803 Accrued stock payable 60,900 80,657 Notes payable (net of discount) 2,640,434 2,230,684 Related party note payable (net of discount) 99,667 99,667 Warrant derivative liability 3,162,733 4,620,594 Liabilities held for sale – 149,249 Liabilities of discontinued operations 123,217 207,993 Total current liabilities 8,353,497 9,266,216 Commitments and Contingencies (Note 8) – – Stockholders’ Equity (Deficit) Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding at March 31, 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. 40,282 39,498 Additional paid-in capital 63,550,821 61,468,034 Accumulated deficit (69,285,923) (67,271,744) Total Stockholders’ Deficit (5,694,820 ) (5,764,212 ) Total Liabilities & Stockholders’ Equity (Deficit) $ 2,658,677 $ 3,502,004 See Notes to condensed consolidated financial statements. 3 GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended March 31, 2020 2019 REVENUES Service $ 308,386 $ 247,783 Rent and interest 16,729 14,821 Product sales 1,339,073 532,318 Total revenues 1,664,188 794,922 COSTS AND EXPENSES Cost of service revenues 192,567 186,775 Cost of goods sold 1,231,413 388,074 Selling, general and administrative 1,039,934 1,053,551 Share-based expense 572,574 1,492,496 Professional fees 597,036 540,055 Depreciation and amortization 31,913 19,404 Total costs and expenses 3,665,437 3,680,355 OPERATING LOSS (2,001,249) (2,885,433) OTHER (INCOME) EXPENSE Amortization of debt discount 66,321 1,171,556 Loss on extinguishment of debt 1,137,428 – Interest expense, net 171,048 111,013 Gain on warrant derivative liability (1,375,620) – Gain on sale of building (139,105) Total other (income) expense , net (139,928) 1,282,569 NET LOSS FROM CONTINUING OPERATIONS $ (1,861,321) $ (4,168,002) Loss from discontinued operations (152,858) (345,693) NET LOSS $ (2,014,179) $ (4,513,695) PER SHARE DATA – Basic and diluted Net loss from continuing operations per share $ (0.05) $ (0.12) Net loss from discontinued operations per share $ (0.00) $ (0.01) Net loss per common share $ (0.05) $ (0.12) Weighted average number of common shares outstanding 39,694,890 36,222,752 See Notes to condensed consolidated financial statements. 4 GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended March 31, 2020 2019 OPERATING ACTIVITIES Net loss $ (2,014,179) $ (4,513,695) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of debt discount 66,321 1,171,556 Depreciation and amortization expense 34,087 42,935 Amortization of loan origination fees (2,487) (2,847) Bad debt expense 51,572 32,000 Share-based payments 572,574 1,492,496 Gain on warrant derivative liability (1,375,620) – Loss on extinguishment of debt 1,137,428 – Gain on discontinued operations 5,183 – Gain on sale of building (139,105) – Changes in operating assets and liabilities: Accounts receivable 204,502 (146,363) Prepaid expenses and other assets (261,778) (93,845) Inventory – 20,228 Accounts payable and accrued liabilities 238,674 273,818 Net cash used in operating activities: (1,482,828) (1,723,717) INVESTING ACTIVITIES Purchase of property and equipment (3,011) (160,209) Proceeds on sale of building 1,421,134 – Lending on notes receivable – (485,000) Net cash provided by (used in) investing activities 1,418,123 (645,209) FINANCING ACTIVITIES Proceeds from the exercise of warrants 90,000 – Proceeds from notes payable 1,500,000 – Payments on notes payable (975,000) – Net cash provided by financing activities 615,000 – NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 550,295 (2,368,926) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 224,994 7,957,169 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 775,289 $ 5,588,243 SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid for interest $ 173,067 $ 2,153 Cash paid for taxes – – NON-CASH INVESTING AND FINANCING ACTIVITIES Operating lease right-of-use asset / Operating lease liability $ – $ 154,200 15% Warrants recorded as a debt discount and additional paid-in capital 167,163 – 15% Warrants recorded as a loss on extinguishment of debt and additional paid-in capital 668,336 – Debt converted to equity 250,000 – Beneficial conversion feature 233,500 – Issuance of common stock to an employee 100,000 – See Notes to condensed consolidated financial statements. 5 GENERAL CANNABIS CORP CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 Common Stock Additional Accumulated Shares Amount Paid-in Capital Deficit Total January 1, 2020 39,497,480 $ 39,498 $ 61,468,034 $ (67,271,744) $ (5,764,212) Warrants issued with the 15% Notes – – 835,499 – 835,499 Common stock issued upon exercise of warrants 200,000 200 172,041 – 172,241 Common stock issued to an employee for services 42,735 43 99,957 – 100,000 Common stock issued upon conversion of debt 541,666 541 249,459 – 250,000 Expense in relation to beneficial conversion feature – – 233,500 – 233,500 Stock options granted to employees and Consultants – – 492,331 – 492,331 Net loss – – – (2,014,179) (2,014,179) March 31, 2020 40,281,881 $ 40,282 $ 63,550,821 $ (69,285,923) $ (5,694,820) Common Stock Additional Accumulated Shares Amount Paid-in Capital Deficit Total January 1, 2019 36,222,752 $ 36,223 $ 56,303,061 $ (51,787,947) $ 4,551,337 Stock options granted to employees and Consultants – – 1,470,993 – 1,470,993 Net loss – – – (4,513,695) (4,513,695) March 31, 2019 36,222,752 $ 36,223 $ 57,774,054 $ (56,301,642) $ 1,508,635 See Notes to condensed consolidated financial statements. 6 GENERAL CANNABIS CORP NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION 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 NBC’s 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. 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. 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. GAAP”) 7 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. GAAP. 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 Company’s 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. 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 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. 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. 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 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. 8 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. There was no material impact to our financial statements or disclosures. NOTE 2. 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. 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 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: March 31, December 31, 2020 2019 Cash and cash equivalents $ 176,854 $ 77,380 Accounts receivable, net 51,093 280,058 Prepaid expenses and other current assets – 17,780 Current assets discontinued operations $ 227,947 $ 375,218 Property and equipment, net $ – $ 15,584 Noncurrent assets discontinued operations $ – $ 15,584 Accounts payable and accrued expenses $ 19,097 $ 88,309 Customer deposits – 60,940 Current liabilities discontinued operations $ 19,097 $ 149,249 A breakdown of the discontinued operations is presented as follows: Three months ended March 31, 2020 2019 Service revenues $ 119,891 $ 564,592 Cost of service revenues 88,599 449,937 Selling, general and administrative 147,761 206,967 Depreciation and amortization 2,174 21,632 Total costs and expenses 238,534 678,536 OPERATING LOSS (118,643) (113,944) Interest expense, net 984 470 NET LOSS FROM DISCONTINUED OPERATIONS $ (119,627) $ (114,414) 9 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 March 31, 2020 2019 Receivables 228,965 46,418 Prepaids and other 17,780 (11,471) Depreciation and amortization 2,174 21,632 Capital expenditures – (1,331) Accounts payable and accrued expenses (69,212) (50,323) Customer deposits (60,940) 14,816 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: March 31, December 31, 2020 2019 Cash and cash equivalents $ 3,955 $ 25,223 Accounts receivable, net – 7,836 Prepaid expenses and other current assets – 14,394 Current assets discontinued operations 3,955 47,453 Right to use asset $ – $ 83,525 Noncurrent assets discontinued operations $ – $ 83,525 Accounts payable and accrued expenses $ 104,120 $ 124,468 Operating lease liability – current portion – 83,525 Current liabilities discontinued operations $ 104,120 $ 207,993 A breakdown of the discontinued operations is presented as follows: Three months ended March 31, 2020 2019 Product Revenues $ 33 $ 29,775 Cost of service revenues – 24,022 Cost of goods sold – 23,909 Selling, general and administrative 33,264 176,118 Professional fees – 35,106 Depreciation and amortization – 1,899 Total costs and expenses 33,264 261,054 OPERATING LOSS (33,231) (231,279) NET LOSS FROM DISCONTINUED OPERATIONS $ (33,231) $ (231,279) 10 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 March 31, 2020 2019 Receivables 7,836 10,944 Prepaids and other 14,394 (23,425) Inventory – 20,227 Depreciation and amortization – 1,899 Capital expenditures – (42,703) Accounts payable and accrued expenses (20,348) (31,236) Customer deposits – (17,539) NOTE 3. ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS Our accounts receivable consisted of the following: March 31, December 31, 2020 2019 Accounts receivable $ 176,930 $ 196,204 Less: Allowance for doubtful accounts (111,000) (111,000) Total $ 65,930 $ 85,204 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: Amount December 31, 2019 $ 562,803 Additional deposits received 1,768,090 Less: Deposits recognized as revenue (1,437,289) March 31, 2020 $ 893,604 NOTE 4. NOTES RECEIVABLE Our notes receivable consisted of the following: March 31, December 31 2020 2019 CCR Note $ 375,000 $ 375,000 BB Note 100,000 100,000 Total Principal 475,000 475,000 Unamortized loan origination fee (4,180) (6,667) 470,820 468,333 Less: Current portion (470,820) (375,000) Long-term portion $ – $ 93,333 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. 11 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. 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. NOTE 5. ACCRUED STOCK PAYABLE The following tables summarize the changes in accrued common stock payable: Amount Number of Shares December 31, 2019 $ 80,657 34,469 Employee stock issuance (80,657) (34,469) Consultant stock award – accrual 60,900 100,000 March 31, 2020 $ 60,900 100,000 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. NOTE 6. NOTES PAYABLE Our notes payable consisted of the following: March 31, December 31 2020 2019 2019 12% Notes $ – $ 1,506,000 SBI Note 684,000 750,000 15% Notes 2,231,000 200,000 Related party note payable 100,000 100,000 Unamortized debt discount (274,899) (225,649) 2,740,101 2,330,351 Less: Current portion (2,740,101) (2,330,351) Long-term portion $ – $ – SBI Debt 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. On November 27, 2019, SBI agreed to an extension of the maturity date to December 13, 2019. 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 12 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. 15% Notes 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: Current stock price $ 0.45 - 0.67 Exercise price $ 0.45 Risk-free interest rate 0.68 - 1.62 % Expected dividend yield – Expected term (in years) 0.84 – 3.06 Expected volatility 112 - 119 % 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. 13 NOTE 7. 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”). 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 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: May 31, 2019 March 31, 2020 Number of shares underlying the warrants 3,000,000 8,466,666 Fair market value of stock $ 0.95 $ 0.47 Exercise price $ 1.30 $ 0.45 Volatility 133% 122% Risk-free interest rate 1.93% 0.37% Warrant life (years) 5.00 4.16 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 March 31, 2020 2019 Beginning balance as of December 31 $ 4,620,593 $ – Warrant exercise (82,241) – Change in fair value of warrants derivative liability (1,375,619) – Ending balance $ 3,162,733 $ – NOTE 8. COMMITMENTS AND CONTINGENCIES Legal 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. NOTE 9. STOCKHOLDERS’ EQUITY 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 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. Of the gross proceeds, we recorded $2,416,422 as a warrant derivative liability, as discussed in Note 7. Share-based compensation 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. 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. 14 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 $ 0.83 Exercise price $ 0.83 Vesting goal $ 4.51 Risk-free interest rate 1.73% Expected term (in years) 10 Expected volatility 123% NOTE 10. SEGMENT INFORMATION Our operations are organized into two segments: Operations Consulting and Products; and Capital Investments. 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 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 see Note 3. Three months ended March 31 2020 Operations Investments Total Services $ 308,386 $ – $ 308,386 Rent and interest – 16,729 16,729 Product 1,339,073 – 1,339,073 Total Revenues 1,647,459 16,729 1,664,188 Costs and expenses (1,616,487) – (1,616,487) $ 30,972 $ 16,729 47,701 Corporate (1,909,022) Net loss $ (1,861,321) 2019 Operations Investments Total Services $ 247,783 $ – $ 247,783 Rent and interest – 14,821 14,821 Product 532,318 – 532,318 Total revenue 780,101 14,821 794,922 Costs and expenses (677,381) (40,075) (717,456) $ 102,720 $ (25,254) 77,466 Corporate (4,245,468) Net loss $ (4,168,002) March 31, December 31, Total assets 2020 2019 Operations $ 709,578 $ 441,841 Investments 522,369 402,988 Corporate 1,194,828 2,135,395 $ 2,426,775 $ 2,980,224 15 NOTE 11. 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 Company’s 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 Colorado’s 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. 16 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Condensed Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K for the year ended 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. Cautionary Statement Regarding Forward Looking Statements This Quarterly Report on Form 10-Q, including the financial statements and related notes, contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q, except required by law. When this report uses the words “we,” “us,” “our,” or “GCC” and the “Company,” they refer to General Cannabis Corp (formerly, “Advanced Cannabis Solutions, Inc.”). COVID-19 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. 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. 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. 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”) 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 NBC’s 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. 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. 17 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. Results of Operations The following tables set forth, for the periods indicated, statements of operations data. The tables and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto appearing in Item 8 in this Report. Consolidated Results Three months ended March 31, Percent 2020 2019 Change Change Revenues $ 1,664,188 $ 794,922 $ 869,266 109% Costs and expenses (3,665,437) (3,680,355) 14,918 0% Other income (expense) 139,928 (1,282,569) 1,422,497 (111)% Net loss from continuing operations (1,861,321) (4,168,002) 2,306,681 (55)% Loss from discontinued operations (152,858) (345,693) 192,835 (56)% Net loss $ (2,014,179) $ (4,513,695) $ 2,499,516 (55)% Revenues Revenue increased for both our Operation Consulting and Investments segments. See Segment discussions below for further details. Costs and expenses Three months ended March 31, Percent 2020 2019 Change Change Cost of service revenues $ 192,567 $ 186,775 $ 5,792 3% Cost of goods sold 1,231,413 388,074 843,339 217% Selling, general and administrative 1,039,934 1,053,551 (13,617) (1)% Share-based compensation 572,574 1,492,496 (919,922) (62)% Professional fees 597,036 540,055 56,981 11% Depreciation and amortization 31,913 19,404 12,509 64% $ 3,665,437 $ 3,680,355 $ (14,918) 0% Cost of service revenues typically fluctuates with the changes in revenue for our Operation Consulting Segment. Cost of goods sold varies with changes in product sales, including an increase in products sold by our Operation Consulting Segment, which have smaller margin. See Segment discussions below for further details. Selling, general and administrative expense stayed relatively static for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019. Share-based compensation included the following: Three months ended March 31, Percent 2020 2019 Change Change Employee awards $ 342,248 $ 1,298,845 $ (956,597) (74)% Consulting awards 71,015 9,777 61,238 626% Feinsod Agreement 159,311 183,874 (24,563) (13)% $ 572,574 $ 1,492,496 $ (919,922) (62)% 18 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. Other Expense Three months ended March 31, Percent 2020 2019 Change Change Amortization of debt discount and equity issuance costs $ 66,321 $ 1,171,556 $ (1,105,235) (94)% Interest expense 171,048 111,013 60,035 54% Gain on derivative liability (1,375,620) – (1,375,620) (100)% Loss on extinguishment of debt 1,137,428 – 1,137,428 100% Gain on sale of building (139,105) – (139,105) (100)% $ (139,928) $ 1,282,569 $ (1,422,497) (111)% Amortization of debt discount was lower in 2020 compared to 2019, due to the 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. Operations Consulting and Products Three months ended March 31, Percent 2020 2019 Change Change Revenues $ 1,647,459 $ 780,101 $ 867,358 111% Costs and expenses (1,616,487) (677,381) (939,106) 139% $ 30,972 $ 102,720 $ (71,748) 70% Increased revenues in 2020 are primarily related to increased product sales and license application fees, offset by a decrease in recurring consulting fees. Costs and expenses increased in 2020 due to increased product sales, offset by a reduction in employee costs. Investments Three months ended March 31, Percent 2020 2019 Change Change Revenues $ 16,729 $ 14,821 $ 1,908 13% Costs and expenses – (40,075) 40,075 (100)% $ 16,729 $ (25,254) $ 41,983 (166)% The slight increase in revenues in 2020 is related to a full quarter of interest revenue in 2020 as compared to 2019. All revenue is from interest and loan origination fees related to these new notes. The expense in 2019 was legal fees incurred for the new notes receivable agreements. Liquidity Sources of liquidity Our sources of liquidity include cash generated from operations, the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our more significant uses of resources will include funding operations, developing infrastructure, as well as potential loans, investments, and business and real property acquisitions. 19 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. Our cash flows from operating, investing and financing activities were as follows: Three months ended March 31, 2020 2019 Net cash used in operating activities $ (1,482,828) $ (1,723,717) Net cash provided by (used in) investing activities 1,418,123 (645,209) Net cash provided by financing activities $ 615,000 $ – 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. 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. 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. 20 The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure. Three months ended March 31, 2020 2019 Net loss $ (2,014,179) $ (4,513,695) Adjustment for loss from discontinued operations 152,858 345,693 Loss from continuing operations attributable to common stockholders (1,861,321) (4,168,002) Adjustments: Acquisition-related expense 308,196 – Share-based expense 572,574 1,492,496 Depreciation and amortization 31,913 19,404 Amortization of debt discount 66,321 1,171,556 Interest expense 171,048 111,013 Loss on extinguishment of debt 1,137,428 – Gain on sale of building (139,105) – Gain on warrant derivative liability (1,375,620) – Total adjustments 722,755 2,794,469 Adjusted EBITDA $ (1,088,566) $ (1,373,533) Per share: Net loss – Basic and Diluted $ (0.05) $ (0.12) Adjusted EBITDA – Basic and Diluted (0.03) (0.04) Weighted-average shares outstanding: Net loss – Basic and Diluted 39,694,890 36,222,752 Adjusted EBITDA – Basic and Diluted 39,497,480 36,222,752 Off-balance Sheet Arrangements We currently have no off-balance sheet arrangements. Critical Accounting Policies Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2019, and Note 1 to the Condensed Consolidated Financial Statements in this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.