What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-04-01 compared with 2020-05-14 · 578 added, 445 removed, 550 unchanged (65% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Cash Flows

Consolidated Statements of Changes in Stockholders Equity (Deficit)

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

General Cannabis Corp

Opinion on the consolidated financial statements and Internal Control Over Financial Reporting

We have audited the accompanying balance sheet of General Cannabis Corp (the Company) as of December 31, 2018, and the related consolidated statements of operations , changes in stockholders equity (deficit), and cash flows for the year ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements).

We also have audited the Companys internal control over financial reporting as of December 31, 2018, based on criteria established in 2013 Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established by COSO.

Substantial Doubt About the Companys Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements in the Companys prior year 10-K filed on March 8, 2019, the Companys cash balance of approximately $8.0 million is not sufficient to absorb the Companys operating losses and retire their debt of $6,849,000 due May 1, 2019.

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

Managements plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

The Companys management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Assessment of Internal Control over Financial Reporting under Item 9A.

Our responsibility is to express an opinion on the entitys consolidated financial statements and an opinion on the entitys internal control over financial reporting based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that responds to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

An entitys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

An entitys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entitys assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Hall & Company

Irvine, California

March 8, 2019

We have served as the Company's auditor since 2014.

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of General Cannabis Corp.

(the Company) as of December 31, 2019, the related consolidated statements of operations, changes in stockholders equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 1 the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have audited the accompanying consolidated balance sheets of General Cannabis Corp.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Incremental Borrowing Rate (Leases)

Description of the Matter

As discussed in Note 10 to the consolidated financial statements, the Company’s reported right-of-use assets, current lease liabilities and long-term lease liabilities, utilize discount rates to calculate the estimated present value of future lease payments for all leases under ASC Topic 842 at the lease commencement date, and the lessee is required to remeasure its lease liability and adjust the related right-of-use asset upon any lease modifications not accounted for as a separate contract.

Since the Company’s lease does not provide an implicit rate, management utilized a third-party valuation specialist to assist in estimating the incremental borrowing rates used in its present value calculation, which required subjectivity.

incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company’s current operating lease had a lease commencement date in May 2020, and a lease modification in December 2020.

As of the lease commencement date on May 2020, the incremental borrowing rate used to determine the operating lease liability was 22.8%.

As of the lease modification date in December 2020, the incremental borrowing rate was 20.0%.

Auditing management’s assessment of its incremental borrowing rate is highly subjective and judgmental as the Company has no collateralized outstanding debt nor committed credit facilities, secured or otherwise, that would have comparable collateral or similar terms as their underlying lease.

Based on the level of management judgment, we have determined the incremental borrowing rate to be a critical audit matter.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s estimation of the incremental borrowing rate.

How we Addressed the Matter in Our Audit

With the assistance of our valuation specialists, our audit procedures included, amongst others:

● We obtained an understanding of management’s process in regards to the methodology used and the factors considered around the inputs, sources of data used and assumptions and estimates made in determining the Company’s incremental borrowing rates, including those over management’s review of its third-party specialist valuation report.

● We reviewed the contractual terms of the original lease agreement and the modified lease agreement to ensure the commencement date and modification date, any lease term extensions and/or early termination clauses were properly considered in determining the appropriate lease term for calculating the incremental borrowing rates.

● We evaluated the reasonableness of the valuation methods and assumptions used by management and the Company’s valuation specialist to estimate the incremental borrowing rates for borrowing amounts and terms comparable to their outstanding leases.

● We performed a sensitivity analysis on incremental borrowing rates used to determine the impact rate changes could have on the present value calculation of the Company’s operating lease right-of-use asset and operating lease liability.

Acquisition Date Fair Value of Trade Name Intangible Asset

Description of the Matter

As discussed in Note 2 to the consolidated financial statements, on May 13, 2020, the Company acquired Dalton Adventures, LLC in a business combination.

As part of the transaction, the Company acquired fixed assets, inventory, a cultivation license and the trade name of the business, SevenFive Farm.

Due to the complexity in determining fair value, management utilized a third-party valuation specialist to assist in calculating the acquisition date fair value of the trade name intangible asset.

The acquisition date fair value of $1.0 million, which was determined using the relief from royalty method, was allocated to the acquired trade name intangible asset.

Auditing management’s assessment of the acquisition date fair value of the trade name intangible asset is highly subjective and judgmental.

Based on the level of management judgment, we have determined the evaluation of the acquisition date fair value of the trade name intangible asset to be a critical audit matter.

Testing the assumptions regarding future revenue growth rates and discount rate, which were used to determine the fair value, involved a high degree of subjectivity, auditor judgment and an increased extent of effort, including the need to involve our valuation specialist, when performing audit procedures to evaluate the reasonableness of management’s estimation of the acquisition date fair value of the trade name intangible asset.

How we Addressed the Matter in Our Audit

With the assistance of our valuation specialists, our audit procedures included, amongst others:

● We obtained an understanding of management’s process with regards to the methodology used, and the factors considered around the inputs, sources of data used, assumptions and estimates used in the relief from royalty method to determine the acquisition date fair value of the trade name intangible asset, including those over management’s review of its third-party specialist valuation report.

● We tested the mathematical accuracy of the underlying schedules used in the valuation report to ensure the completeness and accuracy of the reports.

● We evaluated the Company’s future revenue growth rates by comparing them to historical results to ensure the reasonableness of these forecasts.

● We assessed the appropriateness of the overall approach and use of the relief from royalty method as the overall approach to determining the fair value of the trade name.

● We evaluated the reasonableness of the methodology and assumptions used by the specialist to determine the discount and royalty rates utilized to value the trade name intangible asset.

/s/ Marcum llp

We have served as the Company’s auditor since 2019.

April 1, 2021

GENERAL CANNABIS CORP

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Cash and cash equivalents

Accounts receivable, net

Note receivable, net current portion

Accounts receivable, net of allowance of $ 27,000 and $ 111,000 as of December 31, 2020 and 2019, respectively

Current portion of notes receivable, net of allowance of $ 125,000 and $ 0 as of December 31, 2020 and 2019, respectively

Inventories, net

Prepaid expenses and other current assets

Assets held for sale

Assets of discontinued operations

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Note receivable, net

Right-of-use operating lease asset

Property and equipment, net

Assets held for sale

Investment, held for sale

Intangible assets, net

Assets of discontinued operations

LIABILITIES & STOCKHOLDERS EQUITY (DEFICIT)

Liabilities and Stockholders' Equity

Current liabilities

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Customer deposits

Operating lease liability, current

Accrued stock payable

Notes payable (net of discount)

Current portion of notes payable (net of discount)

Related party note payable (net of discount)

Warrant derivative liability

Liabilities held for sale

Liabilities of discontinued operations

Total current liabilities

Operating lease liability, non-current

Long-term notes payable

Related party long-term notes payable (net of discount)

Total liabilities

Commitments and contingencies (Note 15)

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5,000,000 shares authorized;

no shares issued and outstanding at December 31, 2019 and 2018

no shares issued and outstanding as of December 31, 2020 and 2019

Common stock, $ 0.001 par value;

100,000,000 shares authorized;

200,000,000 and 100,000,000 shares authorized;

60,813,673 shares and 39,497,480 shares issued and outstanding on December 31, 2020 and 2019, respectively

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Accumulated deficit

( 74,951,436 )

( 67,271,744 )

Total stockholders’ equity (deficit)

( 5,764,212 )

Total liabilities & stockholders’ equity (deficit)

See Notes to consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

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Year ended December 31,

Rent and interest

Cultivation sales

Product sales

Total revenues

Total revenue

Costs and expenses

Cost of service revenues

Cost of goods sold

Cost of sales

Selling, general and administrative

Share-based expense

Stock-based compensation expense

Professional fees

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Operating loss

OTHER (INCOME) EXPENSE

( 6,065,779 )

( 8,861,689 )

Other expenses (income)

Amortization of debt discount and equity issuance costs

Interest expense

Loss on extinguishment of debt

Interest expense, net

Gain on warrant derivative liability

Loss from Desert Created investment

Impairment of Desert Created investment

Total other expense , net

NET LOSS FROM CONTINUING OPERATIONS

(Gain) loss on derivative liability

Other income, net

Total other expenses, net

Net loss from continuing operations before income taxes

( 7,618,822 )

( 13,808,258 )

Loss from discontinued operations

( 1,675,539 )

Loss from operations before income taxes

( 7,679,692 )

( 15,483,797 )

Provision for income taxes

( 7,679,692 )

( 15,483,797 )

Deemed dividend

( 2,341,000 )

Net loss attributable to common stockholders

( 8,510,186 )

( 17,824,797 )

Per share data - Basic and diluted

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Weighted average number of common shares outstanding

See Notes to consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

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Year ended December 31,

OPERATING ACTIVITIES

Cash flows from operating activities

( 7,679,692 )

( 15,483,797 )

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

Amortization of debt discount and equity issuance costs

Loss on extinguishment of debt

Depreciation and amortization expense

Depreciation and amortization

Amortization of loan origination fees

Loss on extinguishment of debt

Non-cash lease expense

Bad debt expense

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Loss on disposal of property and equipment

Impairment of Desert Created investment

Loss from Desert Created investment

Gain on warrant derivative liability

Share-based payments

Changes in operating assets and liabilities:

(Gain) loss on warrant derivative liability

Stock-based compensation

Loss on investment

Gain on sale of building

Changes in operating assets and liabilities, net of acquisitions

Accounts receivable

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Accounts payable and accrued liabilities

Operating lease liabilities

Net cash used in operating activities:

INVESTING ACTIVITIES

( 5,000,388 )

( 5,328,661 )

Cash flows from investing activities

Purchase of property and equipment

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Proceeds on notes receivable

Investment in Flowhub SAFE

Investment in Desert Created

Proceeds on investment in Desert Created

Net cash used in investing activities

FINANCING ACTIVITIES

Proceeds from sale of building

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from sale of common stock and warrants

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Payments on notes payable

Payments on Infinity Note related party

( 2,106,000 )

( 5,898,000 )

Net cash provided by (used in) financing activities

( 1,649,875 )

Net increase (decrease) in cash and cash equivalents

( 7,732,175 )

Cash and cash equivalents, beginning of period

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15 % Warrants recorded as a debt discount and additional paid-in capital

8.5% Note principal used to exercise 8.5% Warrants

8.5% Warrants recorded as debt discount and additional paid-in capital

Issuance of common stock for accrued stock payable

Issuance of common stock and warrants for investment in Desert Created

See Notes to consolidated financial statements.

15 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

10 % Warrants recorded as a debt discount and additional paid-in capital

10 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

Modification of warrants associated with debt

Debt converted to equity

Beneficial conversion feature

Cashless warrant and option exercises

Issuance of common stock to an employee

Stock issued in connection with SevenFive Farm acquisition

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

January 1, 2019

Common stock issued upon exercise of

warrants for debt

Common stock issued upon exercise of

stock options

Common stock issued for MHPS acquisition

Common stock and warrants issued for

Desert Created acquisition

Common stock issued for services

Stock options granted to employees

Stock options under Feinsod Agreement

Warrants issued for services

Warrants issued with the 8.5% notes

December 31, 2018

( 51,787,947 )

Sale of common stock, net of issuance costs

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Common stock issued for property and equipment

Common stock issued upon exercise of

stock options

Common stock issued upon exercise of stock options

Stock options granted to employees and consultants

( 15,483,797 )

December 31, 2019

See Notes to consolidated financial statements.

( 67,271,744 )

( 5,764,212 )

Sale of common stock, net of issuance costs

Common stock issued to employees

Common stock issued upon conversion of debt

Common stock issued for acquisition of SevenFive Farm

Stock options granted to employees and consultants

Beneficial conversion feature

Warrants exercised

Warrants issued with the 15 % Notes

Warrants issued with the 10 % Notes

Modification of warrants

Cashless exercise of warrants

( 7,679,692 )

December 31, 2020

( 74,951,436 )

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

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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.

On June 6, 2018 we began trading on the OTCQX® Best Market after upgrading from the OTCQB® Venture Market.

As of December 31, 2019, our operations are segregated into the following two segments:

As of December 31, 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 2019 and 2018, 59% and 60% of NBCs revenue was with three customers and one customer, respectively.

During 2020 and 2019, 62 % and 59 % of NBC’s revenue was from four customers 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.

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

NBC also provides operational support for our internal cultivation.

Cultivation (“Cultivation Segment”)

Through our acquisition of SevenFive Farm LLC ("SevenFive Farm") in May 2020, we operate a licensed 17,000 square foot light deprivation greenhouse cultivation facility.

During 2020, 28 % of SevenFive Farm’s revenue was from two customers.

Capital Investments and Real Estate (“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, (b) leasing real estate we own, or (c) investing in businesses using cash or shares of our common stock.

Held for Sale - Security and Cash Transportation Services (Security Segment)

We provide 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.

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, has two primary revenue streams.

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

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

Chiefton Design provides design, branding and marketing strategy consulting services to the cannabis industry, which frequently includes 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 offers 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.

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

The accompanying consolidated financial statements include the results of GCC and its ten wholly-owned subsidiary companies:

The accompanying consolidated financial statements include the results of GCC and its eight wholly-owned subsidiary companies:

Evans Owner LLC, a Colorado limited liability company formed in 2014;

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(d) GC-NY Health, LLC, a New York limited liability company formed in 2019;

Cann, Inc., a Colorado corporation formed in 2019;

(f) Cannasseur, LLC, a Colorado limited liability company formed in 2019;

(g) Cannasseur Dispensary, LLC, a limited liability company formed in 2019;

(h) Cannasseur Cultivation, LLC, a limited liability company formed in 2019;

(i) Cannasseur Extraction, LLC, a limited liability company formed in 2019 and (j) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

(e) Standard Cann, Inc., a Colorado corporation formed in 2019;

(f) SevenFive Farm LLC, a Colorado limited liability company formed in 2020;

(g) SevenFive Farm Cultivation LLC, a Colorado limited liability company formed in 2020;

(h) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

In 2015, the name was changed to GC Corp.

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

Going Concern

The 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 the foreseeable future.

Our cash of approximately $225,000 as of December 31, 2019, is not sufficient to absorb our operating losses and retire our debt of approximately $2,330,000.

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

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

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 to that effect.

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

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

The Company incurred net losses of $ 7.7 million and $ 15.5 million in the years ended December 31, 2020 and 2019, respectively, and had an accumulated deficit of $ 75.0 million as of December 31, 2020.

The Company had cash, cash equivalents, and short-term and long-term investments of $ 1.0 million and $ 0.4 million as of December 31, 2020 and 2019, respectively.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business.

The Company has incurred recurring losses and negative cash flows from operations since inception and has primarily funded its operations with proceeds from the issuance of convertible debt.

The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to execute its acquisition and growth strategy.

The Company believes that its cash, cash equivalents, and short-term and long-term investments as of December 31, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K due to the receipt of an additional $ 1.7 million of cash in February 2021 from the issuance of a convertible note offering (See Note 21 for further information).

The Company will need additional funding to support its planned investing activities.

If the Company is unable to obtain additional funding, it would be forced to delay, reduce or eliminate some or all of its acquisition efforts, which could adversely affect its business prospects.

Reclassifications

Certain prior year amounts have been reclassified for consistency with current year presentation.

These reclassifications had no effect on the reported results of operations.

Significant Accounting Policies

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Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.

We maintain our cash balances in financial institutions that, from time to time, may exceed amounts insured by the Federal Deposit Insurance Corporation ($250,000 as of December 31, 2019).

Our inventory consists of finished goods, including apparel and supplies for the cannabis market.

Inventory is stated at the lower of cost (net realizable value), using average cost to determine cost.

We monitor inventory cost compared to selling price in order to determine if a write down to net realizable value is necessary.

In December 2019, we ceased all operations of Chiefton and determined we would be ceasing operations of STOA in January 2020.

As a result, we wrote down all of the remaining inventory to $0 as of December 31, 2019.

We recognized $147,035 in expense as a result of this write down of inventory and is included in loss on discontinued operations on the statement of operations.

Accounts Receivable.

As of December 31, 2020, and 2019 there are $ 5,551 and $ 102,604 of cash and cash equivalents included in asset of discontinued operations on the balance sheet.

Inventories consist of raw materials, supplies, growing and harvested plants (work-in-process), and finished goods, and are stated at the lower of cost or net realizable value.

All direct and indirect costs of growing plants are accumulated until the time of harvest and allocated to the plants during the growing process.

All direct and indirect costs of finished goods are accumulated and allocated to the products between the harvest and completion stages.

The Company uses an average costing method to allocate costs.

Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale.

The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items.

Write-downs and write-offs are charged to cost of sales.

Accounts Receivable, net

Accounts receivable are recorded at the original invoiced amount due from our customers less an allowance for any potential uncollectible amounts.

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In making the determination of the appropriate allowance for doubtful accounts, management considers prior experience with customers, analysis of accounts receivable aging reports, changes in customer payment patterns, and historical write-offs.

The allowance for doubtful accounts totaled $111,000 and $9,000 as of December 31, 2019 and 2018, respectively.

The amounts charged to operations and write-offs were immaterial for the periods presented.

Notes Receivable

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The loan origination fees or costs are amortized over the term of the underlying note receivable and included in interest income in the consolidated statements of operations.

We report notes receivable at the

principal balance outstanding less an allowance for losses.

We report notes receivable at the principal balance outstanding less an allowance for losses.

We monitor the financial condition of the notes receivable and record provisions for estimated losses when we believe it is probable that the holders of the notes receivable will be unable to make their required payments.

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We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 Leases (Topic 842) on January 1, 2019, which requires all assets and liabilities arising from leases to be recognized in our consolidated balance sheets.

In July 2018, the FASB added an optional transition method which the Company elected upon adoption of the new standard.

This allowed us to recognize and measure leases existing at January 1, 2019 without restating comparative information.

In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification.

We first evaluated our leases to determine whether they are classified as a finance lease or as an operating lease.

A lease is a finance lease if any of the following criteria are met:

(a) ownership transfers, (b) the lease includes an option to purchase the underlying asset, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the lease payments equals or exceeds the fair value of the underlying asset, or (e) the underlying asset is of a specialized nature that is expected to have no alternative use to the lessor at the end of the lease term.

All of our leases are classified as operating leases.

We then determined whether the short-term exemption applies;

that is, is the lease term 12 months or less and does not include a purchase option whose exercise is reasonably certain.

If the short-term exemption applies then lease payments are recognized as expense and no asset or liability is recorded.

If the short-term exemption does not apply, then we recorded an operating lease right-of-use asset and a corresponding operating lease liability equal to the present value of the lease payments.

All of our leases entered into prior to 2019 met the short-term exemption, so modification to prior period financial position was is not required.

The two-year commercial real estate lease we entered into in February 2019 did not meet the short-term exemption and, accordingly, we recorded the present value of the lease payments of $83,525, as a right-of-use asset and a lease liability in the consolidated balance sheet.

We recognize operating lease expense on a straight-line basis over the life of the lease.

Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all of the economic benefits and the right to direct the use of the asset during the lease term.

Lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year.

Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations.

In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates.

Operating lease expense is recognized on a straight-line basis over the lease term.

Property and Equipment, net

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Depreciation is computed using the straight-line method over the estimated useful lives of the assets:

thirty years for buildings, the lesser of five years or the life of the lease for leasehold improvements, and three to five years for furniture, fixtures and equipment, software and vehicles.

thirty years for buildings, the lesser of ten years or the life of the lease for leasehold improvements, and one to fifteen years for furniture, fixtures and equipment, software, vehicles, and biological assets.

Land is not depreciated.

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The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Intangible Assets

Intangible assets consist primarily of customer relationships and marketing-related intangibles.

Our intangible assets are being amortized on a straight-line basis over a period of two years and are fully amortized as of December 31, 2019.

Goodwill and Intangibles

Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination.

Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of ASC No.

350, Intangibles-Goodwill and Other (“ASC No.

350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or on level below an operating segment) on an

annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carry value.

Application of the goodwill impairment test requires judgement, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit.

We test goodwill and long-lived intangible assets annually in April, unless an event occurs that would cause us to believe the value is impaired at an interim date.

Intangible assets with finite useful lives are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Impairment of Long-lived Assets

We periodically evaluate whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.

We periodically evaluate whether the carrying value of property and equipment has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.

The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

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If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

We use the equity method for investments when we are able to exercise significant influence over, but do not control, the investee, and are not the primary beneficiary of the investees activities.

We include our portion of an equity-method investees net income or loss within other expense on the consolidated statements of operations.

In the event that the cost basis in an investment exceeds the fair value of the underlying business, we record an impairment charge to reduce our carrying value to the estimated fair value.

We record investments that do not qualify for treatment under the equity method at fair value, unless there is no readily determinable fair value.

We record at cost equity investments that do not have readily determinable fair value and assess for impairment at each reporting period.

We are able to switch to fair value at our option.

We issue debt that may have separate warrants, conversion features, or no equity-linked attributes.

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If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment.

Convertible Debt - When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance, the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock.

If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”).

A BCF exists if the effective conversion price of the

convertible debt instrument is less than the stock price on the commitment date.

This typically occurs when the effective conversion price is less than the fair value of the stock on the date the instrument was issued.

The value of a BCF is equal to the intrinsic value of the feature, the difference between the effective conversion price and the fair value of the common stock into which it is convertible.

Fair Value of Financial Instruments

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The Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments.

In accordance with U.S.

GAAP the fair value of these warrants is classified as a liability on the Companys consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders.

In accordance with GAAP the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders.

Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities.

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The Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs.

Extinguishment of Notes Payable

When we change the terms of existing notes payable subsequent to the maturity date, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine whether the change should be treated as a debt extinguishment or as a debt modification.

This evaluation includes analyzing whether there are significant and consequential changes to the economic substance of the note.

If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment.

If determined to be a debt extinguishment, the difference between the fair value of the new instrument compared to the original instrument is reflected as a gain or loss on extinguishment of debt.

Warrants Instruments

Warrant Instruments

Warrants with derivative features – When we raise capital by issuing warrants that do not have complex terms, they are recorded as additional paid in capital in our consolidated balance sheet.

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Revenue Recognition

We have two main revenue streams:

We have three main revenue streams:

(i) product sales;

and (ii) licensing and consulting.

Product sales are recorded at the time that control of the products is transferred to customers.

(ii) licensing and consulting services;

and (iii) cultivation sales.

Product sales are recorded at the time that control of the product is transferred to customers.

In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products.

Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Revenue from licensing and consulting services is recognized when our obligations to our client are fulfilled which is determined when milestones in the contract are achieved.

ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive.

Revenue from licensing and consulting services is recognized when our obligations to our client are fulfilled which is determined when performance obligations in the contract are achieved.

Revenue from cultivation sales is recognized when the products are delivered to the customer.

ASU 2014-09, Revenue from Contracts with Customers (“ ASC Topic 606”) is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive.

Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance.

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We may receive payments from our customers in advance of completing our performance obligations.

We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms.

We record contract liabilities equal

to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms.

Contract liabilities have been historically recorded as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year.

We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.

Share-based Payments

Employee and non-employee awards We account for share-based compensation in accordance with the fair value recognition provisions of ASC 718, Compensation Stock Compensation , and ASC 505, Equity , which require all share-based payments to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values.

Stock-based Payments

Employee and non-employee awards – We account for stock-based compensation in accordance with the fair value recognition provisions of ASC 718 , Compensation – Stock Compensation , and ASC 505 , Equity , which require all stock-based compensation to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values.

The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option.

Stock options generally vest in one year.

The Company accounts for forfeitures of share-based grants as they occur.

If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period.

Market price-based awards We may issue share-based payments that vest when certain market conditions are met, such as our common stock trading above a certain value for a specific number of days.

The Company accounts for forfeitures of stock-based grants as they occur.

If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Market price-based awards – We may issue stock-based payments that vest when certain market conditions are met, such as our common stock trading above a certain value for a specific number of days.

We recognize expense for market price-based options at the estimated fair value of the options using the binomial lattice model over the estimated life of the options used in the model, or immediately upon the market conditions being met.

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Shipping and Handling

Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of goods sold.

Shipping and handling for inventory are included as a component of inventory on the consolidated balance sheets, and in cost of goods sold in the consolidated statements of operations when the product is sold.

Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of sales.

Shipping and handling for inventory are included as a component of inventory on the consolidated balance sheets, and in cost of sales in the consolidated statements of operations when the product is sold.

We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities.

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a) Operations Consulting and Products;

and b) Capital Investments and Real Estate.

b) Cultivation;

and c) Investments.

Our Chief Executive Officer has been identified as the chief decision maker.

Our operations are conducted primarily within the United States of America.

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 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

DB Arizona A company that borrowed $825,000 from GC Finance Arizona.

Prior to our purchase in June 2017, we did not possess the ability to influence DB Arizona and DB Arizona did not have the ability to influence us.

We include DB Arizona as a related party due to our relationship with Michael Feinsod and Infinity Capital, and their relationship with DB Arizona.

Our operations are conducted within the United States of America.

Recently Issued Accounting Standards

FASB ASU 2019-12 Income Taxes (Topic 740) In December 2019, the 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 2018-013 – “Fair Value Measurement (Topic 820)”- In August 2018, the FASB issued new disclosure guidance on fair value measurement.

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

This guidance is required to be adopted by the Company beginning in fiscal year 2020, with early adoption permitted.

We did not early adopt this guidance.

The adoption of these changes is not expected to have an impact on our consolidated financial statements other than disclosures.

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

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

FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

This ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas.

The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted.

We are in the process of evaluating the impact of this new guidance on our consolidated financial statements.

FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the 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.

INVESTMENTS AND ACQUISITIONS

On November 7, 2018, we invested $250,000 in Flowhub Holdings, LLC (Flowhub) through a simple agreement for future equity (the Flowhub SAFE).

The Flowhub SAFE provides us with the right to either (a) future equity in Flowhub when it completes an equity financing, or (b) future equity in Flowhub or cash proceeds if there is a liquidity event.

If there is an equity financing, Flowhub would issue to us (a) a number of standard preferred units equal to our investment divided by the price per share of the standard preferred units if the pre-money valuation is less than or equal to the valuation cap ($35 million);

or (b) a number of safe preferred units equal to the purchase amount divided by the valuation cap ($35 million), if the pre-money valuation is greater than the valuation cap.

If there is a liquidity event, we will receive either (a) a cash payment equal to the purchase amount or (b) automatically receive a number of common units equal to the purchase amount divided by the liquidity price.

Our investment in the Flowhub SAFE is recorded on the cost method of accounting and included under investment on the consolidated balance sheet and is shown as long-term, as it is not readily convertible into cash.

Desert Created Company LLC / DB Products Arizona, LLC

In January 2018, we entered into a limited liability company operating agreement with DNFC LLC (DNFC), pursuant to the formation of Desert Created Company LLC (Desert Created).

Each party owned a 50% interest in Desert Created, which took over the assets and operations of DB Products Arizona, LLC (DB Arizona).

Desert Created produces and distributes cannabis-infused edible products in Arizona.

In connection with the formation of Desert Created, we contributed 75,000 shares of our common stock and warrants to purchase 75,000 shares of our common stock, at an exercise price of $2.00 per share, to members of DNFC (collectively, the DNFC Sellers).

This pricing was agreed to in November 2017, however, the transaction did not close until January 2018.

In the interim, our stock price increased substantially, which was the reason for the initial impairment noted below.

In October 2018, we sold our 50% interest to DNFC for cash consideration of $23,045 and, accordingly, impaired the remaining balance.

The 75,000 shares of our common stock were valued at $461,000, based on the closing price per share of our common stock on January 24, 2018, or $7.23 per share, reduced by a discount of 15% due to the restrictions on the DNFC Sellers ability to immediately sell such shares.

The warrants were valued at $518,000, using the Black-Scholes model, assuming a life of 5.0 years, a risk-free interest rate of 1.2% and a volatility of 150%.

The fair value of Desert Created was estimated based on the relative fair value of the underlying assets and liabilities, consisting primarily of cash, accounts receivable, equipment and accounts payable.

The purchase price allocation was as follows:

Initial investment in Desert Created

Fair value of Desert Created

Percentage ownership

Fair value of 50% of Desert Created

Initial investment in Desert Created

Initial impairment

The income and losses related to Desert Created were recognized using the equity method of accounting.

The value of the investment as of December 31, 2018, consists of the following and is included in prepaid expenses and other current assets on the balance sheet:

Initial investment in Desert Created

Initial impairment

Additional investment

Additional impairment

Proceeds from sale of investment

December 31, 2018

SevenFive Farm

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.

On May 25, 2020, we finalized the acquisition, pursuant to which we 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 the Company 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.

The closing price of General Cannabis Corp’s common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 3,808,951 .

The purchase agreement had a provision whereby the Seller may require us to repurchase in cash 25 % of the shares issued to the owner of Dalton Adventures, LLC at a repurchase price equal to the same volume weighted average price used to determine the number of shares issued to the owner of Dalton Adventures, LLC at closing.

As a result, we recorded a liability using Black-Scholes in the amount of $ 442,487 and reduced additional paid-in capital.

In December 2020, the Seller waived his right to this provision in the purchase agreement and no longer has the possibility of the buyback of the shares.

Therefore, no stock put liability is recorded as of December 31, 2020 and the liability was reversed into equity.

We have not completed the allocation of the purchase price.

As of December 31, 2020, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets and goodwill.

Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

The purchase price allocation is as follows:

The accompanying consolidated financial statements include the results of SevenFive Farm 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:

Total revenues

Net loss attributable to common stockholders

( 8,332,387 )

( 17,204,805 )

Net loss per common share:

Weighted average number of basic and diluted common shares outstanding

DISCONTINUED OPERATIONS

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

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 and the operating results for the years ended December 31, 2019 and 2018 are presented as discontinued operations.

Assets and liabilities of discontinued operations held for sale included the following:

The assets and liabilities classified as discontinued operations for the Security Segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2020 and 2019 are presented as discontinued operations.

Assets and liabilities of discontinued operations for the Security Segment included the following:

Cash and cash equivalents

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Prepaid expenses and other current assets

Current assets held for sale

Current assets discontinued operations

Property and equipment, net

Noncurrent assets held for sale

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Customer deposits

Current liabilities held for sale

A breakdown of the discontinued operations is presented as follows:

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Security Segment is presented as follows:

Year ended December 31,

Service revenues

Cost of service revenues

Cost of goods sold

Cost of sales

Selling, general and administrative

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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 2019 and 2018.

The following table provides selected information on cash flows related to discontinued operations for the Security Segment for the years ended December 31, 2020 and 2019.

Year ended December 31,

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The assets and liabilities classified as discontinued operations for the Consumer Goods Segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2020 and 2019 are presented as discontinued operations.

Assets and liabilities of discontinued operations included the following:

Assets and liabilities of discontinued operations for the Consumer Goods Segment included the following:

Cash and cash equivalents

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Right to use asset

Noncurrent assets discontinued

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Customer deposits

Operating lease liability - current portion

Current liabilities discontinued

A breakdown of the discontinued operations is presented as follows:

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Consumer Goods Segment is presented as follows:

Year ended December 31,

Total Revenues

Cost of service revenues

Cost of goods sold

Cost of sales

Selling, general and administrative

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Operating loss

( 1,206,358 )

Net loss from discontinued operations

( 1,206,358 )

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

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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 $103,182 and $15,864, respectively, during the years ended December 31, 2019 and 2018.

As of December 31, 2019, and 2018, prepaid expenses and other current assets includes $0 and $18,164 of unbilled revenue, respectively, representing amounts for services completed but not billed.

We recorded bad debt expense of $ 140,465 , of which $ 15,465 was related to accounts receivable and the remaining amount is in relation to our notes receivable, and $ 103,182 respectively, during the years ended December 31, 2020 and 2019.

Our customer deposit liability had the following activity:

December 31, 2018

Balance as of December 31, 2018

Additional deposits received

Deposits recognized as revenue

December 31, 2019

( 1,997,724 )

Balance as of December 31, 2019

Additional deposits received

Deposits recognized as revenue

( 4,206,433 )

Refunds to customers

Balance as of December 31, 2020

NOTES RECEIVABLE

Our notes receivable consisted of the following:

December 31, 2019

December 31, 2018

Total Principal

Allowance for doubtful accounts

Unamortized loan origination fee

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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.

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 2020.

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 December 31, 2019, we had loaned $375,000, of which $155,000 was loaned in the first quarter, to CCR under 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.

As of December 31, 2020, the outstanding amount of the loan was $ 375,000 .

The CCR Note included a loan origination fee of $ 15,000 , which is being recognized as interest income over the term of the agreement and has been fully amortized as of December 31, 2020.

As of December 31, 2020, this loan is in default.

Subsequent to year-end, we received a payment of $ 200,000 applied to interest and principal.

A notice of default was sent to the borrower in April 2020, which increased the interest rate to 18 % per annum.

On January 3, 2019, the Company authorized an unsecured loan of $ 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 to January 3, 2021.

On December 13, 2019, the Company agreed to extend the maturity date to January 3, 2021.

As of December 31, 2020, this loan is in default due to unpaid interest.

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

We are currently in negotiations with BB for repayment of the note.

On December 13, 2018, we loaned $ 50,000 to BRB Realty, LLC (“BRB”) pursuant to the terms of a promissory note (“BRB Note”), bearing interest at 13 % per annum and a maturity date of June 12, 2019.

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The BRB Note included a loan origination fee of $ 5,000 , which is being recognized as interest income over the term of the agreement.

INVENTORIES, NET

Our inventories consistent of the following:

Raw materials

Work-in-progress and finished goods

Inventory reserves

Total inventories

PREPAIDS AND OTHER CURRENT ASSETS

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Prepaid product for resale

Contract asset

PROPERTY AND EQUIPMENT, NET

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Furniture, fixtures and equipment

Biological assets

Accumulated depreciation

Depreciation expense was $ 149,836 and $ 115,696 , respectively, for the years ended December 31, 2020 and 2019.

INTANGIBLE ASSETS AND GOODWILL

Intangible assets

Intangible assets consisted of the following:

Estimated amortization expense for the next five years is as follows:

Year ending December 31,

Amortization expense was $ 65,625 and $ 0 for the years ended December 31, 2020 and 2019, respectively.

In connection with our acquisition of SevenFive Farm in May 2020, we recorded goodwill of $ 2,484,200 that is included in our Cultivation Reporting Unit.

We have no t recognized any impairment as of December 31, 2020.

On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 19) 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.

We also pay our portion of real estate taxes.

In December 2020, we amended the lease to include a 3 % rent escalation in 2021 and 2022.

No other changes to the lease were made.

We accounted for the amendment as a lease modification and remeasured the lease with an incremental borrowing rate of 20 % which resulted in an increase of $ 246,250 to the right-of-use operating lease asset and lease liability from the initial lease valued on May 13, 2020 using an incremental borrowing rate of 22.8 %.

We determined the present value of the future lease payments using a discount rate of 20 % over a 15 year term, our incremental borrowing rate based on outstanding debt, resulting in a right-of-use asset and lease liability of $ 1,877,423 which are being applied ratably over the term of the lease.

As of December 31, 2020, the balance of the right-of-use asset and lease liability was $ 1,836,455 and $ 1,870,080 , respectively.

We did not have any leases with terms greater than twelve months as of December 31, 2019.

Future remaining minimum lease payments were as follows:

Year ending December 31,

Present value adjustment

( 4,111,914 )

Operating lease liability

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2 unchanged sentences

Accrued payroll, taxes and vacation

Property taxes and other

ACCRUED STOCK PAYABLE

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

December 31, 2018

Balance as of December 31, 2019

Employee stock award accrual

December 31, 2019

On January 29, 2019, we granted an employee $100,000 worth of our common stock, with fifty percent 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.

As of December 31, 2019, no stock had been issued to the employee and as a result we are recognizing the stock liability.

Consultant stock award

Investor stock award accrual

Warrant cashless exercises

( 2,285,000 )

( 5,528,550 )

Balance as of December 31, 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 December 31, 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 with respect to the sale of shares of common stock.

We sold 5,485,814 shares of common stock during the second quarter 2020.

As of December 31, 2020, all of the stock was issued.

See Note 17 for further details of the stock transaction.

In December 2020, several warrant holders exercised their 2020 A warrants through cashless exercises and we issued 282,213 shares of common stock.

259,415 of those shares issued had not been transferred to the warrant holders as of December 31, 2020 and are included in accrued stock payable.

See Note 13 for further details of the cashless exercises.

As of December 31, 2019, employee stock awards made up the full balance of accrued stock payable.

NOTES PAYABLE

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2019 12% Notes

2019 15% Notes

Related party note payable

1 unchanged sentence

Current portion

( 2,330,351 )

Long-term portion

Aggregate Maturities

As of December 31, 2020, aggregate future contractual maturities of long-term debt (excluding issue discounts) are as follows:

Year ending December 31,

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “ 10 % Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “ 10 % Notes”) with an aggregate principal amount of $ 2,940,000 in exchange for payment to us by certain 10 % Investors of an aggregate amount of $ 1,940,000 in cash, as well as cancellation of outstanding indebtedness of the 15 % Notes (defined below) in the aggregate amount of $ 1,000,000 .

In connection with the issuance of the 10 % Notes, the holders of the 10 % notes received warrants (the “ 10 % Warrants”) to purchase shares of our common stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share.

In the aggregate, this equals 1,050,011 shares of our common stock.

The 10 % Notes will bear interest at an annual rate of 10 % and will mature on December 23, 2023.

The 10 % Investors have the option at any time to convert up to 50 % of the outstanding unpaid principal and accrued interest

of the Notes into Common Stock at a variable price of 80 % of the market price but no less than $ 0.65 per share and no more than $ 1.00 per share.

The 10 % Warrants are exercisable at an exercise price of $ 0.56 per 10 % Warrant.

The relative fair value of the new funding on the 10 % Warrants was recorded as a debt discount and additional paid-in capital of $ 254,400 .

The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 131,000 .

For the years ended December 31, 2020 and 2019, amortization of debt discount expense was $ 2,944 and $ 0 , respectively, from the 10 % Notes.

We determined there was no beneficial conversion feature on the 10 % Notes.

The 10 % Notes are 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 10 % Warrants as of December 31, 2020, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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.

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 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 effective 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 consolidated statement of operations.

As of December 31, 2020, SBI converted all of the $ 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 some holders 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.

$ 1.0 million of the 15 % Notes were exchanged for the 10 % Notes (see above), $ 2.1 million was paid in full in December 2020 and the remaining $ 200,000 was paid in full in the first quarter 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.

In December 2020, the warrant holders exercised 1,131,000 of the 2020 A Warrants into 282,813 shares of our common stock through cashless exercise.

We recorded $ 3,653 to additional paid in capital and $ 33,961 to accrued stock, as 259,415 shares need to be issued as of December 31, 2020.

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 year ended December 31, 2020 and 2019, amortization of debt discount expense was $ 279,676 and $ 2,883 , 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

Exercise price

Risk-free interest rate

0.68 - 1.62 %

Expected dividend yield

Expected term (in years)

Expected volatility

Loan on Building

On January 8, 2020 we entered into 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.

2019 12 % Notes

In September 2019, we completed a private placement with certain accredited investors 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 at any time the life extends to October 31, 2022 (2019 12% Warrants) (combined the 2019 12% Agreements).

however, if we prepay at any time the life extends to October 31, 2022 (“2019

12 % Warrants”) (combined the “2019 12 % Agreements”).

We may prepay the 2019 12 % Notes at any time, but in any event must pay at least one year of interest.

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The relative fair value of the 2019 12 % Warrants was recorded as a debt discount and additional paid-in capital of $ 93,500 .

For the year ended December 31, 2019, amortization of debt discount includes $23,432.

For the years ended December 31, 2020 and 2019, amortization of debt discount includes $ 12,635 and $ 23,432 .

The 2019 12 % Notes are otherwise treated as conventional debt.

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.

The exchange was treated as an extinguishment of debt.

For purposes of determining the loss on extinguishment of debt and the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 2019 12 % Warrants were:

Current stock price

$ 0.82 - 0.92

Exercise price

Risk-free interest rate

1.63 - 1.68 %

Expected dividend yield

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In September 2019, we modified the debt agreement into the 2019 12 % Notes.

The debt modification was treated as an extinguishment of debt.

Subject to the terms and conditions of the 8.5 % Agreement, each investor was granted fully-vested warrants equal to their note principal times 80 %, or six million warrants, with an exercise price of $ 2.35 per share and a life of two years (the “ 8.5 % Warrants”).

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Number of iterations

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

On October 18, 2019, SBI agreed to an extension to November 1, 2019.

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

On November 15, 2019, SBI agreed to another extension of debt 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 note 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 note.

See Note 16 for further detail.

The change in terms of the SBI note is treated as a debt extinguishment.

The additional $50,000 of principal was treated as a debt extinguishment and included in our consolidated statement of operations.

We received $755,000 of cash for issuing the SBI Note and the difference between the cash received and the principal amount was recorded as a debt discount of $100,000 and has been fully amortized.

In December 2019, we sold $300,000 promissory notes (15% Notes) and warrants to certain accredited investors.

The promissory notes, bear interest at 15%, with principal due January 31, 2021, and interest payable quarterly.

We may prepay the 15% Notes at any time, but in any event must pay at least six months of interest.

Included in these notes is an amount of $100,000 from a board member, a related party.

The warrants granted to the investors are fully-vested and the number of shares underlying the warrants three time the principal amount of the Notes or nine hundred thousand warrants, with an exercise price of $0.45 per share (the 15% Warrants).

The 15% Warrants were issued in three tranches, A, B, and C.

All the warrants have the same terms except the expiration dates.

Warrant A has an expiration date of December 31, 2020, Warrant B has an expiration date of December 31, 2021 and Warrant C has an expiration date of December 31, 2022.

We received $300,000 of cash for issuing the 15% Notes.

The relative fair value of the 15% Warrants was recorded as a debt discount and additional paid-in capital of $158,100.

For the years ended December 31, 2019 and 2018, amortization of debt discount expense was $2,519 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 December 2019, were:

Current stock price

$ 0.54 - 0.67

Exercise price

Risk-free interest rate

1.60 - 1.62 %

Expected dividend yield

Expected term (in years)

Expected volatility

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 (“2019 Units”) in a registered direct offering for $ 1.00 per 2019 Unit (collectively defined as 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 the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $ 0.45 per share and the number of shares subject to the 2019 Warrants 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 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.

During the year ended December 31, 2020 the warrant holders exercised 7,945,807 warrants into 2,443,641 shares of our common stock through cashless exercise.

We booked an adjustment to the derivative liability of $ 3,241,188 as a result.

During the year ended December 31, 2020 and 2019, we recognized a $ 735,796 gain on the fair value of derivative liability and a $ 2,204,172 loss on the fair value of derivative liability, respectively, in the consolidated statements of operations.

As of December 31, 2020, there were 1,645,807 of the 2019 Warrants outstanding.

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

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Recognition of warrant derivative liability on May 31, 2019

Warrant exercise

( 3,323,429 )

Change in fair value of warrants derivative liability

1 unchanged sentence

COMMITMENTS AND CONTINGENCIES

In June 2020, Michael Feinsod 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 benefits under his employment agreement, including potential claims for severance, 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.

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 substantial merit.

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"

From time to time, the Company is a party to various litigation matters incidental to the conduct of its business.

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If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

As of December 31, 2020 and 2019, the Company had federal and state net operating loss carryforwards of approximately $ 34 million and $ 29 million, respectively.

Of the current net operating loss carryforwards, $ 14 million expire starting in 2033 through 2037 and $ 20 million do not expire.

The Company is currently evaluating whether there have been one or more ownership changes pursuant to IRC Sections 382 and 383.

If the Company determines there were one or more ownership changes under these rules, the use of its U.S.

federal and state net operating loss carryforwards may be limited and/or otherwise expire unused.

The components of net deferred tax assets are as follows:

4 unchanged sentences

Deferred tax asset valuation allowance

( 11,644,935 )

( 10,374,040 )

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

1 unchanged sentence

Income tax benefit at statutory rate

( 1,607,608 )

( 3,251,597 )

State income tax benefit, net of Federal benefit

3 unchanged sentences

Valuation allowance

As of December 31, 2019 and 2018, the Company had federal and state net operating loss carryforwards of approximately $29 million and $22 million, respectively.

Of the current net operating loss carryforwards, $14 million expire starting in 2033 through 2037 and $15 million do not expire.

Pursuant to the Internal Revenue Code Sections 382 and 383, use of the Company's U.S.

federal and state net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more than 50% within a three-year period.

STOCKHOLDERS’ EQUITY

2020 Capital Raise

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

We received cash of $2,604,355 which is net of $395,645 of issuance costs, of which $318,681 is included as amortization of debt discount and equity issuance costs and $76,964 is included as a reduction of additional paid in capital.

On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP 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 Hershey 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 Hershey Investor, the Hershey 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 Hershey Investor at an exercise price per share equal to $ 0.5565 .

The warrants have a term of five years .

During the year ended December 31, 2020, we sold $ 3,000,000 of securities to the Hershey Investor, representing 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock at an exercise price of $ 0.5565 per share.

The warrants were recorded as equity and equity issuance costs in the amount of $ 2,173,074 .

Notwithstanding the foregoing, the Hershey Subscription Agreement provides that the Hershey 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 Hershey Subscription Agreement also provides the Hershey Investor with certain participation rights in future financings of the Company until the one-year anniversary of the second closing.

The Hershey Subscription Agreement further provides that the Company shall, during a negotiation period ending October 4, 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.

As of October 4, 2020, $ 600,000 of the $ 2,331,000 outstanding notes have extended the maturity date.

If, at the end of the negotiation period per the contract, all of the existing notes have not been amended to extend the maturity dates thereof, then the Company shall issue to the Hershey 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 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.

The Hershey Investor extended the negotiation period to December 11, 2020.

As of December 11, 2020, no existing holders had extended their promissory notes, therefore, we issued the Hershey Investor additional warrants in accordance with the agreement.

On December 14, 2020 we issued an additional 1,631,000 warrants to purchase common stock at an exercise price of $ 0.4917 to the Hershey Investor.

These warrants expire on December 11, 2025.

The warrants were recorded as a deemed dividend in the amount of $ 732,494 .

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.

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 on a quarterly basis and is recorded as a gain/loss on warrant derivative liability on the consolidated statement of operations.

As of December 31, 2020, there were 1,645,807 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 14.

We used a portion of the net proceeds from the issuance of the 2019 Units to pay down the 8.5% Notes by $5,743,000, leaving $1,106,000 outstanding.

Share-based compensation

Share-based compensation expense consisted of the following:

Stock-based compensation

Stock-based compensation expense consisted of the following:

Year ended December 31,

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Consulting Awards

Feinsod Agreement

Employee Stock Options

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the Incentive Plan).

In November 2020, the Board authorized the adoption of and, on November 23, 2020, our stockholders ratified our 2020 Omnibus Incentive Plan (the “2020 Plan”).

The 2020 Plan became effective immediately and will expire on November 23, 2030, unless terminated earlier by the Board of Directors.

The 2020 Plan will permit the Board of Directors, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors and consultants of the Company and its subsidiaries non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards.

Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the 2020 Plan is 10 million shares.

As of the date of this filing a Registration Statement on Form S-8 has not been filed.

As of December 31, 2020, there have been no awards granted in the plan.

approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”).

The Incentive Plan provides for the issuance of up to 15 million shares of our common stock and is designed to provide an additional incentive to executives, employees, directors and key consultants, aligning our long term interests with participants.

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As of December 31, 2020, there were 5,320,330 shares available to issue under the Incentive Plan.

Share-based compensation costs for award grants to employees and directors (Employee Awards) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested.

Stock-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested.

The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:

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The following summarizes Employee Awards activity:

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term

Aggregate Intrinsic Value

Outstanding at December 31, 2018

Exercise Price

Term (in years)

Intrinsic Value

Outstanding as of December 31, 2019

Forfeited or expired

Outstanding at December 31, 2019

Exercisable at December 31, 2019

As of December 31, 2019, there was approximately $838,267 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of twelve and a half months.

( 5,701,880 )

Outstanding as of December 31, 2020

Exercisable as of December 31, 2020

As of December 31, 2020, there was approximately $ 21,417 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of fifteen months .

Consulting Services

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We use historical data to estimate the expected price volatility.

The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of valuation for the estimated life of the option.

The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of

valuation for the estimated life of the option.

The following summarizes the Black-Scholes assumptions to value the Consulting Awards granted:

6 unchanged sentences

The following summarizes Consulting Awards activity:

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term

Aggregate Intrinsic Value

Outstanding at December 31, 2018

Exercise Price

Term (in years)

Intrinsic Value

Outstanding as of December 31, 2019

Forfeited or expired

Outstanding and exercisable at

December 31, 2019

We granted 25,000 shares of common stock with a fair value of $92,500 to a non-employee for consulting services, which were issued in July 2018.

Additionally, we granted 47,933 shares of common stock with a fair value of $142,500 to non-employees for consulting services, which were issued in October 2018.

During 2019, we granted 85,000 options with a fair value of $93,614 to non-employees for consulting services.

Outstanding and exercisable as of December 31, 2020

During 2020 we granted 10,000 options to a consultant with a fair value of $ 2,390 .

Feinsod Employment Agreement

On December 8, 2017, we entered into an agreement (the Feinsod Agreement) with Michael Feinsod for his continued service as our Executive Chairman of our Board of Directors.

Pursuant to the agreement, Mr.

Feinsod received (a) 600,000 stock options that vest on the anniversary date of the agreement for the next three years, or 200,000 per year (Time-based Options);

and (b) three tranches of 100,000 stock options that vest when our stock price has an average trading price for 20 days of $3.50, $5.00 and $6.50 (Market-based Options).

The options have an exercise price of $3.45 per share and a ten-year life.

These options were not issued under the Incentive Plan;

however, the underlying shares were included in the Registration Statement on Form S-8 that automatically became effective in June 2018.

During the quarter ended March 31, 2018, the $3.50 and $5.00 Market-based Options vested and, accordingly, the expense associated with those options was recognized immediately.

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

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The options were valued using the Monte Carlo method.

For the year ended December 31, 2019, we recognized approximately $116,000 of share-based compensation expense related to these options.

For the year ended December 31, 2020 and 2019, we recognized approximately $ 57,342 and $ 116,000 , respectively, of stock-based compensation expense related to these options.

These options were forfeited in July 2020, with Mr.

Feinsod’s resignation.

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

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Expected volatility

DB Option Agreement warrants

In order to extend the DB Option Agreement with Infinity Capital, in March 2016 we granted Infinity Capital warrants to purchase 100,000 shares of our common stock at an exercise price of $0.67 per share with a five year life.

All 100,000 warrants were still outstanding as of December 31, 2019.

IPG Acquisition Warrants

In connection with the IPG acquisition in 2015, we issued to IPG 500,000 fully-vested warrants to purchase a) 250,000 shares of our common stock at $4.50 per share, (the IPG $4.50 Warrants), and b) 250,000 shares of our common stock at $5.00 per share (the IPG $5.00 Warrants) (collectively, the IPG Warrants).

All of these warrants expired unexercised during the quarter ended March 31, 2018.

Warrants with Debt

The following summarizes warrants issued with debt activity:

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term

Aggregate Intrinsic Value

Outstanding at December 31, 2017

Outstanding at December 31, 2018

Outstanding and exercisable at

December 31, 2019

Exercise Price

Term (in years)

Intrinsic Value

Outstanding as of December 31, 2018

Outstanding as of December 31, 2019

( 1,131,000 )

( 7,064,214 )

Outstanding and exercisable as of December 31, 2020

On May 31, 2019, we issued the 2019 Units at $ 1.00 , which triggered the “down round” feature specified in the 8.5 % Warrants.

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On October 18, 2019, November 1, 2019 and again on December 11, 2019, we issued additional warrants at $ 1.00 , $ 0.68 and $ 0.45 , respectively.

These triggered the down round feature on both the 8.5% warrants and the 2019 Units.

The difference in fair value of the effect of the down round feature is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

These triggered the “down round” feature on both the 8.5 % warrants and the 2019 Warrants.

In May 2020, we issued common stock at a price $ 0.3983 .

These triggered the “downround” feature on the 2019 Units and the 15 % Notes.

The 8.5 % Warrants had expired at the time of issuance, so did not effect these warrants.

The difference in fair value of the effect of the down round feature for the 8.5 % Warrants and the 15 % Warrants is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The difference in the fair value of the effect of the down round feature for the 2019 Warrants are reflected in the gain/loss on derivative instrument in our consolidated statement of operations.

The underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5 % Warrants were:

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Expected volatility

Fall 2017 Capital Raise

During the year ended December 31, 2017, in a private placement we raised $4 million of equity by issuing four million shares of our common stock and four million warrants (Fall 2017 Warrants) to purchase shares of our common stock (together Units) for $1.00 per Unit.

The Fall 2017 Warrants had an exercise price of $0.50 per share and were exercisable for two years.

If our common stock closed above $5.00 for ten consecutive days, we could call the warrants, giving the warrant holders 10 days to exercise.

During the quarter ended March 31, 2018, we called the warrants and all were exercised.

In consideration for the sale of the Units, we received $3,750,000 in cash and extinguished $250,000 of 12% Notes.

NET LOSS PER SHARE

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Accrued stock payable

SUBSEQUENT EVENTS

Beginning in early 2020, there has been an outbreak of coronavirus (COVID-19), initially in China and which has spread to other jurisdictions, including locations where we do business.

The full extent of the outbreak, related business and travel restrictions and changes to behavior intended to reduce its spread are uncertain as of the date of the Report as this continues to evolve globally.

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

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 coronavirus outbreak.

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.

On January 24, 2020, we entered into an asset purchase agreement with Dalton Adventures, LLC (the Seller), pursuant to which we agreed to acquire the assets of the Seller and which constitutes the business of SevenFive Farm, a cultivation facility in Boulder, Colorado.

The purchase price to be paid for the assets is equal to 1.4 times the Sellers gross revenue for the 12-month period prior to the closing;

provided that the purchase price will not be lower than $3,000,000.

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 our shares for 30 consecutive trading days ending on the second trading day prior to the closing (the VWAP);

provided that if the VWAP exceeds $0.85 per share, then the VWAP will equal $0.85 per share for purposes of the forgoing calculation.

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

The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, which was received on May 13, 2020, as well as other customary closing conditions.

On February 18, 2020, we entered into a promissory note exchange agreement (the Exchange Agreement) 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.

In February and March 2020, we issued and sold unsecured promissory notes (the Unsecured Notes) with an aggregate principal amount of $2,031,000 to certain investors in exchange for $525,000 of new funding and the cancellation of outstanding indebtedness of $1,506,000 represented by prior promissory notes issued by us in September 2019.

The Unsecured Notes have an annual interest rate of 15% and mature on January 31, 2021 and March 1, 2021.

Interest is due on a quarterly basis.

In connection with the issuance of the Unsecured notes, each holder of Unsecured 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.

On March 20, 2020 we sold our greenhouse office building located in Denver, Colorado, to certain individuals for a sale price of $1,499,000 and net proceeds of approximately $600,000.

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.

Convertible notes

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 merger and acquisition 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 paid $ 58,333 during the year ended December 31, 2020.

In addition, the Hershey Subscription Agreement between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP provides that the Company will during a 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.

All of the existing notes were not amended to extend the maturity dates thereof, resulting in the Company issuing to the Hershey Investor 1,631,000 additional warrants to purchase shares of common stock.

See Note 17, “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, Colorado for $ 33,680 a month, of which $ 30,000 is base rent and $ 3,680 is property taxes.

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

We incurred approximately $ 286,000 of rent expense for the year ended 2020.

On December 23, 2020, all five board members of the Company purchased senior convertible promissory notes from the Company for an aggregate amount of $ 340,000 .

These notes are included in the 10 % Notes discussed in Note 13.

Accrued interest earned and owed to the board members was $ 1,000 as of December 31, 2020.

We had a note payable to a former board member who resigned in September 2020 in the amount of $ 100,000 .

This note is included in the 15 % Notes discussed in Note 13.

We have paid approximately $ 15,000 in interest for the year ended December 31, 2020.

This note was paid in full in February 2021.

SEGMENT INFORMATION

Our operations are organized into two segments:

Operations Consulting and Products;

and Capital Investments and Real Estate.

Our operations are organized into three segments:

and 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 Companys internal organization and disclosure of revenue and certain expenses based upon internal accounting methods.

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.

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Year ended December 31

Rent and interest

Total Revenues

Costs and expenses

Rent and interest

Total Revenues

( 5,312,427 )

( 1,865,399 )

( 6,856,346 )

Segment operating (loss) income

Corporate expenses

( 7,882,516 )

Net loss from continuing operations

( 7,618,822 )

Costs and expenses

Investment in Desert Created

( 3,372,174 )

( 3,443,897 )

Segment operating income

Corporate expenses

( 14,030,707 )

Net loss from continuing operations

( 13,808,258 )

Total assets - segments

Intercompany eliminations

Total assets - consolidated

SUBSEQUENT EVENTS

On February 8, 2021, the Company, entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an accredited investor, pursuant to which the Company issued and sold convertible notes with an aggregate principal amount of $ 1,660,000 to such investor.

The notes are part of an over-allotment option exercised by the Company in connection with the convertible note offering consummated on December 23, 2020 and reported on a Current Report on Form 8-K filed on December 30, 2020.

In connection with the issuance of the notes, the holder received warrants to purchase shares of the Company’s common stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share.

In the aggregate, this equals 592,858 shares of the Company’s common stock with a par value $ 0.001 per share.

The notes will bear interest at an annual rate of 10 % and will mature on February 8, 2024.

The investor has the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the notes into common stock at a variable price of 80 % of the market price but no less than $ 0.65 per share and no more than $ 1.00 per share.

The warrants are exercisable at an exercise price of $ 0.56 per warrant, subject to adjustment as provided in the warrants, at any time prior to the earlier of the maturity date and an acquisition (as defined in the warrants).

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data