What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-17 compared with 2020-11-12 · 221 added, 391 removed, 288 unchanged (68% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2020

March 31, 2021

December 31, 2020

1 unchanged sentence

Cash and cash equivalents

Accounts receivable, net of allowance of $ 137,000 and $ 111,000 as of September 30, 2020 and December 31, 2019, respectively

Current portion of notes receivable, net of allowance of $ 125,000 and $ 0 as of September 30, 2020 and December 31, 2019, respectively

Accounts receivable, net of allowance of $ 54,000 and $ 27,000 as of March 31, 2021 and December 31, 2020, respectively

Notes receivable, net of allowance of $ 41,608 and $ 125,000 as of March 31, 2021 and December 31, 2020, respectively

Inventories, net

2 unchanged sentences

Total current assets

Note receivable, net

Right-of-use operating lease asset

Property and equipment, net

Investment, held for sale

Intangible assets, net

Assets of discontinued operations

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Liabilities and Stockholders' Equity

Current liabilities

1 unchanged sentence

Interest payable

Income tax payable

Customer deposits

1 unchanged sentence

Accrued stock payable

Current portion of notes payable (net of discount)

Related party note payable (net of discount)

Warrant derivative liability

Stock put liability

Liabilities of discontinued operations

2 unchanged sentences

Long-term notes payable

Related party long-term note payable

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

Total liabilities

Commitments and contingencies (Note 9)

Stockholders’ deficit

Stockholders’ equity

Preferred stock, no par value;

5,000,000 shares authorized;

no shares issued and outstanding at September 30, 2020 and 2019

no shares issued and outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.001 par value;

100,000,000 shares authorized;

58,720,574 shares and 39,497,480 shares issued and outstanding on September 30, 2020 and December 31, 2019, respectively

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

62,146,515 shares and 60,813,673 shares issued and outstanding on March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

2 unchanged sentences

( 74,951,436 )

Total stockholders’ deficit

( 5,764,212 )

Total liabilities and stockholders’ deficit

Total stockholders’ equity

Total liabilities & stockholders’ equity

See Notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended

Nine months ended

September 30,

Three months ended March 31,

Cultivation sales

Product sales

Total revenues

Total revenue

Costs and expenses

7 unchanged sentences

( 2,001,249 )

( 1,853,163 )

( 5,183,114 )

( 6,779,391 )

OTHER EXPENSE/(INCOME)

Other expenses (income)

Amortization of debt discount and equity issuance costs

Interest expense

Debt extinguishment

Gain on derivative liability

( 1,076,264 )

( 2,447,343 )

Gain on sale of building

Total other (income) expense, net

NET LOSS FROM CONTINUING OPERATIONS

( 1,889,913 )

( 4,342,195 )

Loss on extinguishment of debt

Loss (gain) on derivative liability

( 1,375,620 )

Gain/(loss) from discontinued operations

Other expense (income), net

Total other expenses, net

Net loss from continuing operations before income taxes

( 2,359,068 )

LOSS BEFORE INCOME TAXES

( 1,861,321 )

Loss from discontinued operations

Loss from operations before income taxes

( 2,359,068 )

3 unchanged sentences

( 2,014,179 )

( 9,662,819 )

Deemed dividend

( 1,192,000 )

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

( 2,254,322 )

( 4,627,546 )

( 10,854,819 )

Per share data - basic and diluted

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended

September 30,

OPERATING ACTIVITIES

Three months ended March 31,

Cash flows from operating activities

( 2,359,068 )

4 unchanged sentences

Amortization of loan origination fees

Noncash lease expense

Loss on extinguishment of debt

Non-cash lease expense

Bad debt expense

Gain on warrant derivative liability

Loss on disposal of property and equipment

Loss (gain) on warrant derivative liability

( 1,375,620 )

Loss on extinguishment of debt

Gain on sale of building

Loss on disposal of assets

Stock-based compensation

Changes in operating assets and liabilities:

Loss on discontinued operations

Gain on sale of building

Changes in operating assets and liabilities, net of acquisitions

Accounts receivable

Prepaid expenses and other assets

Accounts payable and accrued liabilities

( 1,034,883 )

Operating lease liabilities

Accounts payable and other current liabilities

Net cash used in operating activities:

1 unchanged sentence

( 1,482,828 )

INVESTING ACTIVITIES

Purchase of property and equipment

Proceeds on sale of building

Lending on notes receivable

Net cash provided by (used in) investing activities

( 1,001,091 )

FINANCING ACTIVITIES

Cash flows from investing activities

Purchases of property and equipment

Proceeds from sale of investment

Proceeds from sale of building

Net cash (used in) provided by investing activities

Cash flows from financing activities

Proceeds from sale of common stock and warrants

Proceeds from the exercise of warrants

Proceeds from exercise of stock options

1 unchanged sentence

Payments on notes payable

( 5,743,000 )

Net cash provided by (used in) financing activities

( 1,794,875 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

( 7,325,278 )

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

2 unchanged sentences

Cash paid for interest

NON-CASH INVESTING & FINANCING ACTIVITIES

Deemed dividend from 8.5 % Warrants repricing

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

12 % Warrants recorded as a debt discount and loss on extinguishment of debt

Non-cash investing and financing activities

Cashless warrant exercises

Beneficial conversion feature

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

Issuance of common stock to a consultant

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

Debt converted to equity

Beneficial conversion feature

Cashless exercise

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

Issuance of common stock to an employee

Stock issued in connection with SevenFive Farm acquisition

See Notes to condensed consolidated financial statements.

2 unchanged sentences

IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

Paid-in Capital

June 30, 2020

( 71,226,830 )

( 3,769,385 )

Sale of common stock, net of issuance costs

Stock option granted to employees and consultants

September 30, 2020

( 71,801,290 )

Paid-in Capital

June 30, 2019

( 59,196,444 )

Warrants issued with the 12 % Notes

Common stock issued upon exercise of stock options

Stock options granted to employees and consultants

( 2,254,322 )

September 30, 2019

( 61,450,766 )

( 1,091,256 )

See Notes to condensed consolidated financial statements.

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

Paid-in Capital

1 unchanged sentence

( 74,951,436 )

( 5,764,212 )

Sale of common stock, net of issuance costs

Common stock issued upon conversion of debt

Common stock issued for acquisition of SevenFive Farm

Stock options granted to employees and consultants

Common stock issued to a consultant

Common stock issued upon exercise of stock options

Warrants issued with 10 % Notes

Beneficial conversion feature

Warrants exercised

Warrants issued with the 15 % Notes

Cashless exercise of warrants

Stock options granted to employees and consultants

( 2,359,068 )

September 30, 2020

March 31, 2021

( 77,310,504 )

2 unchanged sentences

( 67,271,744 )

Sale of common stock, net of issuance costs

( 5,764,212 )

Warrants issued with the 15 % Notes

Common stock issued for property and equipment

Common stock issued upon exercise of stock options

Common stock issued upon exercise of warrants

Common stock issued to an employee for services

Common stock issued upon conversion of debt

Expense in relation to beneficial conversion feature

Stock options granted to employees and consultants

1 unchanged sentence

( 2,014,179 )

September 30, 2019

March 31, 2020

( 69,285,923 )

5 unchanged sentences

Nature of Operations

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

We currently trade on the OTCQB® Venture Market.

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

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

We currently trade on the OTCQB® Market under the trading symbol CANN.

As of March 31, 2021, our operations are segregated into the following two segments:

Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.

During the three and nine months ended September 30, 2020, 60 % and 76 % of NBC’s revenue was with one and four customers, respectively.

During the three months ended March 31, 2021 and 2020, 69 % and 73 % of NBC’s revenue was with 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.

4 unchanged sentences

Cultivation (“Cultivation Segment”)

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

During the three and nine months ended September 30, 2020, 15 % and 27 % of SevenFive’s revenue was with one and two customers, respectively.

Capital Investments (“Investments Segment”)

As a publicly traded company, we believe that we have access to capital that may not be available to businesses operating in the cannabis industry.

Accordingly, we may provide debt or equity capital through investing in businesses using cash or shares of our common stock.

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

During the three months ended March 31, 2021, 18 % of SevenFive’s revenue was with one customer.

Basis of Presentation

5 unchanged sentences

The condensed consolidated balance sheet for the year ended December 31, 2020 was derived from audited financial statements but does not include all disclosures required by U.S.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2019 which were included in the annual report on Form 10-K/A filed by the Company on July 7, 2020.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2020 which were included in the annual report on Form 10-K filed by the Company on April 1, 2021.

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

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the operating results for the year ending December 31, 2020, or any other interim or future periods.

Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies except for inventories and goodwill and long-lived assets as disclosed below.

The results for the three months ended March 31, 2021 are not necessarily indicative of the operating results for the year ending December 31, 2021, or any other interim or future periods.

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

Reclassifications

9 unchanged sentences

These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Discontinued Operations

On December 26, 2019, the board of directors and management made the strategic decision to discontinue the operations for both the Security Segment and the Consumer Goods Segment.

The assets and liabilities classified as discontinued operations for the Security Segment and Consumer Goods Segment are presented separately in the balance sheet and the operating results.

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

As of March 31, 2021, and December 31, 2020, there are $ 5,401 and $ 5,551 of cash and cash equivalents included in asset of discontinued operations on the balance sheet.

On January 1, 2021 we discontinued our investments segment.

As this is not a materially significant segment, we have not shown the effects of the discontinued segment in the financial statements.

Going Concern

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

As of September 30, 2020, our cash balance of approximately $ 0.7 million is not sufficient to absorb our operating losses and repay our notes payable of $ 2.3 million, of which $ 1.7 million is short-term.

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

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

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

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

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

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

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

The Company incurred net losses of $ 2.4 million and $ 2.0 million in three months ended March 31, 2021 and 2020, respectively, and had an accumulated deficit of $ 77.3 million as of March 31, 2021.

The Company had cash, cash equivalents, and short-term and long-term investments of $ 0.8 million and $ 1.0 million as of March 31, 2021 and December 31, 2020, 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 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 investments as of March 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q due to the receipt of an additional $ 2.3 million of cash in April 2021 from the issuance of a convertible note offering and the pending acquisition of three dispensaries (See Note 13 for further information).

The Company may 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.

Summary of Significant Accounting Policies

See our Annual Report on Form 10-K for the year ended December 31, 2019, as amended, for discussion of the Company's significant accounting policies.

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, noting none for the period ended September 30, 2020.

Goodwill and Long-Lived Assets

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 assets annually in April, unless an event occurs that would cause the 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.

See our Annual Report on Form 10-K for the year ended December 31, 2020, for discussion of the Company's significant accounting policies.

Recently Issued Accounting Standards

6 unchanged sentences

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

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

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

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

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

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

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

We adopted this ASU in the first quarter of 2021.

This ASU did not have a material effect on our condensed consolidated financial statements.

BUSINESS ACQUISITION

On May 13, 2020, we received approval of the transaction and transfer of the Dalton Adventures, LLC (“Seller”) license from the Colorado Marijuana Enforcement Division.

On May 25, 2020, we finalized the acquisition, pursuant to which we had acquired the assets of the Seller that constitute the business of SevenFive Farm, a cultivation facility in Boulder, Colorado, whereby we acquired fixed assets, inventory, a cultivation license and the tradename.

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.

1 unchanged sentence

federal and state securities laws and their resale may be made only pursuant to registration under the Securities Act or an available exemption from registration.

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

The closing price of General Cannabis’ common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 2,861,495 .

Dalton Adventures, LLC may require us to repurchase in cash 25 % of the shares issued to the owner of Dalton Adventures, LLC for a period up to one year or May 25, 2021, at a repurchase price equal to the same volume weighted average price used to determine the number of shares issued to the owner of Dalton Adventures, LLC at closing.

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

The Company has recorded a stock put liability for the possibility of the buyback of these shares in the amount of $ 958,114 .

We have not completed the allocation of the purchase price.

As of September 30, 2020, the condensed consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets and goodwill.

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

The preliminary purchase price allocation is as follows:

Cultivation license

The accompanying consolidated financial statements include the results of SevenFive from the date of acquisition for financial reporting purposes, May 13, 2020.

The 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.

As March 31, 2021, we have completed the allocation of the purchase price.

As of March 31, 2021, the condensed consolidated balance sheet includes an allocation of fixed assets, inventory, intangible assets and goodwill.

The purchase price allocation is as follows:

Customer relationships

The accompanying condensed consolidated financial statements include the results of SevenFive from the date of acquisition for financial reporting purposes, May 13, 2020.

The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Three months ended

Nine months ended

September 30,

Total revenues

2 unchanged sentences

( 1,814,318 )

( 10,243,814 )

Net loss per common share:

Weighted average number of basic and diluted common shares outstanding

The unaudited pro-forma results of operations are presented for information purposes only.

The unaudited proforma results of operations are presented for information purposes only.

The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.

DISCONTINUED OPERATIONS

Security Segment

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

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

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

The assets and liabilities for the Security Segment are presented in the balance sheet as of September 30, 2020 and December 31, 2019 as discontinued operations and the operating results for the three and nine months ended September 30, 2020 and 2019 are presented as gain (loss) from discontinued operations.

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

September 30,

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Property and equipment, net

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

CUSTOMER DEPOSITS

Current liabilities discontinued operations

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

Three months ended

Nine months ended

September 30,

Service revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Total (income) expenses

OPERATING INCOME (LOSS)

Interest expense, net

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

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

The following table provides selected information on cash flows related to discontinued operations for the Security Segment for the nine months ended September 30, 2020 and 2019.

Nine months ended

September 30,

Prepaids and other

Depreciation and amortization

Capital expenditures

Accounts payable and accrued expenses

Customer deposits

Consumer Goods Segment

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

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

The assets and liabilities classified as discontinued operations for the Consumer Goods Segment are presented separately in the balance sheet as of September 30, 2020 and December 31, 2019 and the operating results for the three and nine months ended September 30, 2020 and 2019 are presented as gain (loss) from discontinued operations.

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

September 30,

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Right of use operating lease asset

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Operating lease liability, current

Current liabilities discontinued operations

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

Three months ended

Nine months ended

September 30,

Cost of service revenues

Cost of goods sold

Selling, general and administrative

Professional fees

Depreciation and amortization

Total (income) expenses

OPERATING INCOME (LOSS)

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

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

The following table provides selected information on cash flows related to discontinued operations for the Consumer Goods Segment for the nine months ended September 30, 2020 and 2019.

Nine months ended

September 30,

Prepaids and other

Depreciation and amortization

Capital expenditures

Accounts payable and accrued expenses

Customer deposits

CUSTOMER DEPOSITS

Our deferred revenue and customer deposit liability had the following activity:

2 unchanged sentences

Deposits recognized as revenue

( 3,253,616 )

Refunds to customers

Balance as of September 30, 2020

Balance as of March 31, 2021

INVENTORIES, NET

Our inventories consisted of the following:

September 30,

Raw materials

Work-in-progress and finished goods

2 unchanged sentences

On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 11) for 17,000 square feet of greenhouse space in Boulder, CO, with an initial term of five years and, at our option, two additional terms of five years each.

Rent is $ 30,000 per month with 1.5 % annual escalations, as well as our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 12 % over a 15 year term, our incremental borrowing rate based on outstanding debt, resulting in an initial right-of-use asset and lease liability of $ 2,721,069 which are being applied ratably over the term of the lease.

As of September 30, 2020, the balance of the right-of-use asset and lease liability was $ 2,678,151 and $ 2,694,134 , respectively.

Rent is $ 30,900 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 March 31, 2021, the balance of the right-of-use asset and lease liability was $ 1,826,523 and $ 1,870,897 , respectively.

Future remaining minimum lease payments were as follows:

Year ending December 31,

2020 (remaining three months)

2021 (remaining nine months)

Present value adjustment

4 unchanged sentences

Balance as of December 31, 2020

Employee stock award accrual

Consultant stock award

Investor stock award accrual

( 2,285,000 )

( 5,520,283 )

Balance as of September 30, 2020

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

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

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

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

During the second quarter of 2020, 5,485,814 shares of common

stock were granted.

As of September 30, 2020, all of the stock was issued .

See Note 11 for further details of the stock transaction.

Balance as of March 31, 2021

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 were included in accrued stock.

During January 2021 all shares were issued.

See Note 7 for further details of the cashless exercises.

NOTES PAYABLE

Our notes payable consisted of the following:

September 30,

2020 10% Notes

2 unchanged sentences

Unamortized debt discount

Current portion

( 1,029,965 )

( 2,330,351 )

Current portion

Long-term portion

In July 2019, we completed an $ 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 Company’s common stock market price (“Conversion Price”);

provided that the Conversion Price shall in no event be less than $ 0.45 per share.

If at any time, the borrower issues or sells any shares of common stock for a consideration per share less than the Conversion Price in effect on the date of such issuance, the holder shall have the right to utilize the price per share of the dilutive issuance as the Conversion Price for such conversion.

On May 29, 2020, we issued shares at $ 0.40 per share, and as such, the Conversion Price was decreased to a floor of $ 0.40 per share.

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

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

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

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

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 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 10 % 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 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 three months ended March 31, 2021 and 2020, amortization of debt discount expense was $ 21,393 and $ 0 , respectively, from the 10 % Notes issued in December 2020.

We determined there was no beneficial conversion feature on the 10 % Notes issued in December 2020.

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 23, 2020, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited a 10 % Investor, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 1,660,000 to such 10 % Investor.

The 10 % Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above.

In connection with the issuance of the 10 % Notes, the holder received 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 592,858 shares of our common stock with a par value $ 0.001 per share.

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

The 10 % Investor has the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 10 % 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 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 $ 429,300 .

We determined that this 10 % Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $ 0.66 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 $ 0.90 , multiplied by the number of shares into which the debt is convertible).

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

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

As of September 30, 2020, SBI had converted $ 934,000 aggregate principal amount of the Convertible Note and approximately $ 23,000 of accrued interest into 2,215,892 shares of our common stock.

In December 2019, we completed a private placement with certain accredited investors pursuant to an unsecured promissory note (the "

15 % Notes") with an aggregate principal amount of $ 300,000 .

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

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

We recorded $ 417,539 as additional paid in capital and a debt discount and included in our consolidated statement of operations.

For the three months ended March 31, 2021 and 2020, amortization of debt discount expense was $ 28,531 and $ 0 , respectively, from the 10 % Notes issued in February 2021.

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 February 8, 2021, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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 matured 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 three months ended March 31, 2021.

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

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

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

15 % Warrants").

The 2020 A Warrants had 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 September 30, 2020, the Company has issued 15 % Warrants to purchase a total of 6,993,000 shares of common stock to the holders of 15 % Notes.

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.

The exercise price of these warrants is subject to adjustment as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise price of the 15 % Warrants.

As a result of such subsequent issuances of securities by the Company during the second quarter of 2020, the exercise price of the 15 % Warrants had decreased to $ 0.40 per share, resulting in a $ 98,000 deemed dividend as of September 30, 2020.

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

As a result of such subsequent issuances of securities by the Company during the second quarter of 2020, the exercise price of the 15 % Warrants had decreased to $ 0.3983 per share.

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

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

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

For the three months ended September 30, 2020, amortization of debt discount expense was $ 61,002 , from the 15 % Notes.

For the nine months ended September 30, 2020, amortization of debt discount expense was $ 199,839 , from the 15 % notes.

For the three months ended March 31, 2021 and 2020, amortization of debt discount expense was $ 0 and $ 69,159 , respectively, from the 15 % Notes.

The 15 % Notes are otherwise treated as conventional debt.

In May 2020, three of the note holders agreed to extend the terms of $ 600,000 of their notes to a new maturity date of January 31, 2022.

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

In addition, if the majority of the note holders extend the maturity date to January 31, 2022, then the expiration dates for the note holders warrants will each be extended by one year .

If the majority of the note holders do not extend, the expiration date for the warrants for the note holders that did extend will be changed to December 31, 2023.

Further, the subscription agreement as amended (“Hershey Subscription Agreement”) between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP (the “Hershey Investor”) provides that the Company shall, during a negotiation period ending October 4, 2020 (“Negotiation Period”) endeavor to cause the existing holders of such promissory notes to extend the maturity date of such notes to a date that is not earlier than January 31, 2022.

If all of the existing notes have not been amended to extend the maturity dates thereof, then, in the absence of a waiver from the Hershey Investor to the contrary, the Company shall issue to the Hershey Investor additional warrants to purchase shares of common stock.

As of the filing date of this Quarterly Report on Form 10-Q, the Hershey Investor and the Company are still in negotiations to extend the Negotiation Period and no warrants have been issued.

See Note 11, “2020 Capital Raise”.

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

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

Current stock price

$ 0.45 - 0.67

Exercise price

13 unchanged sentences

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 second quarter of 2020, one of the warrants holders exercised 2,137,726 warrants into 373,340 shares of our common stock through cashless exercises.

During the three months ended March 31, 2021 the warrant holders exercised 1,323,000 warrants into 747,208 shares of our common stock through cashless exercise.

We booked an adjustment to the derivative liability of $ 1,523,117 as a result.

During the three and nine months ended September 30, 2020, we recognized a $ 1,076,264 gain and a $ 2,447,343 gain, respectively, in the consolidated statements of operations.

During the three and nine months ended September 30, 2019, we recognized a $ 420,840 gain and an $ 822,702 gain, respectively, in the consolidated statements of operations.

As of September 30, 2020, there were 7,453,888 of the 2019 Warrants outstanding.

During the three months ended March 31, 2021 and 2020, we recognized a $ 1,198,744 loss on the fair value of derivative liability and $ 1,375,620 gain on the fair value of derivative liability, respectively, in the condensed consolidated statements of operations.

As of March 31, 2021, there were 322,807 of the 2019 Warrants outstanding.

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

September 30, 2020

Number of shares underlying the warrants

4 unchanged sentences

The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:

Three months ended September 30,

Nine months ended September 30,

Three months ended March 31,

Beginning balance

Recognition of warrant derivative liability on May 31, 2019

Warrant exercise

Change in fair value of warrants derivative liability

( 1,539,981 )

Change in fair value of warrants derivative liability

( 1,375,619 )

10 unchanged sentences

Feinsod alleging a "Good Reason"

During the nine months ended September 30, 2020, two investors who participated in the private placement of certain Company notes and warrants asked for the return of their outstanding investments of $ 145,000 , citing certain alleged breaches of the non-payment related terms of the investment documents.

On October 14, 2020, the Company resolved this with the investors and continues to service the remaining balance on the notes in a timely manner.

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

The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition or cash flows.

STOCKHOLDERS’ EQUITY

5 unchanged sentences

The warrants have a term of five years .

During the three months ended September 30, 2020, we sold $ 815,000 of the securities to the Hershey Investor, representing 2,046,196 shares of common stock and

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

During the nine months ended September 30, 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 a purchase price of $ 0.56 per share.

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.

Notwithstanding the foregoing, none of the Hershey warrants are exercisable if after giving effect to such exercise the Hershey Investor (together with affiliates) would own in excess of 9.99 % (“Beneficial Ownership Limitation”) of the shares of issued and outstanding Common Stock of the Company.

The Beneficial Ownership Limitation may be increased by the Hershey Investor upon not less than 61 days ’ prior notice.

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

If, at the end of the Negotiation Period, 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.

As of October 4, 2020, $ 600,000 of the $ 2,331,000 outstanding notes had 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.

As of September 30, 2020, the Company has not issued warrants under the Hershey Subscription Agreement.

As of the filing date of this Quarterly Report on Form 10-Q, Adam Hershey, a director of the Company and the principal of the Hershey Investor, and the Company are still in negotiations to extend the Negotiation Period and no warrants have been issued.

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 as of September 30, 2020 and is recorded as a gain/loss on warrant derivative liability on the condensed consolidated statement of operations.

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

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

Of the gross proceeds, we recorded $ 2,416,422 as a warrant derivative liability, as discussed in Note 9.

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 .

Stock-based compensation

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

We recorded $ 420,990 and $ 768,079 in compensation expense for the three months ended September 30, 2020 and 2019, respectively, and $ 1,427,931 and $ 3,013,042 , for the nine months ended September 30, 2020 and 2019, respectively.

We recorded $ 103,932 and $ 572,574 in compensation expense for the three months ended March 31, 2021 and 2020, respectively.

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

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

During the quarter ended March 31, 2021 we granted options to purchase 895,500 common shares to employees and directors.

The options expire five years from the date of grant and vest over a period of one year .

Fair value of the awards at the date of grants totaled $ 561,237 .

The following summarizes Employee Awards activity:

2 unchanged sentences

Intrinsic Value

Outstanding at December 31, 2019

Outstanding as of December 31, 2020

Forfeited or expired

( 3,189,161 )

Outstanding at September 30, 2020

Exercisable at September 30, 2020

As of September 30, 2020, there was approximately $ 115,866 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of fifteen months .

Outstanding as of March 31, 2021

Exercisable as of March 31, 2021

As of March 31, 2021, there was approximately $ 803,599 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of thirteen months .

RELATED PARTY TRANSACTIONS

On June 3, 2020, the Company entered into a consulting agreement with Adam Hershey, a board member and investor, pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of merger and acquisition deals, strategic capital and strategic partnerships or joint ventures.

On June 3, 2020, the Company entered into a consulting agreement with Adam Hershey, Interim Chief Executive Officer, 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 $ 24,999 and $ 33,332 for the three and nine months ended September 30, 2020, respectively.

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.

If, at the end of such Negotiation Period, all of the existing notes have not been amended to extend the maturity dates thereof, then, in the absence of a waiver from the Hershey Investor to the contrary, the Company will issue to the Hershey Investor additional warrants to purchase shares of common stock.

See Note 11, “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.

We paid $ 24,999 and nil for the three months ended March 31, 2021 and 2020, respectively.

We currently have a lease agreement with Dalton Adventures, LLC in which we rent 17,000 square feet of greenhouse space in Boulder, Colorado for $ 34,636 a month, of which $ 30,900 is base rent and $ 3,736 is property taxes.

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

We incurred approximately $ 101,000 and $ 182,000 for the three and nine months ended September 30, 2020, respectively.

We currently have 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 8.

We have paid approximately $ 4,000 and $ 8,000 in interest for the three and nine months ended September 30, 2020, respectively.

We incurred approximately $ 115,000 and nil for the three months ended March 31, 2021 and 2020, respectively.

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 7.

Accrued interest earned and owed to the board members was $ 9,500 as of March 31, 2021.

SEGMENT INFORMATION

Our operations are organized into three segments:

Operations Consulting and Products;

and Capital Investments.

Our operations are organized into two segments:

Operations Consulting and Products and Cultivation.

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

3 unchanged sentences

The following information is presented net of discontinued operations.

For more information regarding discontinued operations see Note 3.

Three months ended September 30

Total revenues

Costs and expenses

( 1,514,850 )

Operating (loss) income

Corporate expenses

Net loss from continuing operations

Total revenues

Costs and expenses

Operating income

Corporate expenses

( 1,968,000 )

Net loss from continuing operations

( 1,889,913 )

Nine months ended September 30

Total revenues

Three months ended March 31

Costs and expenses

1 unchanged sentence

( 1,784,569 )

( 4,977,113 )

Operating (loss) income

Segment operating income (loss)

Corporate expenses

2 unchanged sentences

( 2,359,068 )

Total revenues

Costs and expenses

1 unchanged sentence

( 1,616,487 )

Operating income

Segment operating income

Corporate expenses

2 unchanged sentences

( 1,861,321 )

September 30,

Total assets - segments

Intercompany eliminations

Total assets - consolidated

SUBSEQUENT EVENTS

The Company has not issued warrants to Hershey Strategic Capital, LP and Shore Ventures III, LP under the Hershey Subscription Agreement entered into by the Company and the Hershey Investor on May 29, 2020.

As of the filing date of this Quarterly Report on Form 10-Q, Adam Hershey, a director of the Company and the principal of the Hershey Investor, is still in negotiations with the Company to extend the Negotiation Period.

Subsequent to September 30, 2020, two of the warrant holders in the 2019 Capital Raise (See Note 9) exercised 3,500,000 warrants into 1,118,355 shares of our common stock through cashless exercises.

As of the filing date of this Quarterly Report on Form 10-Q, there are 3,953,888 warrants related to the 2019 Capital Raise outstanding.

On April 20, 2021, the Company completed an offering with accredited investors and issued and sold convertible notes with an aggregate principal amount of $ 2.3 million.

The notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering (and previous over-allotment) of $ 4.6 million consummated on December 23, 2020 and February 8, 2021.

On April 18, 2021, the Company, entered into an Agreement and Plan of Reorganization and Liquidation among the Company, Trees Acquisition Corp., a newly-formed indirect wholly-owned subsidiary of the Company (“Trees Acquisition”), and TDM, LLC and Station 2, LLC (“Colorado Sellers”), as well as a separate Agreement and Plan of Reorganization and Liquidation among the Company, Trees Acquisition, and Trees Waterfront, LLC, Trees MLK Inc.

and Trees Portland, LLC (“Oregon Sellers” and collectively with the Colorado Sellers, the “Sellers”) (collectively, the “Plans”).

The transaction will provide the Company with a foundational retail platform from which to expand growth.

Pursuant to the Plans, the Company has agreed to purchase substantially all of the assets of each of the Colorado Sellers and Oregon Sellers (“Assets”).

The Assets to be transferred to the Company by each of the Colorado Sellers and Oregon Sellers principally consist of the cannabis business licenses, inventory and intellectual property related to the Sellers’ cannabis dispensaries located in Englewood and Denver, Colorado and Portland, Oregon together with substantially all related assets.

The Company is not assuming any liabilities of any of the Sellers.

The Plan provides that the transaction qualifies as a tax-free reorganization pursuant to Section 368 of the Internal Revenue Code.

The purchase price for the transaction consists of a cash payment of $ 2 million at closing and an additional $ 3 million in cash payable in equal monthly amounts of $ 125,000 for a period of 24 months from the closing.

In addition, at the closing, the Company will issue to the Sellers 38,745,193 shares of the Company’s common stock.

Closing of the transaction is subject to standard closing conditions, including regulatory approval of the transfer of the cannabis licenses by the applicable Colorado and Oregon cannabis regulatory authorities.

On May 6, 2021, Steven Gutterman resigned as the Company’s Chief Executive Officer.

Gutterman also resigned from the Company’s Board of Directors on the same date.

Gutterman has indicated that he has no disagreement with the Company regarding any matter relating to the Company’s operations, policies or practices.

Effective May 7, 2021, Adam Hershey was appointed the Company’s Interim Chief Executive Officer.

Hershey, a current Board member, will continue to serve on the Board.

Hershey’s compensation pursuant to his Consulting Agreement dated June 3, 2020 remains unchanged.

Hershey will not receive any additional compensation in connection with his new role as Interim Chief Executive Officer.

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

What changed 10-Q

Item 1. Financial Statements