What changed in this filing

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Item 1. Financial Statements

2021-08-11 compared with 2021-05-17 · 222 added, 106 removed, 403 unchanged (45% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Cash and cash equivalents

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

Accounts receivable, net of allowance of $ 30,000 and $ 9,000 , respectively

Current portion of notes receivable, net of allowance of nil and $ 125,000 , respectively

Inventories, net

Prepaid expenses and other current assets

Assets of discontinued operations

Assets of discontinued operations - current portion

Total current assets

3 unchanged sentences

Intangible assets, net

Assets of discontinued operations

Liabilities and Stockholders' Equity

2 unchanged sentences

Interest payable

Customer deposits

Operating lease liability, current

4 unchanged sentences

Operating lease liability, non-current

Long-term notes payable

Long-term notes payable (net of discount)

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

4 unchanged sentences

5,000,000 shares authorized;

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

no shares issued and outstanding, respectively

Common stock, $ 0.001 par value;

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

200,000,000 shares authorized;

62,266,275 shares and 60,813,673 shares issued and outstanding , respectively

Additional paid-in capital

3 unchanged sentences

Total stockholders’ equity

Total liabilities & stockholders’ equity

Total liabilities and stockholders’ equity

See Notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended March 31,

Three months ended

Six months ended

Cultivation sales

Product sales

Total revenue

2 unchanged sentences

Selling, general and administrative

Stock-based compensation expense

Stock-based compensation

Professional fees

3 unchanged sentences

( 1,553,181 )

( 1,753,869 )

( 3,585,402 )

Other expenses (income)

2 unchanged sentences

Loss on extinguishment of debt

Loss (gain) on derivative liability

(Gain) loss on derivative liability

( 1,371,079 )

Other expense (income), net

(Gain) loss on sale of assets

Total other expenses, net

2 unchanged sentences

( 1,782,736 )

( 3,398,792 )

( 3,675,029 )

Loss from discontinued operations

2 unchanged sentences

( 1,900,372 )

( 3,735,321 )

( 3,914,551 )

Provision for income taxes

1 unchanged sentence

( 1,940,907 )

( 3,735,321 )

( 3,955,086 )

Deemed dividend

Net loss attributable to common stockholders

( 1,376,253 )

( 2,038,907 )

( 3,735,321 )

( 4,053,086 )

Per share data - basic and diluted

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended March 31,

Six months ended June 30,

Cash flows from operating activities

12 unchanged sentences

Stock-based compensation

Loss on discontinued operations

Gain on sale of building

3 unchanged sentences

Accounts payable and accrued liabilities

( 1,034,883 )

Operating lease liabilities

3 unchanged sentences

Cash flows from investing activities

Purchases of property and equipment

Purchase of property and equipment

Proceeds from sale of investment

Proceeds on notes receivable

Proceeds from sale of building

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Cash flows from financing activities

Proceeds from sale of common stock and warrants

Proceeds from the sale of common stock and warrants - accrued stock payable

Proceeds from the exercise of warrants

Proceeds from exercise of stock options

7 unchanged sentences

Cash paid for interest

Non-cash investing and financing activities

Non-cash investing & financing activities

Cashless warrant exercises

2 unchanged sentences

Issuance of common stock to a consultant

Deemed dividend from 8.5 % warrant repricing

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

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

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

Debt converted to equity

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.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ (DEFICIT) EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020

IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the three months ended June 30, 2021

Paid-in Capital

April 1, 2021

( 77,310,504 )

Common stock issued upon exercise of stock options

Warrants issued with 10 % Notes

Beneficial conversion feature

Stock-based compensation

( 1,376,253 )

June 30, 2021

( 78,686,757 )

For the three months ended June 30, 2020

Paid-in Capital

April 1, 2020

( 69,285,923 )

( 5,694,820 )

Common stock issued for acquisition of SevenFive Farm

Common stock issued upon conversion of debt

Stock-based compensation

Cashless exercise of warrants

( 1,940,907 )

June 30, 2020

( 71,226,830 )

( 3,769,385 )

For the six months ended June 30, 2021

Paid-in Capital

January 1, 2021

5 unchanged sentences

Cashless exercise of warrants

Stock options granted to employees and consultants

Stock-based compensation

( 3,735,321 )

March 31, 2021

June 30, 2021

( 78,686,757 )

For the six months ended June 30, 2020

Paid-in Capital

2 unchanged sentences

( 5,764,212 )

Warrants issued with the 15 % Notes

Common stock issued upon exercise of warrants

Common stock issued to an employee for services

Sale of common stock, net of issuance costs

Common stock issued upon conversion of debt

Expense in relation to beneficial conversion feature

Stock options granted to employees and consultants

Common stock issued for acquisition of SevenFive Farm

Stock-based compensation

Beneficial conversion feature

Warrants exercised

Warrants issued with the 15 % Notes

Cashless exercise of warrants

( 3,955,086 )

March 31, 2020

June 30, 2020

( 71,226,830 )

7 unchanged sentences

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”)

As of June 30, 2021, our operations are segregated into the following segments:

Cultivation (“Cultivation Segment”)

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 and six months ended June 30, 2021, 11 % of SevenFive’s revenue was with one customer.

Discontinued Operations - Operations Consulting and Products (“Operations Segment”)

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

During the three months ended March 31, 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.

3 unchanged sentences

NBC also provides operational support for our internal cultivation.

Cultivation (“Cultivation Segment”)

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.

In June 2021, we began talks with an individual to begin the sale of NBC.

On July 16, 2021, we entered into an Asset Purchase Agreement with this individual to sell substantially all of the assets of NBC for a total of $ 150,000 and 10 % of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing.

On August 2, 2021, the sale of NBC was completed.

Basis of Presentation

7 unchanged sentences

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

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

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

11 unchanged sentences

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.

In June 2021, we began talks with an individual to begin the sale of NBC.

On August 2, 2021, the sale of NBC was completed.

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.

As of June 30, 2021, and December 31, 2020, there are $ 5,251 and $ 5,551 , respectively, 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.

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.

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 Company incurred net losses of $ 1.4 million and $ 3.7 million in three and six months ended June 30, 2021, respectively, and $ 1.9 million and $ 4.0 million for the three and six months ended June 30 2020, respectively, and had an accumulated deficit of $ 78.7 million as of June 30, 2021.

The Company had cash and cash equivalents of $ 2.3 million and $ 0.8 million as of June 30, 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 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 believes that its cash and cash equivalents as of June 30, 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.

16 unchanged sentences

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 .

3 unchanged sentences

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

We completed the allocation of the purchase price in the first quarter of 2021.

The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:

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

1 unchanged sentence

Three months ended

Six months ended

Total revenues

6 unchanged sentences

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

In June 2021, we began talks with an individual to begin the sale of NBC.

On August 2, 2021, the sale of NBC was completed.

The condensed consolidated balance sheets include 2019 discontinued operations cash balances of $ 5,251 and $ 5,551 as of June 30, 2021 and December 31, 2020, respectively, and accounts payable balances of $ 53,128 and $ 54,641 as of June 30, 2021 and December 31, 2020, respectively.

The below table does not include the 2019 discontinued operations.

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

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

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

Balance as of December 31, 2020

Additional deposits received

Deposits recognized as revenue

Balance as of March 31, 2021

Current liabilities discontinued operations

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

Three months ended

Six months ended

Product revenues

Service revenues

Total revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Total costs and expenses

Loss from discontinued operations

The condensed consolidated statement of operations include 2019 discontinued operations gain of $ 5,233 and loss of $ 147,625 for the three and six months ended June 30, 2020, respectively, and are not reflected in the above table.

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 Operations Segment for the six months ended June 30, 2021 and 2020.

Six months ended

Accounts receivables

Prepaid expenses and other current assets

Depreciation and amortization

Capital expenditures

Accounts payable and accrued expenses

Customer deposits

INVENTORIES, NET

Our inventories consisted of the following:

Raw materials

Work-in-progress and finished goods

Inventory reserves

Total inventories

Inventories, net

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.

5 unchanged sentences

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.

As of June 30, 2021, the balance of the right-of-use asset and lease liability was $ 1,816,632 and $ 1,871,756 , respectively.

Future remaining minimum lease payments were as follows:

Year ending December 31,

2021 (remaining nine months)

2021 (remaining six months)

Present value adjustment

4 unchanged sentences

Balance as of December 31, 2020

Balance as of March 31, 2021

Balance as of June 30, 2021

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

19 unchanged sentences

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 recorded amortization of debt discount expense from the 10 % Notes of $ 21,630 and $ 0 for the three months ended June 30, 2021 and 2020, respectively, and $ 43,023 and nil during the six months ended June 30, 2021 and 2020, respectively.

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

7 unchanged sentences

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.

On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited 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.

2 unchanged sentences

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 % 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.

3 unchanged sentences

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.

We recorded amortization of debt discount expense from the 10 % Notes issued in February 2021 of $ 70,377 and nil for the three months ended June 30, 2021 and 2020, respectively, and $ 109,818 and nil during the six months ended June 30, 2021 and 2020, respectively.

The 10 % Notes are treated as conventional debt.

6 unchanged sentences

Expected volatility

On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10 % Investors, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 2,300,000 to such 10 % Investors.

The 10 % Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $ 4,600,000 consummated on December 23, 2020 and February 8, 2021.

In connection with the issuance of the 10 % Notes, each holder received warrants to purchase shares of our common stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5 % of the aggregate principal amount invested.

The 10 % Notes bear interest at an annual rate of 10 % and will mature on April 20, 2024.

The 10 % Investors have 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 $ 810,000 .

We determined that these 10 % Notes had a beneficial conversion feature and 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 $ 0.83 , 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 $ 692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations.

We recorded amortization of debt discount expense from the 10 % Notes issued in April 2021 of $ 100,949 for the three and six months ended June 30, 2021 and nil for the three and six months ended June 30, 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 April 20, 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.

$ 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 .

2 unchanged sentences

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.

Accordingly, the Company 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 $ 0.3983 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.

As of June 30, 2021, 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.

1 unchanged sentence

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

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

We recorded amortization of debt discount expense from the 15 % Notes of nil and $ 72,516 for the three months ended June 30, 2021 and 2020, respectively, and nil and $ 138,837 during the six months ended June 30, 2021 and 2020, respectively.

The 15 % Notes are otherwise treated as conventional debt.

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As a result, the exercise price of the 2019 Warrants decreased to $ 0.3983 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock.

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.

During the first quarter of 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 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.

As of June 30, 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

5 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 March 31,

Six months ended June 30,

Beginning balance

18 unchanged sentences

2020 Capital Raise

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”).

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

The sales of the securities to the 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.

2 unchanged sentences

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.

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, 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.

Notwithstanding the foregoing, none of the Hershey Investor 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.

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

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

We recorded $( 41,648 ) and $ 434,367 in compensation (income)/expense for the three months ended June 30, 2021 and 2020, respectively, and $ 62,284 and $ 926,698 , for the six months ended June 30, 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.

Forfeited options result in a reversal in the period forfeited.

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.

During the six months ended June 30, 2021 we granted options to purchase 983,000 common shares to employees and directors.

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

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Forfeited or expired

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 .

( 1,006,930 )

Outstanding as of June 30, 2021

Exercisable as of June 30, 2021

As of June 30, 2021, there was approximately $ 393,391 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of eleven months .

RELATED PARTY TRANSACTIONS

1 unchanged sentence

Hershey is paid an initial monthly rate of $ 8,333 for the services, subject to certain adjustments.

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

We paid $ 24,999 and $ 8,333 for the three months ended June 30, 2021 and 2020, respectively, and $ 49,998 and $ 8,333 for the six months ended June 30, 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 $ 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 .

We incurred approximately $ 115,000 and $ 81,000 for the three months ended June 30, 2021 and 2020, respectively, and $ 230,000 and $ 81,000 for the six months ended June 30, 2021 and 2020.

On December 23, 2020, our four current board members of the Company purchased senior convertible promissory notes from the Company for an aggregate amount of $ 320,000 .

A board member who resigned in May 2021 purchased $ 30,000 of the senior convertible promissory notes from the Company.

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.

Accrued interest earned and owed to the board members was $ 17,079 as of June 30, 2021.

SEGMENT INFORMATION

Our operations are organized into two segments:

Operations Consulting and Products and Cultivation.

Our operations are organized into one segment:

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

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The following information is presented net of discontinued operations.

Three months ended March 31

Three months ended June 30

Costs and expenses

Segment operating income

Corporate expenses

( 1,080,163 )

Net loss from continuing operations before income taxes

( 1,053,176 )

Segment operating income (loss)

Costs and expenses

Segment operating income

Corporate expenses

( 1,835,250 )

Net loss from continuing operations

Net loss from continuing operations before income taxes

( 1,782,736 )

Six months ended June 30

Total revenues

Costs and expenses

1 unchanged sentence

( 1,458,553 )

Segment operating income

Operating (loss) income

Corporate expenses

( 3,288,180 )

Net loss from continuing operations

Net loss from continuing operations before income taxes

( 3,398,792 )

Total revenues

Costs and expenses

Operating income

Corporate expenses

( 3,727,543 )

Net loss from continuing operations before income taxes

( 3,675,029 )

Discontinued operations

Total assets - segments

2 unchanged sentences

SUBSEQUENT EVENTS

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.

4 unchanged sentences

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 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.

1 unchanged sentence

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.

The Plans allow for the separate closing dates for the Assets depending on regulatory approval.

Therefore, the purchase price will be paid out pro-rata based on the closing dates of the Assets.

On July 16, 2021, the Company, entered into an Asset Purchase Agreement (the “NBC Agreement”) with NBC Holdings LLC and Richard Cardinal (“NBC Buyer”) pursuant to which the Company has agreed to sell substantially all of the assets in its cultivation consulting business known as Next Big Crop (“NBC”) to the NBC Buyer.

The Board of Directors approved the NBC Agreement in furtherance of its previously disclosed plan to identify and acquire licensed cannabis assets that will allow us to continue to generate cash and meet our financial commitments.

The purchase price for the sale consists of a payment by the NBC Buyer of $ 75,000 payable upon signing, an additional $ 75,000 payable within one year of the closing, and ten percent ( 10 %) of profits generated by the NBC Buyer in the states of Michigan, Mississippi and Massachusetts for a period of twelve months from the Closing.

As part of the NBC Agreement, the Company shall transfer the trade name associated with NBC to the NBC Buyer and discontinued its Operations Consulting and Products Segment.

Substantially all of the employees that performed services in NBC resigned from the Company as of the effective date of the NBC Agreement.

On August 2, 2021, the sale of NBC was completed.

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