What changed in this filing

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Item 1. Financial Statements

2021-11-12 compared with 2021-08-11 · 176 added, 109 removed, 516 unchanged (36% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2021

September 30, 2021

December 31, 2020

2 unchanged sentences

Accounts receivable, net of allowance of $ 35,000 and $ 9,000 , respectively

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

Current portion of notes receivable, net of allowance of $ 2,000 and $ 125,000 , respectively

Inventories, net

14 unchanged sentences

Warrant derivative liability

Notes payable - current

Liabilities of discontinued operations

1 unchanged sentence

Operating lease liability, non-current

Long-term notes payable (net of discount)

Notes payable - long term (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, respectively

1,180 and nil issued and outstanding , respectively

Common stock, $ 0.001 par value;

11 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Cultivation sales

17 unchanged sentences

( 1,076,264 )

(Gain) loss on sale of assets

Total other expenses, net

Net loss from continuing operations before income taxes

( 2,447,343 )

Gain on sale of assets

Total other expenses (income), net

Net loss from continuing operations before income taxes

( 1,286,990 )

6 unchanged sentences

( 4,420,815 )

( 3,914,551 )

Provision for income taxes

2 unchanged sentences

( 4,529,546 )

( 3,955,086 )

Deemed dividend

3 unchanged sentences

( 4,627,546 )

( 4,053,086 )

Per share data - basic and diluted

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities

25 unchanged sentences

Proceeds on notes receivable

Acquisition of Trees Colorado LLC

( 1,122,015 )

Net proceeds from sale of Next Big Crop

Proceeds from sale of building

Net cash provided by investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities

2 unchanged sentences

Proceeds from exercise of stock options

Proceeds from preferred stock offering

Proceeds from notes payable

11 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

Deemed dividend from 8.5 % warrant repricing

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

7 unchanged sentences

IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the three months ended June 30, 2021

For the three months ended September 30, 2021

Preferred Stock

Paid-in Capital

April 1, 2021

( 78,686,757 )

Common stock issued upon exercise of stock options

Warrants issued with 10 % Notes

Beneficial conversion feature

Common stock issued to a consultant

Common stock issued for acquisition of Trees Colorado LLC

Preferred shares issued

Warrants issued with preferred stock

Modification of Warrants

Modification of Options

Stock-based compensation

1 unchanged sentence

( 1,327,595 )

June 30, 2021

September 30, 2021

( 80,014,352 )

For the three months ended June 30, 2020

For the three months ended September 30, 2020

Preferred Stock

Paid-in Capital

April 1, 2020

( 71,226,830 )

( 3,769,385 )

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 )

Sale of common stock, net of issuance costs

Stock option granted to employees and consultants

September 30, 2020

( 71,801,290 )

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Preferred Stock

Paid-in Capital

1 unchanged sentence

( 74,951,436 )

Common stock issued to a consultant

Common stock issued to consultants

Common stock issued upon exercise of stock options

Common stock issued for acquisition of Trees Colorado LLC

Warrants issued with 10 % Notes

2 unchanged sentences

Stock-based compensation

Preferred shares issued

Warrants issued with preferred stock

Modification of Warrants

Modification of Options

( 5,062,916 )

June 30, 2021

September 30, 2021

( 80,014,352 )

For the six months ended June 30, 2020

For the nine months ended September 30, 2020

Preferred Stock

Paid-in Capital

5 unchanged sentences

Common stock issued for acquisition of SevenFive Farm

Stock-based compensation

Stock options granted to employees and consultants

Beneficial conversion feature

4 unchanged sentences

( 4,529,546 )

June 30, 2020

( 71,226,830 )

September 30, 2020

( 71,801,290 )

6 unchanged sentences

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

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

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

Retail (“Retail Segment”)

Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, we operate a retail dispensary store in Englewood, Colorado.

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.

During the three and nine months ended September 30, 2021, 24 % and 12 % of SevenFive’s revenue was with two and one customers, respectively.

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.

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

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

There are generally multiple suppliers for the products we sell;

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

NBC also provides operational support for our internal cultivation.

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.

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

NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities.

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

NBC also provided operational support for our internal cultivation.

On July 16, 2021, we entered into an Asset Purchase Agreement with an 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.

8 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 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.

The results for the three and nine months ended September 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

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 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.

3 unchanged sentences

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

As of September 30, 2021, and December 31, 2020, there are $ 5,101 and $ 5,551 , respectively, of cash and cash equivalents included in assets of discontinued operations on the balance sheet.

Going Concern

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 Company incurred net losses of $ 1.3 million and $ 5.1 million in three and nine months ended September 30, 2021, respectively, and $ 0.6 million and $ 4.5 million for the three and nine months ended September 30, 2020, respectively, and had an accumulated deficit of $ 80 million as of September 30, 2021.

The Company had cash and cash equivalents of $ 2.5 million and $ 0.8 million as of September 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 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 believes that its cash and cash equivalents as of September 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, the receipt of an additional $ 1.2 million of cash in September 2021 from the issuance of preferred stock 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.

26 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

1 unchanged sentence

( 4,548,926 )

( 3,875,288 )

Net loss per common share:

2 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.

On September 2, 2021, General Cannabis Corp.

(the “Company”) completed the acquisition of substantially all of the assets of TREES Englewood, representing a portion of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021 by and among the Company, seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”).

The cash paid by the Company in connection with the Englewood Closing consisted of $ 1,155,256.09 and stock consideration of 22,380,310 shares of the Company’s Common Stock.

Further, cash equal to $ 1,732,884.14 will be paid to the seller in equal monthly installments over a period of 24 months from the Englewood Closing.

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 Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021.

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

Net income (loss) attributable to common stockholders

Net income (loss) per common share

Weighted average number of basic and diluted common shares outstanding

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

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 condensed consolidated balance sheets include 2019 discontinued operations cash balances of $ 5,101 and $ 5,551 as of September 30, 2021 and December 31, 2020, respectively, and accounts payable balances of $ 53,128 and $ 54,641 as of September 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:

September 30,

Accounts receivable, net

8 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Product revenues

7 unchanged sentences

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 condensed consolidated statement of operations include 2019 discontinued operations gain of $ 69,005 and loss of $ 78,620 for the three and nine months ended September 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

The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the nine months ended September 30, 2021 and 2020.

Nine months ended

September 30,

Accounts receivables

6 unchanged sentences

Our inventories consisted of the following:

September 30,

Raw materials

8 unchanged sentences

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

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 September 30, 2021, the balance of the right-of-use asset and lease liability was $ 1,806,784 and $ 1,872,659 , respectively.

On September 2, 2021, we entered into a commercial real estate lease with a related party (see Note 11) for retail space in Englewood, CO, with an initial term of five years and, at our option, two additional terms of three years each.

Rent is $ 10,000 per month with 3 % annual escalations during the initial term and 4 % annual escalations during the option term.

We also pay our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 11 year term, resulting in a right-of-use asset and lease liability of $ 602,140 which are being applied ratably over the term of the lease.

As of September 30, 2021, the balance of the right-of-use asset and lease liability was $ 590,270 and $ 592,140 , respectively.

Through the acquisition of Trees Englewood, we entered into a commercial real estate lease for office space in Denver, CO.

This office space is our new principal business office.

The lease has 15 months remaining.

Rent is $ 7,150 per month with a 3 % escalation beginning in November 2021.

We also pay our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 15 month term, resulting in a right-of-use asset and lease liability of $ 98,211 which are being applied ratably over the term of the lease.

As of September 30, 2021, the balance of the right-of-use asset and lease liability was $ 90,876 and $ 91,061 , respectively.

Future remaining minimum lease payments were as follows:

7 unchanged sentences

Balance as of December 31, 2020

Balance as of June 30, 2021

Balance as of September 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.

4 unchanged sentences

Our notes payable consisted of the following:

September 30,

2020 10% Notes

1 unchanged sentence

Related party note payable

Trees Acquisition Note

Unamortized debt discount

10 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 .

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 recorded amortization of debt discount expense from the 10 % Notes of $ 21,868 and nil for the three months ended September 30, 2021 and 2020, respectively, and $ 64,891 and nil during the nine months ended September 30, 2021 and 2020, respectively.

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

19 unchanged sentences

We recorded $ 417,539 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 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.

We recorded amortization of debt discount expense from the 10 % Notes issued in February 2021 of $ 71,150 and nil for the three months ended September 30, 2021 and 2020, respectively, and $ 180,968 and nil during the nine months ended September 30, 2021 and 2020, respectively.

The 10 % Notes are treated as conventional debt.

16 unchanged sentences

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.

We recorded amortization of debt discount expense from the 10 % Notes issued in April 2021 of $ 126,025 and nil for the three months ended September 30, 2021 and 2020, respectively, and $ 224,446 and nil during the nine months ended September 30, 2021 and 2020, respectively.

The 10 % Notes are treated as conventional debt.

17 unchanged sentences

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.

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.

As of September 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 .

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.

We recorded amortization of debt discount expense from the 15 % Notes of nil and $ 61,002 for the three months ended September 30, 2021 and 2020, respectively, and nil and $ 199,839 during the nine months ended September 30, 2021 and 2020, respectively.

The 15 % Notes are otherwise treated as conventional debt.

7 unchanged sentences

Expected volatility

On September 17, 2021 we entered into warrant amendments with certain ‘A’ and ‘B’ warrant holders from the 15% Notes.

Pursuant to the warrant amendment the expiration date was extended until December 31, 2024 and the exercise price thereof was increased to $1.00 per warrant share.

Warrant amendments were entered into with warrant holders representing an aggregate of 400,000 A warrants and 1,211,000 B warrants.

We recognized an additional expense of $233,374 in loss on extinguishment of debt as a result of the modification.

WARRANT DERIVATIVE LIABILITY

9 unchanged sentences

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

As of June 30, 2021, there were 322,807 of the 2019 Warrants outstanding.

As of September 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

September 30,

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:

Six months ended June 30,

Nine months ended September 30,

Beginning balance

5 unchanged sentences

COMMITMENTS AND CONTINGENCIES

In July 2021, the Company was served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”).

Plaintiff and the Company entered into a lease for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020.

Monthly lease payments were to be $ 12,866.66 .

In 2020, the Company made initial payments (first month’s rent and security deposit) of $ 39,633.32 ;

but subsequently did not take possession of the premises and has made no further payments in respect thereof, as a direct

result of the COVID-19 pandemic.

The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’

The Company has taken the position that its failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

The Company intends to vigorously defend this action and believes that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

Both parties have filed motions for summary judgment, and the parties are currently awaiting the decision of the court in respect thereof.

In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason"

10 unchanged sentences

STOCKHOLDERS’ EQUITY

2021 Preferred stock offering

On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $ 0.001 per share.

The total number of Units sold was 1,180 .

Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants.

The purchase price of each Unit was $ 1,000 , for an aggregate amount sold of $ 1,180,000 .

Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $ 5,000,000 .

The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021.

The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value pers share, and sets forth the rights, restrictions, preferences and privileges of the Series A Preferred, summarized as follows:

● Authorized Number of Shares – 5,000

● Voting Rights – None

● Dividends – 6 % per annum, ‘paid in kind’ in shares of Series A Preferred

● Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of common stock upon a minimum capital raise of $ 5,000,000 ;

sale, merger or business combination of the Company;

or the Company listing on an exchange

● Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption

The Preferred Warrants have a five year term and an exercise price per Preferred Warrant share of $ 1.05 .

The warrants contain an anti-dilution provision pursuant to which upon we do a future capital raise at less than $ 1.00 per shares, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $ 1,180,000 , for the issuance of 1,180 Series A Preferred, plus 354,000 warrants.

The warrants were valued using a Black Scholes model, at $ 117,131 and per the relative fair value allocation, $ 1,073,446 was allocated to the Series A proceeds.

2020 Capital Raise

21 unchanged sentences

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

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.

We recorded $ 131,836 and $ 420,990 in compensation expense for the three months ended September 30, 2021 and 2020, respectively, and $ 194,120 and $ 1,427,931 , for the nine months ended September 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.

1 unchanged sentence

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

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

On September 3, 2021 we modified two employees stock options in conjunction with revised employment agreements.

As a result of the modification, we recognized $21,525 in compensation expense for the three and nine months ended September 30, 2021 and 2020.

During the nine months ended September 30, 2021 we granted options to purchase 1,070,500 common shares to employees and directors.

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

7 unchanged sentences

( 1,902,800 )

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 .

Outstanding as of September 30, 2021

Exercisable as of September 30, 2021

As of September 30, 2021, there was approximately $ 241,412 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 $ 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 paid $ 24,999 for the three months ended September 30, 2021 and 2020, respectively, and $ 74,997 and $ 33,332 for the nine months ended September 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 $ 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 .

We incurred approximately $ 115,000 and $ 101,000 for the three months ended September 30, 2021 and 2020, respectively, and $ 344,000 and $ 182,000 for the nine months ended September 30, 2021 and 2020.

We currently have a lease agreement with Bellewood Holdings, LLC in which we rent retail space for the Trees Englewood retail store in Englewood, Colorado for $ 10,000 per month.

The owner of Bellewood Holdings, LLC is a principal shareholder and board member of the Company.

We incurred approximately $ 11,871 of rent expense for the three and nine months ended September 30, 2021.

On December 23, 2020, four of our current board members 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 $ 17,079 as of June 30, 2021.

Accrued interest earned and owed to the board members was $ 25,257 as of September 30, 2021.

SEGMENT INFORMATION

Our operations are organized into one segment:

Our operations are organized into two segments:

Retail 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.

Three months ended June 30

Three months ended September 30

Costs and expenses

( 1,747,568 )

Segment operating income

6 unchanged sentences

Corporate expenses

( 1,835,250 )

Net loss from continuing operations before income taxes

( 1,782,736 )

Six months ended June 30

Nine months ended September 30

Total revenues

9 unchanged sentences

Costs and expenses

( 1,025,507 )

Operating income

3 unchanged sentences

( 4,110,325 )

September 30,

Discontinued operations

3 unchanged sentences

SUBSEQUENT EVENTS

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.

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.

On November 1, 2021, we moved our principal corporate headquarters to the lease acquired through the Trees acquisition.

The new corporate address is 1901 S Navajo Street, Denver, Colorado, 80223.

(See Note 5 for information regarding the lease).

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