See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Six months Ended June 30, 2020 and 2019

Expressed in U.S. Dollars

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three months Ended June 30, 2020 and 2019

Expressed in U.S. Dollars

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF COMPREHENSIVE (LOSS) AND INCOMECASH FLOWS (UNAUDITED)

For the Three and Six Monthsmonths Ended June 30, 20192020 and 20182019

Expressed in U.S. Dollars

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Six months Ended June 30, 2019 and 2018

Expressed in U.S. Dollars

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

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS

For the Six months Ended June 30, 2019 and 2018

Expressed in U.S. Dollars

See accompanying notes to the financial statements

MEDICINE MAN TECHNOLOGIES, INC.

NOTES TO THEUNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

Organization and Nature of Operations

Business Description –Business Activity

Medicine Man Technologies Inc. (the "Company"“Company”) is aincorporated in Nevada corporation incorporated on March 20, 2014. On May 1, 2014, the Company entered into an exclusive technology license agreement with Medicine Man Denver, Inc., f/k/a Medicine Man Production Corporation, a Colorado corporation (“Medicine Man Denver”) whereby Medicine Man Denver granted it a license to use all of their proprietary processes they have developed, implemented and practiced at its cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future) (the “Medicine Man Denver License Agreement”).

The Company is acommenced its business on May 1, 2014 and generated revenues from consulting activities for prospective clients interested in entering the cannabis consulting company providing services related to cost-efficient cannabis cultivation technologies focusing on qualityindustry as well as safety, retail operationssponsoring seminars offered to the cannabis industry and other business endeavors related to its core competencies.

In 2019, due to the deliverychanges in Colorado law permitting outside investment, the Company made a strategic decision to move toward direct plant-touching operations. Following that decision by executive leadership, the Company issued binding term sheets to several Colorado acquisition targets across the value chain. It believes that these targets are high quality, and the Company’s successful acquisition of these potential targets would allow it to become one of the largest vertically integrated seed-to-sale operators in the United States cannabis related products,industry. These term sheets were announced in several Current Reports on Form 8-K during 2019. If successfully completed, the Company, post-transactions, will be able to offer retail, cultivation and other relatedextraction services. Management believes that the current company combined with the acquisition targets in its Colorado “roll-up” strategy will have the potential to create a vertically integrated company, which would further enjoy a competitive advantage operating in the Colorado market against incumbent operators. In addition to the contemplated business-integration benefits, management believes the sharing of best practices amongst the Company and the acquisition targets will allow for improved operations, revenue enhancements and increased profitability. Scale may also afford the ability to create an integrated back office system, providing a differentiated technology backbone to support the Company’s operations and enhance its overall management and operating capabilities. There can be no assurance that any of the proposed acquisitions will be consummated.

On April 20, 2020, the Company rebranded and conducts its business lines as describedunder the trade name, Schwazze. The corporate name of the Company continues to be Medicine Man Technologies, Inc. Effective April 21, 2020, the Company commenced trading under the OTC ticker symbol SHWZ.

On April 20, 2020 the Company completed its first acquisition of a Colorado plant touching entity, acquiring Mesa Organics, Ltd (“Mesa”) and its subsidiaries. These four entities include a Manufacturing Infusing Products (MIP) facility and four dispensaries. All are located in Southeastern Colorado. These acquisitions are included in our operating strategic vision outlined below.Products segment reporting.

During the quarters ending June 30, 20192020 and 2018,2019, the Company primarily used revenues from its operation supplemented by cash to fund its operations.

Cash and cash equivalents are carried at cost and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date. The Company had $4,347,495$5,418,317 and $321,788$11,853,627 classified as cash and cash equivalents as of June 30, 2019,2020, and December 31, 2018,2019, respectively. The Company anticipates it will need additional funds for the Star Buds acquisition and working capital and are exploring capital raising transactions in the form of equity and debt.

The Company maintains its cash balances with a high-credit-quality financial institution.institutions. At times, such cash may be more than the insured limit of $250,000. As of June 30, 2020 and December 31, 2019 respectively, the cash balance was $5,168,317 and $486,101 over the insured limit. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents.

In an effort to mitigate credit risk, the Company may purchase highly liquid investments with an original maturity of three months or less. On June 25, 2019, the Company purchased a United States Treasury Bill that matures on July 23, 2019 and bears interest at 2.06%.

The following table depicts the composition of the Company’s cash and cash equivalents as of June 30, 2019,2020, and December 31, 2018:2019:

The Company has recently elected to accelerate its organic growth path through additional marketing, team development, synergistic acquisitions, and other corporate activities wherein it expects to generate negative cash flow and an additional demand for capital to fuel such growth.

The Company has commenced legal action against a client for breach of contract, adding a significant value to its receivables for fees that had been booked due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly (see Note 17 – Subsequent Events and Part II, Item 1, Legal Proceedings for more information).

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2019 and 2018, as presented in the Company’s Annual Report on Form 10-K filed on March 30, 2020 with the SEC.

Basis of Presentation

These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission for financial statements.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments include cash, accounts receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at June 30, 20192020 and December 31, 2018,2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

Non-MarketableMarketable Securities at Fair Value on a NonrecurringRecurring Basis

Certain assets are measured at fair value on a nonrecurringrecurring basis. The level 3 position consist of investments accounted for under the cost method. The Level 31 position consists of investmentsan investment in equity securities held in private companies.Canada House Wellness Group, Inc. (CHV), a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange. At both June 30, 2020 and December 31, 2019, the Company owned 17,650,540 shares of CHV common stock. The closing share price of CHV’s common stock on June 30, 2020 was CAD$0.040 per share.

UseFair Value of EstimatesFinancial Instruments

The preparationcarrying amounts of financial statementscash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in conformitynature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with U.S. GAAP requires management to make estimates andprecision. Changes in assumptions thatcould significantly affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. Available-for-sale securities are recorded at current market value as of the date of this report.

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to licensing and consulting revenues are recorded at the time the milestone result in the funds being due being achieved, services are delivered, and payment is reasonably assured. Licensing and consulting revenues are generally collected from 30 to 60 days after the invoice is sent.

The following table depicts the composition of our accounts receivable as of June 30, 2019,2020, and December 31, 2018:2019:

The Company commenced legal action againstestablishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a customer for breach of contract, adding a significant value into its receivables for fees that had been booked due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly.specific allowance will be required. At June 30, 20192020 and December 31, 2018, the accounts receivable for this matter totaled $1,281,511, and the revenue earned, all during the year ended December 31, 2018, was $1,518,099. Further, the Company provided services to this Client for a period of thirteen months, agreeing conditionally to three modifications in December of 2017, March of 2018, and May of 2018 to forego certain revenue sharing payments in accordance with the agreement with the Client, which the Client subsequently violated. In July 2018, the Company engaged legal counsel in Clark County Nevada to pursue the default and collect the payments due the Company pursuant to the terms of the agreement with the Client. (See Note 17 – Subsequent Events and Part II, Item 1, Legal Proceedings for more information).

On March 22, 2019, the Company entered into an Agreement of Sale of Future Receipts (“Factoring Agreement”) with Libertas Funding, LLC (“Purchaser”). Under the terms of the Factoring Agreement, the Purchaser acquired $810,000 of certain future receivables from the Company for $582,000 in net proceeds. The Company is required to repay Purchaser $24,107 weekly for an estimated term of eight months.

Due to the low volume of write offs, the Company uses the direct write off method versus havingrecorded an allowance for uncollectible debts. The Company did not write off anydoubtful accounts of its accounts receivable in either of$41,796 and $70,885, respectively. During the six-month periods endingsix months ended June 30, 2020 and June 30, 2019, or 2018.the Company recorded a bad debt expense of $29,089 and $0, respectively.

Notes Receivable

On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (AMC), a wholly-ownedwholly owned subsidiary of publicly-tradedpublicly traded Canada House Wellness Group, Inc. (CHV). The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The lending facilities shall bear an initial interest rate at 5.50% (representing United States Prime) and carryfacility is for a term of 2436 months unless otherwise amended by both parties.

and bears interest at a rate of 2%. As of June 30, 20192020 and December 31, 2018,2019, the Company loaned tooutstanding balance, including accrued interest, on the notes receivable with AMC a total of $237,246totaled $292,101 and $92,888,$241,711, respectively. The Company classified these loans as long-termnoncurrent notes receivable on its consolidated balance sheets as of June 30, 2019,2020 and December 31, 2018,2019, respectively.

Other Assets (Current and Non-Current)

Other assets at June 30, 2019,2020 and December 31, 20182019 were $200,103$463,879 and $50,824, respectively and as$529,416, respectively. As of June 30, 20192020, this balance included $180,653$422,000 in prepaid expenses and $19,450$41,879 in two security deposits. At December 31, 2019, other assets included $480,881 in prepaid expenses, $21,085 in interest receivable and $27,450 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars, and other general and administrative costs.

Goodwill and Intangible Assets

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests.

The Company performed its annual fair value assessment at December 31, 2019, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. No additional factors or circumstances existed at June 30, 2020 that would indicate impairment.

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

The Company evaluated the recoverability of its long-lived assets on December 31, 2019 on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists. No additional factors or circumstances existed at June 30, 2020 that would indicate impairment.

Accounts Payable

In June 2019, the Company requested an early payoff amount to repay all amounts outstanding under the Factoring Agreement (see Note 2 – Critical Accounting Policies and Estimates, Accounts Receivable) prior to the conclusion of its term. As ofpayable at June 30, 2020 and December 31, 2019 a balancewere $2,808,718 and $699,961, respectively and were comprised of $436,607 remained unpaidtrade payables for various purchases and was included in the Company’s accounts payable. The Company recorded $192,277 in interest expense related to the Factoring Agreementservices rendered during the six months ended June 30, 2019.ordinary course of business.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities at June 30, 2019,2020 and December 31, 20182019 were $563,582$1,848,933 and $291,084,$1,091,204, respectively. At June 30, 2019,2020, this was comprised of customer deposits of $163,568,$81,441, accrued payroll of $122,706,$961,891, and operating expenses of $277,308.

$805,601. At December 31, 2018, this2019, accrued expenses and other liabilities was comprised of $163,568 in customer deposits $21,330 in deferred rent expenseof $148,109, accrued payroll of $714,220, and $106,185 in accrued payroll.

Fair Valueoperating expenses of Financial Instruments

The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available for sale securities are recorded at current market value as of the date of this report.$228,875.

Revenue Recognition and Related Allowances

OurThe Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. The Company recognizes revenues, upon delivery of goods to the customer – at which time the Company’s performance obligation is satisfied – at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied.

The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until it isthe criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Our revenueRevenue contracts are identified when accepted from customers and represent a single performance obligation to sell ourthe Company’s products to a customer.

The Company has fivethree main revenue streams,streams: product sales,sales; licensing and consulting cultivation max,fees; and other operating revenues from seminars, reimbursements investment and others.

Revenue from cultivation max, licensing and consulting services is recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved.other miscellaneous sources.

Product Salessales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we considerthe Company considers several indicators, including significant risks and rewards of products, ourits right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Revenue from licensing and consulting services is recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded. At June 30, 2020, all milestones for contracts were satisfactorily reached and no further performance obligations were outstanding on contracts through the period.

Revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs.

Product Sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Costs of Goods and Services Sold

Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of the Company’s products and services.

General and Administrative Expenses

General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s services.

Advertising and Marketing Costs 

Advertising and marketing costs are expensed as incurred and totaled $73,088$336,529 and $128,489$465,796 for the three and six months ended June 30, 2019,2020, respectively, as compared to $28,396$73,088 and $77,540,$128,489, respectively, for the three and six months ended June 30, 2018.2019.

Stock Based Compensation

The Company accounts for share-based payments pursuant to ASC 718, “Stock Compensation” and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock and restricted stock awards using the Black-Scholes option pricing model.

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and EITFEmerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse. The Company issued stock options to contractors and external companies that had been providing services to the Company upon their termination of services. Under ASC 718 and EITF 96-18 these options were recognized as expense in the period issued because they were given as a form of payment for services already rendered with no recourse.

Share basedShare-based expense paid to through direct stock grants is expensed as occurred. Since the Company’s stock has become publicly traded, the value is determined based on the number of shares issued and the trading value of the stock on the date of the transaction. Prior

On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the Company’s stock being tradedASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company used(but not limited to) was the most recent valuation. determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.

The Company recognized $2,225,406$3,109,091 and $4,361,822 in expensesexpense for stock-based compensation from common stock options issued to employees and consultants during both the three and six months ended June 30, 2019. The Company did not recognize any such2020, and $2,225,406 and 2,980,406 in expenses for stock-based compensation from the issuance of common stock to employees, officers, directors and/or contractors during either the three orand six months ended June 30, 2018.2019.

Income Taxes

The Company has adopted SFAS No. 109 – “Accounting forASC 740, Income Taxes”. ASC Topic 740Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Management Fee ContractsRight of Use Assets and Lease Liabilities

In February 2017,2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company entered intobeginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a Merger Agreement with Pono Publications Ltd. (“Pono”),single lease component for all equipment leases as well as electing a Share Exchange Agreementpolicy exclusion permitting leases with Success Nutrients, Inc. (“SN”), eachan original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Under ASC 842, the Company determines if an arrangement is a Colorado corporation,lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in orderdetermining the present value of lease payments. The ROU asset also includes any lease payments made prior to facilitatecommencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the acquisitionlease when it is reasonably certain that the Company will exercise such options.

Operating leases are included in operating lease Right-of-Use assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets.

Basic and Diluted Net Income (Loss) Per Share

The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share”. ASC 260 requires presentation of both of these entities. The ratificationbasic and diluted earnings per share (“EPS”) on the face of the acquisitionincome statement. Basic EPS is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of these companies requiredshares outstanding (denominator) during the approvalperiod. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. These potential dilutive shares include 3,474,500 shares from vested stock options and 9,987,500 stock purchase warrants. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the holdersexercise of a majority of the Company’s shareholders, which was submitted for such approval at the Company’s annual shareholder meeting held on May 2017. The relevant agreements provide that the effective date for accounting purposes would be April 1, 2017. Success Nutrients became a wholly owned subsidiary of Medicine Man Technologies, Inc. and the business conducted by Pono was incorporated into a newly formed wholly owned subsidiary, Medicine Man Consulting, Inc., whichstock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is also where the Company continues to conduct its consulting service business.anti-dilutive.

FASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 increases transparency and comparability among organizations by requiring lessees to record right-to-use assets and corresponding lease liabilities on the balance sheet and disclosing key information about lease arrangements. The new guidance will classify leases as either finance or operating (similar to current standard’s “capital” or “operating” classification), with classification affecting the pattern of income recognition in the statement of income. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company has adopted this pronouncementimplemented all new accounting pronouncements that are in effect and has reflected the value of all leases within the Balance Sheet of the Company.

FASB ASU 2016-15 “Statement of Cash Flows (Topic 230)” –In August 2016, the FASB issued 2016-15. Stakeholders indicatedthat may impact its financial statements and does not believe that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU did notany other new pronouncements that have been issued that might have a significantmaterial impact on our statementits financial position or results of cash flows.operations except as noted below:

FASB ASU 2017-01, “ClarifyingClarifying the Definition of a Business (Topic 805)” – In January 2017, the FASB issued 2017-1.2017-01. The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU did not have a significant impact on ourthe Company’s consolidated results of operations, cash flows and financial position.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact of this amendment on its consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.

Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:

Depreciation on equipment is provided on a straight-line basis over its expected useful lives at the following annual rates.

Depreciation expense for the three and six months ended June 30, 20192020 was $86,510 and $90,974, respectively, compared to $14,966 and $25,617, respectively, compared to $18,693 and $31,375, respectively, for the three and six months ended June 30, 2018.2019.

On May 1, 2014, the Company entered into a non-exclusive Technology License Agreement with Futurevision, Inc., f/k/a Medicine Man Production Corporation, a Colorado corporation, dba Medicine Man Denver (“Medicine Man Denver”), a company ownedIntangible assets at June 30, 2020 and controlled by affiliatesDecember 31, 2019 were comprised of the Company, whereby Medicine Man Denver granted a license to use all of its proprietary processes it developed, implemented and practiced at its cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future). As payment for the license rights, the Company issued Medicine Man Denver (or its designees) 5,331,000 shares of the Company’s common stock. The Company accounted for this license in accordance with ASC 350-30-30 “Intangibles – Goodwill and Other by recognizing the fair value of the amount paid by the company for the asset at the time of purchase. Since the Company has a limited operating history, management determined to use par value as the value recognized for the transaction. Since the term of the initial license agreement is ten (10) years, the cost of the asset will be recognized on a straight-line basis over the life of the agreement. In addition, each period the Company will evaluate the intangible asset for impairment. As of June 30, 2019, no impairment was deemed necessary.following:

During 2017, the Company acquired two intangible assets as part of the acquisition of Success and Pono. The Company acquired product registrations in California, Oregon, Colorado, Michigan, Arizona, Washington and Canada. The registrations allow the Company to sell its products within each of the regions. Registration fees are capitalized based upon the initial costs incurred to obtain the license. The licenses have nominal annual renewal costs. These subscriptions are amortized over a 15-year period.

During 2017, the Company acquired an intangible asset related to the development of a product nutrient recipe. The intellectual property is being amortized over its 15-year economic life. The intangible asset is considered an indefinite lived asset; however, the Company elected to treat it as an amortizable asset based upon its estimated useful life.

During 2017, the Company acquired an additional intangible asset The Company acquired product license and registration rights in Florida, Illinois, Maine, Massachusetts, Minnesota, Nevada and Ohio. The registrations allow the Company to sell their product within each of the region. Registration fees are capitalized based upon the initial costs incurred to obtain the license. The licenses have nominal annual renewal costs. These subscriptions are amortized over a 15-year period.

Amortization expense for the three and six months ended June 30, 20192020 was $1,647 and $3,295, respectively, compared to $1,729 and $3,425, respectively, compared to $1,628 and $3,257, respectively, for the three and six months ended June 30, 2018.2019.

During the six months ended June 30,In 2019, the Company entered into certain employment agreements with certain key officers that contained contingent consideration provisions based upon the achievement of certain market condition milestones. The Company determined that each of these vesting conditions represented derivative instruments.

On January 8, 2019, the Company granted the right to receive 500,000 shares of restricted common stock to an officer and director, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds.

On April 23, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer and director, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. Similarly,On February 25, 2020, the director resigned from his remaining positions with the Company and forfeited his right to the contingent consideration. As a result, the Company recorded a gain of $1,462,636 as a component of other income (expense), net on its financial statements.

On June 11, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds.

The Company accounts for derivative instruments in accordance with the US GAAP accounting guidance under ASC 815, “DerivativesDerivatives and Hedging Activities”Activities. The Company estimated the fair value of these derivatives at the respective balance sheet dates using the Black-Scholes option pricing model based upon the following inputs: (i) stock price on the date of grant ranging frombetween $1.32 - $3.75, (ii) the contractual term of the derivative instrument ofranging between 2.25 - 3 years, (iii) a risk-free interest rate ranging between 1.71%1.56% - 2.57% and (iv) an expected volatility of the price of the underlying common stock ranging between 219%136% - 274%158%.

As of June 30, 2019,2020, the fair value of these derivative liabilities is $5,655,123.$1,467,318. The change in the fair value of derivative liabilities for the three months ended June 30, 2020 was $(348,535), resulting in an aggregate unrealized loss on derivative liabilities. The change in the fair value of the derivative liabilities for the six months ended June 30, 20192020 was $254,564843,428, resulting in an aggregate lossaggregated unrealized gain on derivative liabilities.

During the six monthsyear ended June 30,December 31, 2019, the Company had sales from Super Farm LLC totaling $306,280 and $96,260 sales from De Best Inc. One of the officers of the Company,Company’s Chief Cultivation Officer, Joshua Haupt, who currently owns 20% of both Super Farm and De Best, and Super Farm. The Company gives a larger discount on nutrient sales to related parties than non-related parties. Aswas an Officer of June 30, 2019, the Company hadand therefore a related party. Effective December 4, 2019, he was no longer an Officer and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable balance withto Super Farm LLC totaling $9,552 and $3,885 accounts receivable fromor De Best Inc. Duringduring the six monthsperiod ended June 30, 2019, the Company had discount of sales associated with Super Farm LLC totaling $153,140 and $48,130 from De Best Inc.2020.

During the six months ended June 30, 2019,2020, the Company had sales from Future Vision dba Medicine Man Denver totaling $143,005 and discount of$170,106. There were no sales totaling $71,503.discounts during the six months ended June 30, 2020. As of June 30, 2019,2020, the Company had an accounts receivable balance owed from Future Visionwith Medicine Man Denver totaling $40,690. As of June 30, 2019, the Company had sales from Med Pharm Holdings totaling $14,795 and discount of sales totaling $7,498. As of June 30, 2019, the Company had an accounts receivable balance owed from Med Pharm Holdings totaling $5,195. Our$83,679. The Company’s former Chief Executive Officer, Andy Williams, currently owns 38% of Future Vision dbamaintains an ownership interest in Medicine Man Denver.

During the six months ended June 30, 2020, the Company did not record any sales from MedPharm Holdings LLC (“MedPharm Holdings”). As of June 30, 2020, the Company had a net accounts receivable balance with MedPharm Holdings totaling $3,326. Also, during the year ended December 31, 2019, the Company issued various notes receivable to MedPharm Holdings totaling $767,695 with original maturity dates ranging from September 21, 2019 through January 19, 2020 and bearing interest between 8-10% per annum. All notes extended to July 2020 by mutual agreement between the Company and noteholder. The Company’s former Chief Executive Officer, Andy Williams, alsomaintains an ownership interest in MedPharm Holdings.

During the six months ended June 30, 2020, the Company did not record any sales from Baseball 18, LLC (“Baseball”), Farm Boy, LLC (“Farm Boy”), Emerald Fields LLC (“Emerald Fields”), or Los Sueños Farms (Los Sueños). During the six months ended June 30, 2020, the Company had a net accounts payable balance of $156,318 with Baseball, $245,953 with Farm Boy, $114,838 with Emerald Fields, and $51,237 with Los Sueños. One of the Company’s former directors, Robert DeGabrielle, owns 10%the Colorado retail marijuana cultivation licenses for Farm Boy, Emerald Fields and Baseball, all doing business as Los Sueños Farms.

On May 20, 2020, the Company entered into a second amendment (the “Amendment”) to that certain securities purchase agreement (the “Agreement”) dated as of Med Pharm Holding.June 5, 2019 by and between the Company and Dye Capital Cann Holdings, LLC, a Delaware limited liability company (the “Investor” and together with the Company the “Parties”) as described in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on June 6, 2019, as amended by the first amendment to the Agreement dated as of July 15, 2019 (the “First Amendment”) and as described in a Current Report on Form 8-K filed with the SEC on July 17, 2019. The Agreement, as amended by the First Amendment, contemplated, among other things, the sale by the Company to the Investor in three separate tranches of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), together with warrants to purchase the number of shares of Common Stock purchased in each tranche closing (the “Warrants”). At the time of the closing of the initial transactions contemplated in the Agreement, Justin Dye, principal of the Purchaser, became a Director and Chief Executive Officer of the Company; the Purchaser is currently the Company’s largest shareholder and Mr. Dye has voting and dispositive power over the securities held by the Purchaser. The Amendment provides, pursuant to the terms and subject to the conditions set forth therein, that in addition to the shares of Common Stock and Warrants previously purchased by the Investor in connection with the Agreement as amended by the First Amendment, the Investor shall purchase in a private placement 187,500 shares of Common Stock at a price of $2.00 per share together with 187,500 Warrants at an exercise price of $3.50 per share (the “Transaction”). The Transaction closed on May 21, 2020.

As of June 30, 2020, and December 31, 2019, respectively, the Company had $1,977,572 and $684,940 of inventory. At December 31, 2019 all inventory was finished goods inventory. At June 30, 2020, $849,153 was finished goods inventory and $1,128,419 was raw materials. The Company uses the FIFO inventory valuation method. As of June 30, 2020 and December 31, 2019, the Company did not recognize any impairment for obsolescence within its inventory.

On September 17, 2018, weApril 20, 2020, the Company closed the acquisition of Two JS LLC, dba The Big Tomato, a Colorado limited liability company.Mesa Organics, Ltd (“Big T” or “Big Tomato”Mesa”). The Company issued an aggregate purchase price after working capital adjustments was $2,609,500 of 1,933,329cash and 2,554,750 shares of itsthe Company’s common stock, for 100% ownership of Big Tomato.par value $0.001 per share. The Company accounted for the transaction utilizing purchase price accounting stating that netthe book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $3,000,000$5,141,537 of Goodwill. At September 17, 2018,goodwill. The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a third-party valuation is finalized and the Company’s per sharefair value of Common Stock was $1.55. There is no requirement for Big Tomato to have independent audited financial statement for the prior two fiscal years and any interim periods because the aggregate valueuseful life of the acquisitionassets acquired is less than 20% ofdetermined. The amounts from the Company’s current assets.final valuation may significantly differ from the preliminary allocation.

Big Tomato Balance Sheet

The following table sets forth the changes in the carrying amountvalue of the Company’s goodwill at June 30, 2019,2020 and December 31, 2018:2019:

As of June 30, 2019, the Company determined that no impairment is necessary.

In accordance with ASC Topic 280 – “Earnings per Share”, the basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. Diluted earnings per common share is computed similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company's earnings (loss) per share on a basic and diluted basis were $(0.30) and $0.01 for the three months ended June 30, 2019 and 2018, respectively, and $(0.40) and $0.01 for the six months ended June 30, 2019 and 2018, respectively.

As of June 30, 2019, and December 31, 2018, respectively, the Company had $533,083 and $489,239 of finished goods inventory. The Company only has finished goods within inventory because it does not produce any of its products. All inventory is produced by a third party. The Company uses the FIFO inventory valuation method. As of June 30, 2019 and December 31, 2018, the Company did not have any obsolescence within its inventory.

The Company had a note payable to an officer of the Company, Joshua Haupt. The balance of the note as of December 31, 2017 totaled $58,280 and was repaid in full during the quarter ended March 31, 2018.

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For those leasesLeases with a term greater than one year the Company recognizesare recognized on the balance sheet at the time of lease commencement or modification of a right of use (“RoU”ROU”) operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. RoUROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

The Company's leases consist of real estate leases for office, commercial retail, and storage spaces. The Company elected to combine the lease and related non-lease components for its operating leases.

The Company’s operating leases include options to extend or terminate the lease, which are not included in the determination of the RoUROU asset or lease liability unless reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less than twothree to five years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As the Company's leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations wascomputation is 6%.

Balance Sheet Classification of Operating Lease Assets and Liabilities

Lease Costs

The table below summarizes the components of lease costs for the six months ended June 30, 2019.2020.

Maturities of Lease Liabilities

Maturities of lease liabilities as of June 30, 20192020 are as follows:

The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2018:June 30, 2020:

Binding Term Sheets to Acquire Certain Businesses

Over the past three years, the Company has supported legislation in Colorado to allow licensed cannabis companies in Colorado to trade their securities, provided they are reporting companies under the Securities Exchange Act, of 1934, as amended. HB19-1090 titled, “Publicly Licensed Marijuana Companies” is currently under consideration in the Colorado legislature. The bill, ifwas signed into law on May 29, 2019 and went into effect on November 1, 2019. The bill repeals the provision that prohibits publicly traded corporations from holding a marijuana license in Colorado. Should this legislation be adopted, the Company intends to acquire cannabis licensed companies within Colorado.

Effective January 10, 2019, the Company entered into binding term sheets to acquire three cannabis and cannabis related companies, including the following: