UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A #110-Q

(Mark One)

For the quarterly period endedSeptemberJune 30, 20192020

For the transition period from __________ to ___________

Commission file number: 333-212055

PURE HARVEST CANNABISCORPORATE GROUP, INC.

(Exact name of registrant as specified in its charter)

2401 E. 2^nd Avenue, Suite 600

Denver, CO 80206

(Address of principal executive offices)

(800) 560-5148

(Registrant’s Telephone number)

929 Colorado Ave.

Santa Monica, CA 90401Pure Harvest Cannabis Group, Inc.

(Former Name, Former Address and phone number of principal executive offices)Former fiscal year if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically and, posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 for Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

As of November 26, 2019August 12, 2020, there were 32,203,33052,196,792 outstanding shares of the registrant’s common stock.

EXPLANATORY NOTE ON AMENDMENTPure Harvest Corporate Group, Inc.

This Amendment No. 1 to Form 10-Q (“Amendment”) amends the Quarterly Report for the three and nine months ended September 30, 2019 originally filed on August 23, 2019.

On April 8, 2020, management of(formerly Pure Harvest Cannabis Group, Inc. (the “Company”) that previously filed consolidated financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 required restatement. In May 2019, the Company leased a property which the Company intends to use as a marijuana retail dispensary. The initial term of the lease is for a period of three years. The Company has an option to purchase the property at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the property.

At inception of the lease on May 1, 2019, the Company should have recorded a “right of use” asset and liability due to the Company adopting Accounting Standards Codification 842- Leases on January 1, 2019. In addition, the 400,000 shares issued for the option to purchase the property should have been recorded as deferred rent and amortized to rent expense using the straight-line method over the term of the lease.

Pure Harvest Cannabis Group, Inc.

Consolidated Balance Sheets

(Unaudited)

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

Pure Harvest Corporate Group, Inc.

(formerly Pure Harvest Cannabis Group, Inc.)

Consolidated Statements of Operations

For Thethe Three and NineSix Months Ended SeptemberJune 30, 20192020 and 20182019

(Unaudited)

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

Pure Harvest Corporate Group, Inc.

(formerly Pure Harvest Cannabis Group, Inc.)

Consolidated Statements of Cash Flows

For The Ninethe Six Months Ended SeptemberJune 30, 20192020 and 20182019

(Unaudited)

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

Pure Harvest Corporate Group, Inc.

(formerly Pure Harvest Cannabis Group, Inc.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITConsolidated Statements of Stockholders’ Deficit

FOR THE NINE MONTHS ENDED SEPTEMBERFor the Three and Six Months Ended June 30, 2018 AND2020 and 2019

Unaudited

(Unaudited)

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

Pure Harvest CannabisCorporate Group, Inc.

(Formerly The Pocket Shot Company)formerly Pure Harvest Cannabis Group, Inc.)

Notes to Consolidated Financial Statements

SeptemberJune 30, 20192020

(Unaudited)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The CompanyPure Harvest Corporate Group, Inc. (the “Company”), formerly Pure Harvest Cannabis Group, Inc., was formed as a Colorado corporation in April 2004.

On December 31, 2018, the Company acquired all of the outstanding common stock of Pure Harvest Cannabis Producers, Inc., (“PHCP”) in exchange for 17,906,016 (post-split) shares of the Company’s common stock. The transaction was accounted for as a reverse acquisition. The accompanying consolidated financial statements are those of PHCP prior to December 31, 2018 and exclude the financial position, results of operations, cash flows and stockholders’ equity of the Pocket Shot Company prior to December 31, 2018. See “Reverse Acquisition” below for additional information.

As a result of the acquisition of PHCP, the Company now operates in various segments of the cannabis and hemp-CBD industries, focusing on health and wellness products and applying education, research and development, and technology to each sector. The Company’s new business also involves the acquisitionsacquisition and operationsoperation of licensed marijuana cultivation facilities, manufacturing facilities and dispensaries.

The Company will continue to collect royalties for licensing the Company’s patent and the trademarks in connection with manufacturing and sale of Pocket Shot branded specialty alcohol beverage pouches.

The Company changed its name to Pure Harvest Cannabis Group, Inc. in February 2019.

On March 15, 2019, shareholders owning a majority of the Company’s outstanding shares approved the following amendments to the Company’s Articles of Incorporation:

Increasing the authorized capital stock of the Company to 250,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. The preferred stock may be issued in one or more series as may be determined by the Company’s Board of Directors. The designations, powers, rights, preferences, qualifications, restrictions and limitations of the preferred stock shall be established from time to time by the Company’s Board of Directors; and

Forward splitting the outstanding shares of the Company’s common stock on a two-for-one basis.

The Company’s accounting year end is December 31.

Reverse Acquisition

On December 31, 2018 the Company (“The Pocket Shot Company”) acquired all of the outstanding common stock of PHCP in exchange for 17,906,016 (post-split) shares of the Company’s common stock. In addition, the shareholders of PHCP were issued warrants to purchase 17,906,016 (post-split) shares of the Company’s common stock. The warrants have an exercise price of $4.00 per share and a life of three years. The issuance of the warrants did not have an impact on the financial statements and was reflected similar to the shares issued to PHCP as discussed below.

The transaction was accounted for as a reverse acquisition since: (i) the shareholders of PHCP owned the majority of the outstanding common stock of the Company after the share exchange; (ii) a majority of the directors of the Company are also directors of PHCP; and (iii) the old officers of the Company were replaced with officers designated by PHCP. Effective December 31, 2018, the Company’s stockholders’ equity was retroactively recapitalized as that of PHCP, while the stockholders’ equity of the Company was recorded as being acquired in the reverse acquisition. The Company and PHCP remain separate legal entities (with the Company as the parent of PHCP). The accompanying consolidated financial statements are those of PHCP priorchanged its name to December 31, 2018 and exclude the financial position, results of operations, cash flows and stockholders’ equity of The Pocket Shot Company prior to December 31, 2018.

All references to common stock, share and per share amounts have been retroactively restated to reflect as if the transaction had taken place as of the beginning of the earliest period presented.

The Company’s assets and liabilities pre- reverse acquisition:

Net Assets Acquired:

The following summarized unaudited consolidated pro forma information shows the results of operations of the Company had the reverse acquisition occurred on January 1, 2017:

Pro-forma:

The summarized consolidated pro forma results are not necessarily indicative of results which would have occurred if the reverse acquisition had been in effect for the periods presented. Further, the summarized unaudited consolidated pro forma results are not intended to be a projection of future results.

Restatement

On April 8, 2020, management of Pure Harvest CannabisCorporate Group Inc. (the “Company”) that previously filed consolidated financial statements as of September 30, 2019 and for the three and nine months ended September 30, 2019 required restatement. In May 2019, the Company leased a property which the Company intends to use as a marijuana retail dispensary. The initial term of the lease is for a period of three years. The Company has an option to purchase the property at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the property.

At inception of the lease on May 1, 2019, the Company should have recorded a “right of use” asset and liability due to the Company adopting Accounting Standards Codification 842- Leases on January 1, 2019. In addition, the 400,000 shares issued for the option to purchase the property should have been recorded as deferred rent and amortized to rent expense using the straight-line method over the term of the lease.June 8, 2020.

The following is the impact of the restatement on the consolidated balance sheet as of September 30, 2019:

The following is the impact of the restatement on the consolidated statements of operations for the three and nine months ended September 30, 2019:

The following is the impact of the restatement on the consolidated statement of cash flows for the nine months ended September 30, 2019:

See Note 5 for additional information.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These financial statements are presented in United States dollars and have been prepared in accordance with United States generally accepted accounting principles.

In the opinion of management, the accompanying unaudited condensedconsolidated financial statements contain all accruals and adjustments (each of which is of a normal recurring nature) necessary for a fair presentation of the Company’s financial position as of SeptemberJune 30, 20192020 and the results of its operations for the ninethree and six months then ended. The condensed balance sheet as of December 31, 2018 is derived from the December 31, 2018 audited financial statements. Significant accounting policies have been consistently applied in the interim consolidated financial statements. The results of operations for the ninethree and six months ended SeptemberJune 30, 20192020 are not necessarily indicative of the results to be expected for the entire year.

Going Concern

The Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern,concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustment to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.

Management plans to fund future operations by raising capital and or seeking joint venture opportunities.

Principles of Consolidation

The Company evaluates the need to consolidate affiliates based on standards set forth in ASCAccounting Standards Codification (“ASC”) 810 Consolidation (“ASC 810”).

The consolidated financial statements include the accounts of the Company and its majority owned subsidiary, PHCP.subsidiaries. All significant consolidated transactions and balances have been eliminated in consolidation. The operations of the Company are included in the consolidated financial statement from the date of the Agreement.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated fair market value of assets and liabilities acquired under business combinations, useful lives and potential impairment of property and equipment, estimaterecoverability of goodwill, estimates of fair value of share basedshare-based payments and valuation of deferred tax assets.

Derivative Liabilities

A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts and for hedging activities.

Cash and Cash EquivalentsAs a matter of policy, the Company does not invest in separable financial derivatives or engage in hedging transactions. However, the Company entered into certain debt financing transactions in June 2020, as disclosed in Note 6, containing certain conversion features that have resulted in the instruments being deemed derivatives. The Company evaluates such derivative instruments to properly classify such instruments within equity or as liabilities in our financial statements. Our policy is to settle instruments indexed to our common shares on a first-in-first-out basis.

The Company considers all highly liquid temporary cash investments with an original maturityclassification of six months or less toa derivative instrument is reassessed at each reporting date. If the classification changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be cash equivalents.reclassified.

Accounts Receivable

We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to other income (expense) in the combined statements of operations. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers. As of September 30, 2019 and December 31, 2018, an allowance for estimated, uncollectible accounts was determined to be unnecessary.

Inventory

Inventory is reported at the lower of cost or market on the first-in, first-out (FIFO) method. Our inventory is subject to obsolescence. Accordingly, quantities on handInstruments classified as derivative liabilities are periodically monitored for items no longer being sold, which are written off. All inventory is stored at the manufacturer and maintained by them. Inventory consists of pouches, display and shipping boxes and no inventory is deemed obsolete.

Machinery and Equipment

Machinery and equipment is recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. The estimated useful lives for significant machinery and equipment categories are as five years.

Revenue Recognition

The Company records revenue under the adoption of ASC 606 by analyzing exchanges with its customers using a five-step analysis such as identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The Company’s policy is to record revenue as earned when a firm commitment, indicating sales quantity and price exists, delivery has taken place and collectability is reasonably assured. The Company records sales of finished products once the customer places the order and the product is shipped. Delivery is considered to have occurred when title and risk of loss have transferred to the customer. Provisions for discounts, returns, allowances, customer rebates and other adjustments are netted with gross sales. The Company accounts for such provisions during the same period in which the related revenues are earned. Provisions for discounts, returns, allowances, customer rebates and other adjustments are minimal and are recorded as a reduction of revenue

Cost of Sales

The costs associated with our royalty income are packaging, a royalty of $1.20 per case, and repair and maintenance costs of our filling machines.

General and Administrative

This category includes costs of legal and accounting, telephone, office supplies, product samples, insurance, registration costs, and consulting expenses.

Travel and Entertainment

This category includes the costs of air travel, hotels, meals and reimbursed automotive expenses.

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 options and restricted stock awardsremeasured using the Black-Scholes option pricing model. Share based expense paid through direct stock grantsmodel at each reporting period (or upon reclassification), and the change in fair value is expensed over the vesting period or upon issuance for awards with no further service requirements. During the nine months ended September 30, 2019 and 2018 the Company recognized stock-based compensation expenserecorded on our consolidated statement of $323,000 and $0, respectively.operations.

Fair Value of Financial Instruments

The Company applies the accounting guidance under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

The carrying amount of the Company’s financial instruments approximates their fair value as of SeptemberJune 30, 20192020 and December 31, 2018,2019, due to the short-term nature of these instruments. The Company’s derivative liabilities are considered a Level 2 liability.

Net Loss per Share

Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC Topic 260, “Earnings per Share”. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. As of SeptemberFor the three and six months ended June 30, 20192020 and 2018,2019, dilutive instruments consisted of convertible notes payable, unvested restricted stock grants, warrants, options to purchase shares of the Company’s common stock, the effects of which due to the Company’s net loss are anti-dilutive.

Recent Accounting Pronouncements

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes by removing certain exceptions in existing guidance and improves consistency in application by clarifying and amending existing guidance. This guidance is effective for annual periods beginning after December 15, 2020, and interim periods within those annual periods, where the transition method varies depending upon the specific amendment. Early adoption is permitted, including adoption in any interim period. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period, and all amendments must be adopted in the same period. The Company has reviewed the provisions of the new standard, but it is not expected to have a significant impact on the Company.

In January 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815”, which clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting under Topic 323, and the accounting for certain forward contracts and purchased options accounted for under Topic 815. This guidance is effective for the Company for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company has reviewed the provisions of the new standard, but it is not expected to have a significant impact on the Company.

The FASB issues ASUs to amend the authoritative literature in ASC. There have been several ASUs issued to date, including those above, that amend the original text of ASC. Management believes that those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to us or (iv) are not expected to have a significant impact our consolidated financial statements.

NOTE 3 – ACQUISITIONS

Love Pharm, LLC

On February 12, 2020, the Company entered into an Operating Agreement with Dr. James Rouse, MD regarding the ownership, operation, and management of Love Pharm, LLC. Love Pharm was recently organized in December 2019 to formulate, develop, manufacture, and brand hemp/CBD products for sale and distribution as well as to form a multi-channel media platform for public and patient education regarding the endocannabinoid system utilizing Dr. Rouse’s name, public image and his extensive experience and expertise in medicine and entrepreneurship. Under the Operating Agreement between the Company and Dr. Rouse, the Company owns 51% of Love Pharm and has a right of first refusal to purchase the remaining 49% of Love Pharm from Dr. Rouse. Additionally, Dr. Rouse will become the Company’s Chief Medical Advisor. Dr. Rouse will receive 400,000 shares of the Company’s common stock for services provided to the Company. See Note 7 for additional information regarding issuance of common stock to Dr. Rouse. As of the date of this filing Love Pharm has yet to commence operations.

How Smooth It Is, Inc.

On March 12, 2020, the Company entered into an agreement to acquire fifty-one percent (51%) of the outstanding membership interests in How Smooth It Is, Inc. (“HSII”) for $1,500,000 in cash and 7,000,000 shares of the Company’s restricted common stock. HSII is a state-licensed medical marijuana processor based in Riverdale, Michigan and plans to offer a wide range of cannabis-infused products including chocolate bars, gummies, beverages, and other Pure Harvest branded products. HSII is based in a 5,800 square foot facility and has the capability of extracting, processing and manufacturing an array of products containing THC and CBD. HSII has also submitted applications for four dispensary licenses in Riverdale, White Cloud, Alma and Mount Pleasant, MI. The acquisition of the 51% interest in HSII is subject to a number of conditions, including the approval of the Michigan Department of Licensing and Regulatory Affairs (LARA). As of the date of this filing, the acquisition of HSII hasn’t been finalized. HSII is in the development stage and as of June 30, 2020 has generated a limited amount of revenue.

Sofa King Medicinal Wellness Products, LLC

On March 13, 2020, the Company entered into an agreement to acquire all of the outstanding membership interests in Sofa King Medicinal Wellness Products, LLC (“SKM”) for 3,000,000 shares of the Company’s common stock. The completion of the acquisition is subject to a number of conditions, including the approval of the acquisition by the Colorado Marijuana Enforcement Division (MED). SKM is a vertically integrated cannabis operator located in Dumont, CO. In August 2020, the acquisition of SKM was finalized as the appropriate licenses have been approved.

EdenFlo, LLC

On April 24, 2020, the Company acquired substantially all of the assets of EdenFlo, LLC (“EdenFlo”), a producer of CBD extracts and concentrates, for 7,000,000 shares of the Company’s common stock and the release of its obligation of a previous promissory note in the amount of $1,650,000, accrued interest of $46,879 and other advances made to EdenFlo to fund operations of $384,409.

EdenFlo joins Prolific Nutrition and Love Pharm, LLC to secure and expand the Company’s position in the national Hemp/CBD industry. EdenFlo is a large-scale Colorado-based hemp-CBD producer and manufacturer of pure isolate and full-spectrum hemp. EdenFlo’s wholesale isolate is made from the highest quality ingredients, utilizing only the best extraction and distillation methods to ensure a final product of extreme purity. Their scientific procedures used for the remediation of THC provide the cleanest broad-spectrum (distillate) oil available in the cannabis extraction industry. The acquisition of EdenFlo will support the Company’s manufacturing operations by supplying the Company’s raw materials requirements for its branded products.

The EdenFlo transaction was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. The Company has determined preliminary fair values of the assets acquired and liabilities assumed. These values are subject to change as we perform additional reviews of our assumptions utilized. Goodwill is primarily attributable to the go-to-market synergies that are expected to arise because of the acquisition. The goodwill is not deductible for tax purposes.

The calculation of the purchase price is as follows:

The Company has made a provisional allocation of the purchase price in regard to the acquisition related to the assets acquired and the liabilities assumed as of the purchase date. The following table summarizes the preliminary purchase price allocation:

The Company has not completed the valuations necessary to finalize the acquisition fair values of the assets acquired and liabilities assumed and related allocation of purchase price of the EdenFlo acquisition. Once the valuation process is finalized, there could be changes to the reported values of the assets acquired and liabilities assumed, including goodwill and identifiable intangible assets and those changes could differ materially from what is presented above.

The unaudited pro-forma financial information hasn’t been presented as the operations of EdenFlo were insignificant to the Company’s operations at the time of the asset acquisition.

NOTE 4 – NOTES RECEIVABLE

In May and June 2019, the Company advanced $28,593 to two unrelated individuals in connection with potential acquisitions for the Company. The amounts were to be repaid, without interest, in October 2019. As of June 30, 2020 and December 31, 2019, the Company has continued collection efforts on these notes receivable but has provided an allowance of such due to the unlikelihood of closing the acquisitions or collecting on the notes receivable.

In December 2019, the Company advanced $800,000 to How Smooth It Is, Inc., increased by $700,000 in January 2020, totaling $1,500,000 in connection with the potential acquisition of that entity by the Company. The note receivable was due June 1, 2020 and incurs interest at 6% per annum for sixty days and then is increased to 10% per annum thereafter. In March 2020, the Company entered into an acquisition agreement to acquire the entity for which the note receivable was used to offset a portion of the purchase price, see Note 3 for additional information. On April 9, 2020, the Company submitted the required applications to the Michigan Department of Licensing and Regulatory Affairs (LARA) to be approved and pre-qualified as a Processor to be added to the HSII license. Upon approval, PHCG will become 51% owners and can participate in revenue. The transaction will not close until the appropriate Michigan approvals are obtained. During the six months ended June 30, 2020, the Company advanced HSIT as an additional $247,845 for operations. The additional advances are not under a formal arrangement and thus do not incur interest and are due on demand.

In December 2019, the Company advanced $1,650,000 to EdenFlo, LLC in connection with the potential acquisition of that entity by the Company. The note receivable was due June 1, 2020 and incurs interest at 6% per annum for sixty days and then is increased to 10% per annum thereafter. In addition, the note receivable is secured by all the asset of EdenFlo, LLC and the amount loaned represents the expected cash portion to be paid in connection with the acquisition. See Note 3 for discussion regarding the acquisition of EdenFlo in April 2020.

NOTE 5 – LEASE AGREEMENTS

In May 2019, the Company entered into a lease agreement for property to be used as a marijuana retail store. The initial term of the lease is for a period of three years. The Company has an option to purchase the property at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the property for which was recorded as deferred rent and is being amortized to rent expense using the straight line method over the term of the lease. At inception of the lease, the Company recorded a right of use asset and liability. The Company used an effective borrowing rate of 10 percent within the calculation.

In April 2020, in connection with the EdenFlo asset acquisition, the Company assume a lease for a marijuana retail store. At inception of the lease, the Company recorded a right of use asset and liability of $140,988. The Company used an effective borrowing rate of 10 percent within the calculation. The lease runs through September 2021.

NOTE 6 –NOTES PAYABLE

Convertible Notes Payable

During the year ended December 31, 2019, the Company issued a series of convertible notes with original principal balances of $1,000,000. The convertible notes mature at dates ranging from November 1, 2021 to December 1, 2021 and incur interest at 20% per annum. In addition, convertible notes are convertible upon issuance at a fixed price of $0.50 per common share. In connection with the issuance, the Company recorded a beneficial conversion feature of $44,000 resulting in a discount to the convertible notes. The discount is being amortized to interest expense using the straight-line method, due to the short-term nature of the convertible notes, over the term. During the six months ended June 30, 2020 and 2019, the Company amortized $11,424 and $0, respectively, to interest expense. The remaining discount of $30,271 is expected to be amortized in 2020 of $11,486 and 2021 of $18,785. The convertible notes include other provisions such as first right of refusal on additional capital raises, authorization of holder to incur debts senior to the convertible notes, etc. Additionally, should the holder exercise the option to exercise, a warrant to purchase an additional share of common stock for which the terms are not defined in the agreement. Thus, the issuance of the warrant is contingent to which the Company has not accounted for. Should warrants be ultimately issued, the Company expects to record the fair value of such as additional interest expense.

Related Party Convertible Notes Payable

On June 15, 2020, the Company borrowed $30,000 from an individual related to a significant member of management. The loan is evidenced by a promissory note which bears interest at 10% per year and is due and payable on October 8, 2020. At the option of the lender, the note principal and any accrued interest may be converted into shares of the Company’s common stock. The number of shares of the Company’s common stock which will be issued upon any conversion will be determined by dividing the amount to be converted by $0.40. On the date of issuance, the conversion price of $0.40 was the closing market price of the Company’s common stock and thus a beneficial conversion feature wasn’t recorded.

On June 15, 2020 and June 30, 2020, the Company borrowed $200,000 and $100,000 from an individual related to a director of the Company and a director of the Company, respectively. unrelated third party. The loans are evidenced by a promissory notes which bears interest at 12% per year and are due and payable on December 10, 2020. The proceeds were used for operations. At the option of the holders, the note principal and any accrued interest may be converted into shares of the Company’s common stock. The number of shares of the Company’s common stock which will be issued upon any conversion will be determined by dividing the amount to be converted by the lesser of $0.30 or 80% of the ten day average closing price of the Company’s common stock immediately prior to the date of conversion. The holders also have the option to convert $900,000 owed to them from EdenFlo, LLC, as disclosed below, which debt was assumed the Company in connection with the acquisition of EdenFlo, at a price of $0.30 per share for a period of 12 months. Additionally, one of the holders was issued 50,000 shares of common stock.

Recent Accounting PronouncementsDue to the variable conversion price, the Company recorded derivative liabilities for the conversion feature on the date of issuance. The derivative liabilities are valued on the date the convertible note payable become convertible and revalued at each reporting period. During the six-months ended June 30, 2020, the Company recorded initial derivative liabilities of $204,750 based upon the following Black-Scholes option pricing model average assumptions: an exercise price of $0.30 our stock price on the date of grant ranging from $0.40 - $0.49, expected dividend yield of 0%, expected volatility of 103.00%, risk free interest rate of 0.64% and expected terms of 0.5 years. Upon initial valuation, the derivative liabilities, as well as the fair market value of the 50,000 shares of common stock exceeded the face values of the convertible notes payable by $2,940, which was recorded as a day one loss in derivative liability. On June 30, 2020, the derivative liabilities were revalued at $152,430 resulting in a gain of $52,320. The inputs to value the derivative liabilities were similar to those on the date of issuance.

In February 2016,connection with the FASBderivative liabilities and common stock issued, ASU, Leases, which requires lessees to recognize most leases on their balance sheets asthe Company recorded a right-of-use asset with a corresponding lease liability. Lessor accounting under$270,810 discount. The discount is being amortized over the standard is substantially unchanged. Additional qualitative and quantitative disclosures are also required. The Company adoptedterm of the standard effective January 1, 2019convertible note using the cumulative-effect adjustment transitionstraight line method which appliesdue to the provisionsshort term nature. During the six months ended June 30, 2020, the Company amortized $33,000 of the standarddiscount to interest expense. As of June 30, 2020, a discount of $237,810 remained for which will be amortized in 2020.

In connection with the EdenFlo asset acquisition, the Company assumed two notes payable with the former shareholders. Under the terms of the agreements $600,000 is payable on June 1, 2021 and does not incur interest and $300,000 is due on August 1, 2022 and does not incur interest. As disclosed above, both notes were modified to include a conversion feature at a price of $0.30 per share. The modification was treated as an extinguishment of the effective date without adjustingoriginal note for which a loss on extinguishment of $448,000 was recorded.

Notes Payable

On March 6, 2020, the comparative periods presented.Company borrowed $1,500,000 from an unrelated third party. The Company adopted the following practical expedientsloan is evidenced by a promissory note which bears interest at 8% per year.

The note is due and elected the following accounting policies related to this standard update:payable as follows:

The Company has inventoried all leases where the Company is a lessee asAccrued interest will be paid in shares of the initial date of application and has examined other contracts with suppliers, vendors, customers and other outside partiesCompany’s common stock based upon a 25% discount to identify whether such contracts contain an embedded lease as defined under the new guidance.

The adoption of ASC 842 had a material effect on the consolidated financial statements, see Note 5 for additional information.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. This standard is effective for public companies for annual periods beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as long as ASU 2014-09 has been adopted. The Company adopted the guidance on January 1, 2019. The adoption did not have a material impact on our consolidated financial statements.

The Company reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

NOTE 3 – RELATED PARTY TRANSACTIONS

Effective January 1, 2019, the Company entered into employment agreements with its two officers. Under the termsten-day average closing price of the agreement the combined minimum annual compensation is $350,000. During the nine months ended September 30, 2019, the Company accrued $188,388 in connection with these agreements and $24,715 for expenses, both of which are included in due to related parties on the accompanying consolidated balance sheet and within general and administrative expenses on the accompanying statement of operations. See Note 6 for discussion regardingCompany’s common stock issued in connection with the employment agreements.

On July 30, 2019 David Lamadrid and Sterling Scott resigned as officers and directorsimmediately prior to May 6, 2020. Accrued interest will include 150,000 additional shares of the Company. In connection with their resignations Mr. Lamadrid agreedCompany’s common stock and warrants to return to the Company 1,750,000 shares, and Mr. Scott agreed to return to the Company 1,200,000purchase 150,000 shares of the Company’s common stock. TheseThe warrants are exercisable at any time on or before January 1, 2025 at a price of $2.00 per share. The first payment of $500,000 was made on a timely basis.

On issuance, the Company valued the 150,000 shares upon their returnof common stock and the 150,000 warrants for common stock and recorded the relative fair market of $116,707 as a discount to the note payable. The Company will be cancelled and will represent authorized but unissued shares.is amortizing the discount over the term of the note payable using the straight-line method due to the short term of the note. During the six months ended June 30, 2020, the Company amortized $92,256 to interest expense.

PriorOn April 20, 2020, the holder of the Note agreed to extend the due date for the $1,000,000 payment from May 6, 2020 to June 15, 2020. In consideration for extending the repayment date for the second amount to June 15, 2020, the Company issued to the reverse acquisition, the Company entered into an agreement with Jarrold R. Bachmann, a former officernote holder 200,000 shares of its common stock and a current shareholder,warrants to pay royalties of $1.20 on a per case basis for salespurchase 200,000 shares of the Company’s productcommon stock. The Pocket Shot. Amountswarrants are exercisable at a price of $2.00 per share and expire January 1, 2025. A late payment penalty of $5,000 per day will be due asif the $1,000,000 is not paid by June 15, 2020. The Company determined the extension resulted in debt extinguishment accounting whereby the fair value of September 30, 2019 and 2018 under the agreement were insignificant.additional consideration provided was in excess of the carrying value of the original note payable resulting in an extinguishment loss of $157,784.

NOTE 4 – ROYALTY INCOME

UnderOn June 9, 2020, the termsholder of an existing license agreement,the Note agreed to further extend the due date for which was entered into priorthe $1,000,000 payment to July 15, 2020. In consideration for extending the repayment date, the Company issued to the reverse acquisition, the Company receives royalty income in exchange for the license to manufacture, fill and distributenote holder an additional 200,000 shares of the Company’s product, a plastic pouch containing specialty alcohol beverages. The initial termcommon stock and warrants to purchase 200,000 shares of the agreementCompany’s common stock. The warrants are exercisable at a price of $2.00 per share and expire January 1, 2025. The Company determined the extension resulted in debt extinguishment accounting whereby the fair value of the additional consideration provided was for five years, expiring in 2010, with automatic renews for succeeding termsexcess of two years each unless either party has given a written noticethe carrying value of its election to terminate the agreement at least one hundred, eighty calendar days prior to the endoriginal note payable resulting in an extinguishment loss of any initial or extended term.$170,470.

The Licensee is required to pay the Company a royalty per case as provided in the agreement. All royalties due to the Company accrue upon the sale of the products, regardless of the time of collection by the Licensee. In addition, all of the Company’s revenues, prior to the reverse acquisition, have been historically generated from this contract. The loss of this royalty would have a substantial impact on the Company’s operations. Prior to the reverse acquisition, the Company has operated in a single business segment, licensing its product to customers in the United States.

NOTE 5 - EARNEST MONEY DEPOSIT

In February 2019addition, during the six months ended June 30, 2020, the Company entered into an agreement to buy property located approximately 35 miles westissued 80,814 shares of Denver, Colorado. As required by the agreement, the Company placed an earnest money depositcommon stock in satisfaction of $20,000 with an escrow agent. The deposit of $20,000 was to be applied to the purchase price at closing. The Company subsequently assigned its rights to purchase the property to an unrelated third party and then leased the property from the unrelated third party. The Company has determined it will not receive any credit for the deposit and has charged the amount to general and administrative expense.$31,762 in accrued interest.

NOTE 6 –NOTES PAYABLE

In 2017,See Note 8 for information relating to loans from an Officer and Director of the Company entered into three promissory notes with third parties. Total proceeds received were $117,000 for which were used for operations. The promissory notes are unsecured, payable on demand and do not incur interest.Company.

NOTE 7 – NOTES RECEIVABLE

In May and June 2019, the Company advanced $28,593 to two unrelated individuals in connection with potential acquisitions for the Company. The amounts are to be repaid, without interest, in October 2019.

NOTE 8 – STOCKHOLDERS’ DEFICIT

Change in Articles of Incorporation

On March 15, 2019, shareholders owning a majority of the Company’s outstanding shares approved the following amendments to the Company’s Articles of Incorporation:

Increasing the authorized capital stock of the Company to 250,000,000 shares of common stock, $0.01 par value, and 25,000,000 shares of preferred stock, $0.01 par value. The preferred stock may be issued in one or more series as may be determined by the Company’s Board of Directors. The designations, powers, rights, preferences, qualifications, restrictions and limitations of the preferred stock shall be established from time to time by the Company’s Board of Directors; and

Forward splitting the outstanding shares of the Company’s common stock on a two-for-one basis.

The name change, trading symbol change (PCKK to PHCG) and forward stock split became effective in the public market on May 2, 2019 and have been retroactively reflected for all periods presented.

Stock-Based Compensation

In connection with the employment agreements discussed in Note 3,2019 Issuances

Effective January 1, 2019, the Company entered into an agreementagreements to issue a total of 1,600,000 shares of common stock to two officers. The shares were to vest over a one yearone-year period commencing on January 1, 2019. The Company valued the common stock at $760,000, using the closing market price of the Company’s common stock on the date of the agreement. The Company iswas expensing the value of off the common stock over the vesting period which mirrors the service period. During the ninesix months ended SeptemberJune 30, 2019, the Company recognized $760,000$190,000 of stock-based compensation since all shares were vestedcompensation. On July 30, 2019, the two officers referred to above resigned as partofficers and directors of the agreement referenced in Footnote 3.Company. In connection with their resignations, Mr. Lamadrid agreed to return to the Company 1,750,000 shares, and Mr. Scott agreed to return to the Company 1,200,000 shares of the Company’s common stock. These shares, upon their return to the Company, were cancelled and now represent authorized but unissued shares.

In January 2019, the Company authorized the issuance of 140,000 shares of common stock to a consultant for services rendered. The Company valued the common stock at $133,000, using the closing market price of the Company’s common stock on the date of the agreement. The Company expensed the value of the common stock upon issuance as there were no additional performance criteria.

2020 Issuances

The Company has entered into various employment and advisory agreements for which shares of common stock are issued with a variety of vesting provisions. The Company typically determines the fair market value of these awards on the date of grant and expensing that value over the vesting period which mirrors the service period.

In May 2020, the Company entered into two-year employment agreements with Matthew Gregarek, the Company’s Chairman and Chief Executive Officer, David Burcham, the Company’s President, and Daniel Garza, the Company’s Chief Marketing Officer. Among various other salary and bonus terms, the agreements also provide for the award of shares of the Company’s restricted common stock and options to purchase shares of the Company’s common stock. Under these agreements, a total of 6,300,000 fully vested shares of common stock were granted upon execution of the agreements. An additional 1,300,000 shares of common stock were awarded that will vest on April 1, 2021. The agreements also provide for the future grant of additional shares of common stock should the individuals remain employed following the April 1, 2021 expiration date.

During the six months ended June 30, 2020, the Company has recognized stock-based compensation of $2,617,162 in connection with the employment and other agreements noted above. In addition, under these arrangements a total of 9.4 million shares of common stock are issuable upon final vesting. The remaining stock-based compensation of $1,029,838 will be recognized over the remaining service periods as follows: $297,801 during the remainder of the year ending December 31, 2020, $594,880 during the year ending December 31, 2021 and $137,157 during the year ending December 31, 2022.

Options

In May 2020, effective April 1, 2020, the individuals noted above were also granted a total of 5,750,000 options to purchase shares of the Company’s common stock. These options will vest in tranches at various dates through May 1, 2021 with escalating exercise prices ranging from $0.50 to $7.50 and are exercisable for ten years. These options were valued at $1,056,695 using a Black-Scholes Options Pricing Model. For the six months ended June 30, 2020, the Company recorded $308,832 as stock-based compensation. The remaining expense outstanding through May 1, 2021 is $747,863.

The fair value of the options is estimated using a Black-Scholes Options Pricing Model with the following assumptions:

Exercise price per share		$	3.40
Expected life (years)			2.97
Risk-free interest rate			0.64	%
Expected volatility			135	%

 

Offering of Common Stock and Warrants

In February 2019, the Company commenced a private offering of its common stock for up to $10 million in proceeds. The Company is offering up to 20 million shares of common stock at a purchase price of $0.50 per share. In addition, for each share purchased the investor will receive a warrant to purchase one additional share of common stock at a price of $2.00 per share. The warrants expire on December 31, 2021 or sooner at the Company’s option, if the Company’s stock trades for a price of $3.00 per share for 10 days with an average volume of 100,000 shares per day. During the ninesix months ended SeptemberJune 30, 2019,2020, the Company received deposits of $442,500$100,000 related to the sale of 885,000200,000 shares of common stock and warrants. The Company has reflected the deposits as a current liability as the related common stock and warrants have yet to be issued and the offering is still open.

Reverse AcquisitionCommon Stock and Warrants Issued with Notes Payable

See Note 16 for issuance of shares issued in connection with the reverse acquisition.note agreements.

NOTE 98 – LEASE AGREEMENT (AS RESTATED)RELATED PARTY TRANSACTIONS

In MayAs of June 30, 2020 and December 31, 2019, the Company entered into a lease agreementhas $42,489 and $116,667, respectively, due to related parties. These amounts generally consist of accrued salaries and various expense reimbursements.

See Note 7 for shares and options issued to management under employment contracts. In connection with the property referred to above. The Company intends to use this property for a marijuana retail store. The initial term of the lease is for a period of three years. The Company has an option to purchase the property at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022. The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the property for which was recorded as deferred rent and is being amortized to rent expense using the straight line method over the term of the lease. At inception of the lease,employment contracts, the Company recorded a rightaccrued total bonuses of use asset and liability. The Company used an effective borrowing rate$225,000 as of 10 percent within the calculation. See Note 1 for additional information.June 30, 2020.

NOTE 10 – ACQUISITION

On SeptemberSee Note 6 2019 the Company acquired all of the outstanding membership interests in Prolific Nutrition, LLC and Gratus Living, LLC (collectively “Prolific Nutrition”) for 400,000 shares of the Company’s restricted common stock.

Prolific Nutrition and Gratus Living are Colorado-based hemp/CBD companies that have developed and now market a line of CBD products directdiscussion related to consumers. Prolific Nutrition and Gratus Living currently offer CBD oil tincture, CBD oil gummies, CBD oil capsules, CBD oil lotion, hemp oil and lip balm. Prolific Nutrition and Gratus Living have also developed and now market hemp extract dietary supplements, hemp extract capsules for pain and hemp extract pet treats for dogs and cats.related party convertible notes payable.

We accounted for the transaction as follows:

NOTE 119 – SUBSEQUENT EVENTS

Extension of Notes Payable

Subsequent to June 30, 2020, the holder of the $1,000,000 note payable discussed in Note 6 extended the note to August 15, 2020. In consideration for extending the repayment date, the Company issued to the note holder an additional 200,000 shares of the Company’s common stock and warrants to purchase 200,000 shares of the Company’s common stock. The warrants are exercisable at a price of $2.00 per share and expire January 1, 2025.

Related Party Convertible Notes Payable

On July 30, 2020, the Company borrowed $100,000 from an officer and director of the Company. At the option of the holder, the note principal and any accrued interest may be converted into shares of the Company’s common stock. The number of shares of the Company’s common stock which will be issued upon any conversion will be determined by dividing the amount to be converted by the lesser of $0.30 or 80% of the ten day average closing price of the Company’s common stock immediately prior to the date of conversion. As further consideration, the Company issued 50,000 shares of its restricted common stock to the holder.

Pending Acquisitions

See Note 3 for a discussion of the acquisition of SKM.

On March 12, 2020 the Company entered into an agreement to acquire fifty-one percent (51%) of the outstanding membership interests in How Smooth It Is, Inc. (“HSII”) for $3,000,000 in cash and 7,000,000 shares of the Company’s restricted common stock.

On July 29, 2020 the Company terminated its agreement to acquire 51% of HSII. As a part of the termination agreement:

The Company has evaluated subsequent events through the filing date of these consolidated financial statements and has disclosed that there are no other events that are material to the financial statements to be disclosed.

On December 31, 2018 Pure Harvest Cannabis Producers, Inc. (“PHC”) was acquired by the Company. At the time of the acquisition, the Company had 13,617,314 (post-split) outstanding shares of common stock. The Company issued 17,906,016 (post-split) shares of its common stock, as well as warrants to purchase an additional 17,906,016 (post-split) shares of the Company’s common stock to the shareholders of PHC in exchange for all of the outstanding shares of PHC. The warrants issued to the former shareholders of PHC allow the holder to acquire one share of the Company’s common stock at a price of $4.00 per share at any time on or before December 31, 2021. PHC is now a wholly owned subsidiary of the Company.

The transaction was accounted for as a reverse acquisition since: (i) the shareholders of PHC owned the majority of the outstanding common stock of the Company after the share exchange; (ii) a majority of the directors of the Company are also directors of PHC; and (iii) the old officers of the Company were replaced with officers designated by PHC. Effective December 31, 2018, the Company’s stockholders’ equity was retroactively recapitalized as that of PHC. The Company and PHC remain separate legal entities (with the Company as the parent of PHC).

On February 5, 2019 the Company changed its name to Pure Harvest Cannabis Group, Inc. On March 15, 2019 shareholders owning a majority of the Company’s outstanding shares approved a two-for-one forward split of the Company’s common stock. The name change, forward stock split and the change in the Company’s trading symbol (from “PCKK” to “PHCG”) become effective in the public market May 2, 2019.

As a result of the acquisition of PHC the Company’s new business plan includesinvolves the acquisition of licensed medical and recreational marijuana dispensaries, cultivation facilities and production facilities in states which allow publicly traded companies to own and operate dispensaries, cultivation facilities and production facilities. Depending on the markets entered and state regulation, the Company’s plan may also include: asset purchases, management/consulting operating agreements, or similar allowable agreements. The Company plans to use a combination of cash, shares of common or preferred stock, notes, or other financing vehicles to complete these acquisitions.

As an alternative to a standard acquisition, the Company may use joint ventures and/or licensing arrangements to provide the Company with the same economic benefits as would be obtained from an outright acquisition.

The Company is dedicated to the research and development of the highest quality products to support patient health and well-being. The Company intends to develop into a large vertically integrated producer and distributor of cannabis initially targeting states with attractive markets that have legalized cannabis for both medicinal and adult-use. The Company will also enter markets that are in various stages of legalization with branded hemp derived CBD and terpene infused product lines. In addition to products tailored to marijuana retail dispensaries, the Company’s line will incorporate infused product options including beverages, edibles, topicals, concentrates, and distillates.

On January 15, 2019 the Company signed a Non-Binding Letter of Intent with an unrelated third party to acquire the assets of a licensed marijuana dispensary located west of Denver, Colorado. The Letter of Intent provides that the Company will pay $280,000 in cash, assume certain liabilities and issue 2,500,000 restricted shares of the Company’s post-split common stock for the assets that are purchased.

On May 3, 2019 the Company leased two buildings, consisting of approximately 2,750 square feet combined, located along Interstate 70 approximately 38 miles west of Denver, Colorado. The lease expires on April 30, 2022, but may be renewed for an additional five years at the option of the Company. The monthly rent is $8,000 for the initial three year term, increasing to $10,000 per month if the Company elects to extend the term of the lease. The lease is a “triple net” lease, which requires the Company, in addition to the monthly rent, to pay the cost of all utilities, insurance, repairs, maintenance and real estate taxes. The Company plans to remodel the buildings so they can be used for the marijuana retail dispensary described above.

The Company has an option to purchase the buildings at prices ranging between $1,400,000 and $1,600,000 at various dates prior to May 1, 2022.

The Company issued the landlord 400,000 shares of its post-split common stock in consideration for the option to purchase the buildings

On January 26, 2019 the Company signed a Non-Binding Letter of Intent with an unrelated third party to acquire the assets of a licensed marijuana cultivation facility located in Denver, Colorado. The Letter of Intent provides that the Company will pay $400,000 in cash, assume certain liabilities, and issue 2,000,000 restricted shares of the Company’s post-split common stock for the assets that are purchased.

On February 17, 2019 the Company signed a Non-Binding Letter of Intent with unrelated third parties to acquire a 51% interest in a California corporation which plans to develop a CBD oil infused yerba mate beverage. The Letter of Intent provides that the Company will pay $400,000 in cash and issue 1,000,000 restricted shares of the Company’s post-split common stock for a 51% interest in the California corporation. If the acquisition is completed, the Company has the option to acquire an additional 30% interest in the California corporation for $1,500,000. As of May 15, 2019, the California corporation was in the start-up stage and had not generated any revenue.

The non-binding Letters of Intent which we have signed do not prevent the other parties from entering into Letters of Intents or binding agreements with third parties.

The acquisition of marijuana dispensaries, cultivation facilities and manufacturing facilities in Colorado, California or other jurisdictions is subject to the approval of government authorities which license and regulate marijuana dispensaries in their applicable jurisdictions. No assurance can be given that any such approvals can be obtained.Prolific Nutrition

On September 6, 2019, the Company acquired all of the outstanding membership interests in Prolific Nutrition, LLC and Gratus Living, LLC (collectively “Prolific Nutrition”) for 400,000 shares of the Company’s restricted common stock.

Prolific Nutrition and Gratus Living are Colorado-based hemp/CBD companies that have developed and now market a line of CBD products direct to consumers. Prolific Nutrition and Gratus Living currently offer CBD oil tincture, CBD oil gummies, CBD oil capsules, CBD oil lotion, hemp oil and lip balm. Prolific Nutrition and Gratus Living have also developed and now market hemp extract dietary supplements, hemp extract capsules for pain and hemp extract pet treats for dogs and cats.

In MaySolar Cultivation Technologies, Inc.

On November 4, 2019, the Company signed an Agreement which provides the Company the option to acquire all of the assets of Solar Cultivation Technologies, Inc. (“SCT”). SCT has developed a proprietary set of technologies and processes to cultivate cannabis using solar power and battery storage.

The Agreement provides the Company with two alternatives (either of which can be selected by the Company in its sole discretion) for acquiring the assets of SCT.

Valuation Method One:

(ANI x PE) - L = A

A/ASP = S

Where:

If option is exercised, Pure Harvest will assume all disclosed liabilities of SCT.

Requirements

Option to acquire the assets of SCT pursuant to Alternative One cannot be exercised:

Valuation Method Two:

Where:

If option is exercised, Pure Harvest will assume all disclosed liabilities of SCT. Requirements

Option to acquire the assets of SCT pursuant to Alternative Two cannot be exercised:

As of August 14, 2020, SCT had generated revenues of approximately $125,000 and had nominal assets and liabilities.

Love Pharm, LLC

On February 12, 2020, the Company entered into an Operating Agreement with Dr. James Rouse, MD regarding the ownership, operation, and management of Love Pharm, LLC. Love Pharm was organized to formulate, develop, manufacture, and brand hemp/CBD products for sale and distribution as well as to form a lease agreementmulti-channel media platform for a propertypublic and patient education regarding the endocannabinoid system utilizing Dr. Rouse’s name, public image and his extensive experience and expertise in Colorado intended to be used in a planned retail store front. The initial term ofmedicine and entrepreneurship. Under the lease is for a period of three years andOperating Agreement between the Company and Dr. Rouse, the Company owns 51% of Love Pharm and has approved a commitment feeright of 400,000 sharesfirst refusal to purchase the remaining 49% of common stock as part of the agreement.Love Pharm from Dr. Rouse.

As of November 20, 2019,August 14, 2020 Love Pharm had not generated any revenue.

How Smooth It Is

As explained in Note 3 to the accompanying financial statements, on March 12, 2020 the Company had notentered into an agreement to acquire fifty-one percent (51%) of the outstanding membership interests in How Smooth It Is, Inc. (“HSII”) for $3,000,000 in cash and 7,000,000 shares of the Company’s restricted common stock.

On July 29, 2020 the Company terminated its agreement to acquire 51% of HSII. As a part of the termination agreement:

Sofa King

On March 13, 2020, the Company entered into an agreement to acquire all of the outstanding membership interests in Sofa King Medicinal Wellness Products, LLC (“SKM”) for 3,000,000 shares of the Company’s common stock. The completion of the acquisition is subject to a number of conditions, including the approval of the acquisition by the Colorado Marijuana Enforcement Division (MED).

SKM is a vertically integrated cannabis operator located in Dumont, CO and recently moved its dispensary to a corner location along the busy I-70 corridor between Denver and Colorado’s world-class ski destinations.

EdenFlo

On April 24, 2020, the Company acquired any dispensaries, cultivation facilities or any other entitiessubstantially all of the assets of EdenFlo, LLC, a producer of CBD extracts and did not have any definitive agreements relatingconcentrates, for 7,000,000 shares of the Company’s restricted common stock and the release of its obligation of a previous promissory note in the amount of $1,650,000.

EdenFlo will join Prolific Nutrition and Love Pharm, LLC to any acquisition.secure and expand the Company’s position in the national Hemp/CBD industry. EdenFlo is a large-scale Colorado-based hemp-CBD producer and manufacturer of pure isolate and full-spectrum hemp. EdenFlo’s wholesale isolate is made from the highest quality ingredients, utilizing only the best extraction and distillation methods to ensure a final product of extreme purity. Their scientific procedures used for the remediation of THC provide the cleanest broad-spectrum (distillate) oil available in the cannabis extraction industry. The acquisition of EdenFlo will support the Company’s manufacturing operations by supplying the Company’s raw materials requirements for its branded products.

Impact of the Coronavirus

The Company’s business could be disrupted and materially adversely affected by the recent outbreak of COVID-19. As a result of measures imposed by the governments in affected regions, businesses and schools have temporarily closed due to quarantines intended to contain this outbreak. The spread of COVID-19 from China to other countries has resulted in the Director General of the World Health Organization declaring COVID-19 a pandemic on March 11, 2020. International stock markets have reflected the uncertainty associated with the slow-down in the world economies. The significant declines in the Dow Industrial Average were also largely attributed to the effects of COVID-19. The Company is still assessing the impact COVID-19 may have on its business, but there can be no assurance that this analysis will continueenable the Company to collect royalties for licensingavoid part or all of any impact from the spread of COVID-019 or its consequences, including downturns in business sentiment generally. The extent to which the COVID-19 pandemic and global efforts to contain its spread will impact the Company’s patentoperations will depend on future developments, which are highly uncertain and trademarks in connection withcannot be predicted at this time, and include the manufacturingduration, severity and salescope of the Pocket Shot branded specialty alcohol beverage pouches.pandemic and the actions taken to contain or treat the COVID-19 pandemic.

Results of Operations

Material changes in the line items in the Company’s Statement of Operations for the three and ninesix months ended SeptemberJune 30, 20192020 as compared to the same periodperiods last year, are discussed below:

Other than the forgoing the Company does not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on its revenues or expenses.

Capital Resources and Liquidity

The Company’s sources and (uses) of cash for the ninesix months ended SeptemberJune 30, 2019 and 20182020 are shown below:

The Company does not know of any trends, demands, commitments, events or uncertainties that will result in, or that are reasonable likely to result in, the Company’s liquidity increasing or decreasing in any material way.degree.

The Company may sell additional shares of common stock and/or other securities to raise capital for its operations. There is no assurance that the Company will be successful in raising any additional capital.

Off Balance Sheet Arrangements

As of SeptemberJune 30, 2019,2020, the Company did not have any off balance sheet arrangements.

Critical Accounting Policies and Estimates

See Note 2 to the SeptemberJune 30, 20192020 financial statements included as part of this report for a description of the Company’s critical accounting policies and estimates.

Disclosure Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in the reports filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act, as amended) as of the end of the period covered by this report. As a result of this evaluation, management concluded that our disclosure controls and procedures were not effective as of SeptemberJune 30, 20192020 due to the following material weakness:

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20192020 that materially affect, or are reasonably likely to materially affect, our internal control over financial reporting.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 24th day of AprilAugust 17, 2020.