Trees 10K/A 2019 Annual report (amended)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

o ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-54457

GENERAL CANNABIS CORP

(Exact name of registrant as specified in its charter)

COLORADO		90-1072649
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6565 E. Evans Avenue

Denver, Colorado 80224

(Address of principal executive offices)

Registrant’s telephone number, including area code: (303) 759-1300

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

Large accelerated filer	o	Accelerated filer	o	Non-accelerated filer	x
Smaller reporting company	x	Emerging growth company	o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes o No x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the registrant’s common stock on June 30, 2019, was $31,638,715.

As of May 5, 2020, the Registrant had 40,281,881 issued and outstanding shares of common stock.

Table of Contents

TABLE OF CONTENTS

PART I

Item 1A.	Risk Factors	3

PART II

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 8.	Financial Statements and Supplementary Data	11
Item 9A.	Controls and Procedures	42

PART IV

Item 15.	Exhibits, Financial Statement Schedules	45
	Signatures	47

Table of Contents

EXPLANATORY NOTE

This Amendment No. 2 on Form 10-K/A (this “Amendment”) to the Annual Report on Form 10-K of General Cannabis Corp (the “Company”) for the fiscal year ended December 31, 2019 (the “Original Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on May 14, 2020 and amended by Amendment No.1 thereto filed with the SEC on June 22, 2020, is being filed to amend and restate our audited consolidated financial statements and related disclosures as of and for the year ended December 31, 2019.

Background of the Restatement

The error relates to the determination of the number of shares of common stock subject to the 2019 Warrants that were issued by the Company in May 2019, which contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. At the time of issuance, the 2019 Warrants represented the right to purchase 3,000,000 shares of common stock at a per share exercise price of $1.30. In the Company’s Form 10-K for the year ended December 31, 2019, the Company accounted for certain dilutive issuances of securities by the Company during 2019 by reflecting that the exercise price of such warrants had decreased to $0.45 per share as a result of the anti-dilution adjustment provisions contained in the warrants, but the Company did not correctly account for the increase in shares subject to such warrants resulting from the anti-dilution adjustment provisions contained in the warrants. Such adjustment provisions increased the number of shares subject to the 2019 Warrants to 8,666,666 shares as of December 31, 2019.

The cumulative effect of the restatement on the Company’s financial statements is an increase in the derivative liability balance and a corresponding increase in loss on derivative instruments of $3.2 million at December 31, 2019. Refer to Item 8, Note 2 for further details regarding the amounts of the adjustments. These adjustments are non-cash and do not impact the Company’s revenue, operating expenses, operating income, cash flows or cash and cash equivalents as previously reported.

This Amendment amends the Original Filing only to the extent necessary to reflect the restatement. The following items in the Orignial Filing have been amended by the Amendment to reflect the restatement.:

· Part I - Item 1A. Risk Factors

· Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations;

· Part II - Item 8. Financial Statements and Supplementary Data; and;

· Part II - Item 9A. Controls and Procedures;

This Amendment also includes as exhibits, the required officer certifications from our Chief Executive Officer and Principal Accounting and Financial Officer dated as of the date of the Amendment.

Items in the Original Filing that have not been amended have been omitted from this Amendment. This Amendment is as of the date of the Original Filing on the Form 10-K and has not been updated to reflect events occurring subsequent to the date of the Original Filing other than those associated with the restatement of the Company’s audited consolidated financial statements.

ITEM 1A. RISK FACTORS.

There are no changes to Item 1A as disclosed in our originally filed Annual Report on Form 10-K for the year ended December 31, 2019 except for the addition of the following risk factor.

Risks Related to Our Common Stock

We have identified a material weakness in our internal control over financial reporting that resulted in the restatement of our consolidated financial statements included in this Annual Report on Form 10-K/A. This material weakness, uncorrected, could continue to affect adversely our ability to report our results of operations and financial condition accurately and in a timely manner.

Table of Contents

Our management is responsible for maintaining internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2019, and identified a material weakness related to the failure to ensure timely application of the anti-dilution adjustment provisions contained in certain outstanding warrants. As a result of this material weakness, our management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of December 31, 2019. See Part II - Item 9A, “Controls and Procedures.”

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The effectiveness of any controls or procedures is subject to certain limitations, and as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained. We also cannot assure you that other material weaknesses will not arise as a result of our past failure to maintain adequate internal controls and procedures or that circumvention of those controls and procedures will not occur. Additionally, even improved controls and procedures may not be adequate to prevent or identify errors or irregularities or ensure that our financial statements are prepared in accordance with generally accepted accounting principles. If we cannot maintain and execute adequate internal control over financial reporting or implement required new or improved controls that provide reasonable assurance of the reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements on a timely basis, or be unable to report properly on our business and the results of our operations, and the market price of our securities could be materially adversely affected.

PART II

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the consolidated financial statements and related notes in Item 8 of this Report.

Restatement

As discussed in the Explanatory Note to this Amended Filing, the Company is amending and restating its audited consolidated financial statements and related disclosures as of and for the years ended December 31, 2019, as included in Item 8, Note 2. The Original Filing was filed with the Securities and Exchange Commission (“SEC”) on May 14, 2020, as amended by Amendment No. 1 thereto filed on June 22, 2020.

Cautionary Statement Regarding Forward-looking Statements

Our MD&A contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial condition. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Report is filed.

Going Concern

The consolidated financial statements included elsewhere in this Form 10-K, have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. Our cash of approximately $224,994 as of December 31, 2019 is not sufficient to absorb our operating losses

and retire our debt of $2,330,351 and other obligations as they come due. The warrants associated with this debt, if exercised, would provide sufficient funds to retire the debt; however, there is no guarantee that these warrants will be exercised. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come

Table of Contents

due. Management believes that (a) we will be successful obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances to that effect. Accordingly, there is substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Results of Operations

As of December 31, 2019, we made the strategic decision to cease operations of Chiefton and STOA Wellness. All operations were abandoned in January 2020. Separately, we classified Iron Protection Group as held for sale as of December 31, 2019, in which the contracts of the Colorado division were sold in January 2020 and the remaining contracts in California have been abandoned. The completed and planned divestiture of these non-core businesses has changed the way in which we evaluate performance and allocate resources. As a result, during the year ended December 31, 2019, we revised our business segments, consistent with our management of the business and internal financial reporting structure.

The following tables set forth, for the periods indicated, statements of operations data. The tables and the discussion below should be read in conjunction with the accompanying consolidated financial statements and the notes thereto appearing in Item 8 in this Report.

Consolidated Results

	Year ended December 31,									Percent
	2019			2018			Change			Change
Revenues	$	3,666,346		$	1,737,256		$	1,929,090		111	%
Costs and expenses	(12,528,035		)	(12,308,231		)	(219,804		)	2	%
Other expense	(4,946,569		)	(5,564,335		)	617,766			(11	)%
Net loss from continuing operations	(13,808,258		)	(16,135,310		)	2,327,052			(14	)%
Loss from discontinued operations	(1,675,539		)	(838,448		)	(837,091		)	100	%
Net loss	$	(15,483,797	)	$	(16,973,758	)	$	1,489,961		(9	)%

The following discussion of our results of operations relates to our continuing operations. See Note 4 to the consolidated financial statements for information concerning discontinued operations.

Revenues

Revenue increased for our Operations and Investments Segments, offset by a loss from discontinued operations. See Segment discussions below for further details.

Costs and expenses

	Year ended December 31,							Percent
	2019		2018		Change			Change
Cost of service revenues	$	858,714	$	1,055,593	$	(196,879	)	(19	)%
Cost of goods sold	1,608,386		400,097		1,208,289			302	%
Selling, general and administrative	4,379,800		3,411,724		968,076			28	%
Share-based compensation	3,966,621		5,995,007		(2,028,386		)	(34	)%
Professional fees	1,598,818		1,383,367		215,451			16	%
Depreciation and amortization	115,696		62,443		53,253			85	%
	$	12,528,035	$	12,308,231	$	219,804		2	%

Cost of service revenues typically fluctuates with the changes in revenue for our Operations Segments. Cost of goods sold varies with changes in product sales, including an increase in products sold by our Operations Segment, which have smaller margins. See Segment discussions below for further details.

Selling, general and administrative expense increased in 2019 primarily due to increases for (a) salaries; (b) premiums for liability, and directors and officer’s insurance; (c) computer and internet costs; and (d) marketing costs.

Table of Contents

Share-based compensation included the following:

	Year ended December 31,							Percent
	2019		2018		Change			Change
Employee awards	$	3,040,497	$	3,626,271	$	(585,774	)	(16	)%
Consulting awards	85,683		306,466		(220,783		)	(72	)%
Feinsod Agreement	840,441		2,062,270		(1,221,829		)	(59	)%
	$	3,966,621	$	5,995,007	$	(2,028,386	)	(34	)%

Employee awards are issued under our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015, and expense varies primarily due to the number of stock options granted and the share price on the date of grant. Consulting awards are granted to third parties in lieu of cash for services provided. The Feinsod Agreement expense represents equity-based compensation pursuant to agreements with Michael Feinsod for serving as the Executive Chairman of our Board.

Professional fees consist primarily of accounting and legal expenses and have increased slightly from 2018 due primarily to the cost of raising debt.

Depreciation and amortization expense increased due to normal depreciation expense for our ERP system.

Other Expense

	Year ended December 31,							Percent
	2019		2018		Change			Change
Amortization of debt discount	$	2,019,726	$	4,234,823	$	(2,215,097	)	(52	)%
Interest expense	345,371		323,557		21,814			7	%
Loss on derivative liability	2,204,172		—		2,204,172			100	%
Loss from Desert Created Investment	—		182,136		(182,136		)	(100	)%
Impairment of Desert Created Investment	—		823,819		(823,819		)	(100	)%
Gain/loss on extinguishment of debt	377,300		—		377,300			100	%
	$	4,946,569	$	5,564,335	$	(617,766	)	(11	)%

Amortization of debt discount costs generally varies with our debt balance and, in 2019, includes $318,681 of costs associated with the 2019 Warrants (as defined below). Interest expense varied between 2019 and 2018 due to the payoff of the 12% Notes in January 2018, the payoff of the Infinity Note in February 2018, and the issuance of the 8.5% Notes in April 2018. We recognized issuance costs in relation to the 2019 Warrants included in our registered direct offering in May 2019. The loss on investment in Desert Created is our 50% share of the net loss of Desert Created during the three quarters September 30, 2018. The impairment of Desert Created occurred primarily because the agreement was priced in November 2017, however, the transaction did not close until January 2018. In the interim, our stock price increased substantially, thus the consideration we paid, in equity instruments, was higher than the fair value of the investment received. In October 2018, we sold our 50% interest to DNFC for cash consideration of $23,045 and, accordingly, impaired the remaining balance. The loss on warrant derivative liability reflects the change in fair value of the 2019 Warrants.

Operations Consulting and Products

	Year ended December 31,									Percent
	2019			2018			Change			Change
Revenues	$	3,570,909		$	1,718,507		$	1,852,402		108	%
Costs and expenses	(3,372,174		)	(1,932,598		)	(1,439,576		)	74	%
	$	198,735		$	(214,091	)	$	412,826		193	%

Increased revenues in 2019 primarily related to revenue from license application consulting; and an increase in product sales throughout 2019. The higher margin is due to completed applications in the third and fourth quarters of 2019. Costs and expenses increased in 2019 primarily due to increased product sales.

Table of Contents

Investments

	Year ended December 31,									Percent
	2019			2018			Change			Change
Revenues	$	95,437		$	18,749		$	76,688		409	%
Costs and expenses	(71,723		)	—			(71,723		)	100	%
Investment in Desert Created	—			(1,005,955		)	1,005,955			(100	)%
	$	23,714		$	(987,206	)	$	1,010,920		(102	)%

The increase in revenues in 2019 is related to three new notes receivables that were executed during 2019. All revenue is from interest and loan origination fees related to these new notes. The investment in Desert Created includes an $823,819 impairment charge and our share of their net loss of $182,136.

Non-GAAP Financial Measures

For the non-GAAP Adjusted EBITDA (Earnings (loss) Before Interest, Taxes, Depreciation and Amortization) per share-basic and diluted measures presented above, we have provided (1) the most directly comparable GAAP measure; (2) a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure; (3) an explanation of why our management believes this non-GAAP measure provides useful information to investors; and (4) additional purposes for which we use this non-GAAP measure.

We believe that the disclosure of Adjusted EBITDA per share-basic and diluted provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items from net loss per share-basic and diluted when we evaluate key measures of our performance internally, and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more balanced view of the underlying dynamics of our business. Adjusted EBITDA per share-basic and diluted excludes the impacts of interest expense, tax expense, depreciation and amortization, gain (loss) on its derivative liability, amortization of debt discount and share-based compensation. Weighted average number of common shares outstanding - basic and diluted (adjusted) excludes the impact of shares issued in connection with share-based compensation.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Report. We present such non-GAAP supplemental financial information, as we believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period-to-period on a basis that may not be otherwise apparent on a non-GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our Consolidated Financial Statements.

	Year ended December 31,
	2019			2018
Net loss attributable to common stockholders	$	(17,824,797	)	$	(16,973,758	)
Adjustment for loss from discontinued operations	1,675,539			838,448
Loss from continuing operations attributable to common stockholders	(16,149,258		)	(16,135,310		)
Adjustments:
Share-based expense	3,966,621			5,995,007
Depreciation and amortization	115,696			62,443
Impairment of Desert Created investment	—			823,819
Amortization of debt discount and equity issuance costs	2,019,726			4,234,823
Loss on extinguishment of debt	377,300			—
Interest expense	345,371			323,557
Loss on warrant derivative liability	2,204,172			—
Loss on investment of Desert Created	—			182,136
Total adjustments	9,028,886			11,621,785
Adjusted EBITDA	$	(7,120,372	)	$	(4,513,525	)

Per share – basic and diluted:
Net loss	$	(0.47	)	$	(0.49	)
Adjusted EBITDA	(0.20		)	(0.13		)

Weighted-average shares outstanding:
Net loss	38,106,781			34,938,978
Adjusted EBITDA	36,222,752			34,297,078

Table of Contents

Liquidity

Sources of liquidity

Our sources of liquidity include cash generated from operations, the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our more significant uses of resources will include funding operations, developing infrastructure, as well as potential loans, investments, and business acquisitions.

In September 2019, we completed a $1,506,000 private placement with certain accredited investors pursuant to the 2019 12% Notes and the 2019 12% Warrants”). In July 2019, we completed a $855,000 private placement pursuant to the SBI Note.

In May 2019, we raised approximately $3 million by issuing three million shares of our common stock and the 2019 Warrants to purchase three million shares of our common stock (together “2019 Units”) in a registered direct offering for $1.00 per 2019 Unit. The 2019 Warrants had an initial exercise price of $1.30 per share and are exercisable for five years from the date of issuance. We received cash of $2,604,355, which is net of $395,645 of issuance costs. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of certain dilutive issuances of securities by the Company during the fourth quarter of 2019, the exercise price of the 2019 Warrants decreased to $0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares as of December 31, 2019.

Sources and uses of cash

We had cash of approximately $224,994 and $8.0 million, respectively, as of and December 31, 2019 and 2018. Our cash flows from operating, investing and financing activities were as follows:

	Year ended December 31,
	2019			2018
Net cash used in operating activities	$	(5,328,661	)	$	(5,726,207	)
Net cash used in investing activities	(753,639		)	(568,266		)
Net cash provided by (used in) financing activities	(1,649,875		)	9,214,855

Net cash used in operating activities decreased in 2019 by $397,546 compared to 2018, primarily due to reduction of expenses and personnel. Where possible, we continue to use non-cash equity-based instruments to obtain consulting services and compensate employees.

Net cash used in investing activities in 2019 relates primarily to purchasing fixed assets, including the opening of STOA Wellness retail location. In the 2018, we purchased fixed assets and invested in the Flowhub SAFE.

Net cash used in financing activities related to the payoff of the notes payable, offset by a capital raise in May 2019. Net cash provided by financing activities in 2018 related to the exercise of warrants and options offset by paying off debt.

Capital Resources

We have no material commitments for capital expenditures as of December 31, 2019. Part of our growth strategy, however, is to acquire businesses. We would fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.

Table of Contents

Off-balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. Actual results may differ from these estimates.

We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty.

Purchase Accounting for Acquisitions

Acquisition of a business requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition. Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill. We determine fair value using widely accepted valuation techniques, primarily discounted cash flows and market multiple analyses. These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow. If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

Accounting for Discontinued Operations

We regularly review underperforming assets to determine if a sale or disposal might be a better way to monetize the assets. When an asset group is considered for sale or disposal, we review the transaction to determine if or when the entity qualifies as a discontinued operation in accordance with the criteria of FASB ASC Topic 205-20 “Discontinued Operations.” The FASB has issued authoritative guidance that raises the threshold for disposals to qualify as discontinued operations. Under this guidance, a discontinued operation is (1) a component of an entity or group of components that have been disposed of or are classified as held for sale and represent a strategic shift that has or will have a major effect on an entity’s operations and financial results, or (2) an acquired business that is classified as held for sale on the acquisition date.

Impairment of Long-lived Assets

We periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.

Our impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third party comparable sales and discounted cash flow models. If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

Table of Contents

Debt with Equity-linked Features

We may issue debt that has separate warrants, conversion features, or no equity-linked attributes.

When we issue debt with warrants, we determine the value of the warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”) or the Binomial Model, using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the estimated volatility of our stock.

When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative. If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance, the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock. If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”). A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date. This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued. The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible.

Equity-based Payments

We estimate the fair value of equity-based instruments issued to employees or to third parties for services or goods using Black-Scholes or the Binomial Model, which requires us to estimate the volatility of our stock and forfeiture rate.

Revenue Recognition

On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including 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 following five steps are applied to achieve that core principle:

· Step 1: Identify the contract with the customer;

· Step 2: Identify the performance obligations in the contract;

· Step 3: Determine the transaction price;

· Step 4: Allocate the transaction price to the performance obligations in the contract; and

· Step 5: Recognize revenue when the company satisfies a performance obligation.

Table of Contents

ITEM 8. REVISED AND RESTATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

General Cannabis Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of General Cannabis Corp. (the “Company”) as of December 31, 2019, the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph — Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Restatement of Previously Issued Financial Statements

As disclosed in Note 2 to the accompanying consolidated financial statements, the Company has restated its financial statements for the year ended December 31, 2019 to correct an error.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

Marcum LLP

We have served as the Company’s auditor since 2019.

Melville, NY

May 14, 2020, except for the effects of the restatement disclosed in Note 2 to the consolidated financial statements as to which the date is July 6, 2020.

Table of Contents

GENERAL CANNABIS CORP

CONSOLIDATED BALANCE SHEETS

	December 31,
	2019 (Restated)			2018
ASSETS
Current Assets
Cash and cash equivalents	$	122,390		$	7,604,562
Accounts receivable, net	85,204			116,622
Note receivable, net — current portion	375,000			50,000
Prepaid expenses and other current assets	546,970			421,579
Assets held for sale	375,218			649,775
Assets of discontinued operations	47,453			144,365
Total current assets	1,552,235			8,986,903

Note receivable, net	93,333			—
Property and equipment, net	1,507,327			1,439,067
Investment	250,000			250,000
Assets held for sale	15,584			66,255
Assets of discontinued operations	83,525			—
Total Assets	$	3,502,004		$	10,742,225

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities
Accounts payable and accrued expenses	$	1,221,194		$	442,707
Interest payable	93,375			—
Customer deposits	562,803			308,111
Accrued stock payable	80,657			—
Notes payable (net of discount)	2,230,684			5,273,906
Related party note payable (net of discount)	99,667			—
Warrant derivative liability	4,620,593			—
Liabilities held for sale	149,249			159,944
Liabilities of discontinued operations	207,993			6,220
Total current liabilities	9,266,216			6,190,888

Commitments and Contingencies (Note 13)	—			—

Stockholders’ Equity (Deficit)
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding at December 31, 2019 and 2018	—			—
Common Stock, $0.001 par value; 100,000,000 shares authorized; 39,497,480 shares and 36,222,752 shares issued and outstanding on December 31, 2019 and 2018, respectively	39,498			36,223
Additional paid-in capital	61,468,034			56,303,061
Accumulated deficit	(67,271,744		)	(51,787,947		)
Total Stockholders’ Equity (Deficit)	(5,764,212		)	4,551,337

Total Liabilities & Stockholders’ Equity (Deficit)	$	3,502,004		$	10,742,225

See Notes to consolidated financial statements.

Table of Contents

GENERAL CANNABIS CORP

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2019 (Restated)			2018
REVENUES
Service	$	1,787,863		$	1,186,624
Rent and interest	95,437			18,749
Product sales	1,783,046			531,883
Total revenues	3,666,346			1,737,256

COSTS AND EXPENSES
Cost of service revenues	858,714			1,055,593
Cost of goods sold	1,608,386			400,097
Selling, general and administrative	4,379,800			3,411,724
Share-based expense	3,966,621			5,995,007
Professional fees	1,598,818			1,383,367
Depreciation and amortization	115,696			62,443
Total costs and expenses	12,528,035			12,308,231

OPERATING LOSS	(8,861,689		)	(10,570,975		)

OTHER (INCOME) EXPENSE
Amortization of debt discount and equity issuance costs	2,019,726			4,234,823
Loss on extinguishment of debt	377,300			—
Interest expense, net	345,371			323,557
Loss on warrant derivative liability	2,204,172			—
Loss from Desert Created investment	—			182,136
Impairment of Desert Created investment	—			823,819
Total other expense, net	4,946,569			5,564,335

NET LOSS FROM CONTINUING OPERATIONS	$	(13,808,258	)	$	(16,135,310	)

Loss from discontinued operations	(1,675,539		)	(838,448		)

NET LOSS	$	(15,483,797	)	$	(16,973,758	)
Deemed dividend	(2,341,000		)	—

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(17,824,797	)	$	(16,973,758	)

PER SHARE DATA — Basic and diluted
Net loss from continuing operations per share	$	(0.36	)	$	(0.46	)

Net loss from discontinued operations per share	$	(0.04	)	$	(0.02	)

Net loss attributable to common stockholders per share	$	(0.47	)	$	(0.49	)
Weighted average number of common shares outstanding	38,106,781			34,938,978

See Notes to consolidated financial statements.

Table of Contents

GENERAL CANNABIS CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2019 (Restated)			2018
OPERATING ACTIVITIES
Net loss	$	(15,483,797	)	$	(16,973,758	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and equity issuance costs	2,019,726			4,234,823
Loss on extinguishment of debt	377,300			—
Depreciation and amortization expense	196,247			149,504
Amortization of loan origination fees	(13,333		)	—
Bad debt expense	174,249			87,592
Impairment of assets	147,035
Loss on disposal of property and equipment	104,803
Impairment of Desert Created investment	—			823,819
Loss from Desert Created investment	—			182,136
Loss on warrant derivative liability	2,204,172			—
Share-based payments	3,966,621			5,995,007
Changes in operating assets and liabilities:
Accounts receivable	(101,766		)	(56,954		)
Prepaid expenses and other assets	(138,254		)	231,746
Inventory	(23,772		)	(88,494		)
Accounts payable and accrued liabilities	1,242,108			(311,628		)
Net cash used in operating activities:	(5,328,661		)	(5,726,207		)

INVESTING ACTIVITIES
Purchase of property and equipment	(318,639		)	(241,311		)
Lending on notes receivable	(705,000		)	(650,000		)
Proceeds on notes receivable	270,000			600,000
Investment in Flowhub SAFE	—			(250,000		)
Investment in Desert Created	—			(50,000		)
Proceeds on investment in Desert Created	—			23,045
Net cash used in investing activities	(753,639		)	(568,266		)

FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants	2,604,355			—
Proceeds from the exercise of warrants	—			3,985,197
Proceeds from exercise of stock options	188,770			721,034
Proceeds from notes payable	1,455,000			7,500,000
Payments on notes payable	(5,898,000		)	(1,621,250		)
Payments on Infinity Note — related party	—			(1,370,126		)
Net cash provided by (used in) financing activities	(1,649,875		)	9,214,855

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(7,732,175		)	2,920,382
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	7,957,169			5,036,787
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	224,994		$	7,957,169

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest	$	305,195		$	637,586

NON-CASH INVESTING & FINANCING ACTIVITIES
Deemed dividend from warrant repricing	$	2,603,000		$	—
Operating lease right-of-use asset/Operating lease liability	154,200			—
12% Warrants recorded as a debt discount and loss on extinguishment of debt	392,000			—
SBI Warrants recorded as a debt discount and loss on extinguishment of debt	28,800			—
15% Warrants recorded as a debt discount and additional paid-in capital	158,100			—
8.5% Note principal used to exercise 8.5% Warrants	—			651,000
8.5% Warrants recorded as debt discount and additional paid-in capital	—			5,366,000
Issuance of common stock for accrued stock payable	—			321,860
Issuance of common stock and warrants for investment in Desert Created	—			979,000

See Notes to consolidated financial statements.

Table of Contents

GENERAL CANNABIS CORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

	Common Stock			Additional		Accumulated
	Shares	Amount		Paid-in Capital		Deficit			Total
January 1, 2018	27,692,910	$	27,693	$	38,292,493	$	(34,814,189	)	$	3,505,997

Common stock issued upon exercise of warrants for debt	7,546,286	7,547		4,795,510		—			4,803,057
Common stock issued upon exercise of stock options	731,264	731		720,303		—			721,034
Common stock issued for MHPS acquisition	104,359	104		154,896		—			155,000
Common stock and warrants issued for Desert Created acquisition	75,000	75		978,925		—			979,000
Common stock issued for services	72,933	73		234,928		—			235,001
Stock options granted to employees	—	—		3,626,271		—			3,626,271
Stock options under Feinsod Agreement	—	—		2,062,270		—			2,062,270
Warrants issued for services	—	—		71,465		—			71,465
Warrants issued with the 8.5% notes	—	—		5,366,000		—			5,366,000
Net loss	—	—		—		(16,973,758		)	(16,973,758		)
December 31, 2018	36,222,752	36,223		56,303,061		(51,787,947		)	4,551,337
Sale of common stock, net of issuance costs	3,000,000	3,000		503,614		—			506,614
Warrants issued with the 12% Notes	—	—		392,000		—			392,000
Warrants issued with the 15% Notes	—	—		158,100		—			158,100
Warrants issued with the SBI Note	—	—		28,800		—			28,800
Common stock issued for property and equipment	5,000	5		7,995		—			8,000
Common stock issued upon exercise of stock options	269,728	270		188,500		—			188,770
Stock options granted to employees and consultants	—	—		3,885,964		—			3,885,964
Net loss						(15,483,797		)	(15,483,797		)
December 31, 2019 (Restated)	39,497,480	$	39,498	$	61,468,034	$	(67,271,744	)	$	(5,764,212	)

See Notes to consolidated financial statements.

Table of Contents

GENERAL CANNABIS CORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION

Nature of Operations

General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “GCC”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. On June 6, 2018 we began trading on the OTCQX® Best Market after upgrading from the OTCQB® Venture Market. As of December 31, 2019, our operations are segregated into the following two segments:

Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. During 2019 and 2018, 59% and 60% of NBC’s revenue was with three customers and one customer, respectively.

NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include building materials, equipment, consumables and compliance packaging. There are generally multiple suppliers for the products we sell; however, there are a limited number of manufacturers of certain high-tech cultivation equipment.

Capital Investments and Real Estate (“Investments Segment”)

As a publicly traded company, we have access to capital that may not be available to businesses operating in the cannabis industry. Accordingly, we may provide debt or equity capital through (a) loans or revolving lines of credit, (b) leasing real estate we own, or (c) investing in businesses using cash or shares of our common stock.

Held for Sale - Security and Cash Transportation Services (“Security Segment”)

We provide advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators, cannabis processing facilities and retail shops, under the business name Iron Protection Group (“IPG”) in California and Colorado, and security services to non-cannabis customers in Colorado, such as hotels, apartment buildings and retail. On December 26, 2019, the board of directors and management made the strategic decision to investigate a possible buyer for the security segment and if no buyer could be found, cease operations of the security segment. We transferred all our Colorado security contracts and employees to a company on January 16, 2020. We will receive $1.00 per man hour worked on existing contracts for a period of one year. On February 6, 2020 we cancelled all our security contracts in California.

Discontinued Operations - Consumer Goods and Marketing Consulting (“Consumer Goods Segment”)

Our apparel business, Chiefton, has two primary revenue streams. Chiefton Supply strives to create innovative, unique t-shirts, hats, hoodies and accessories. Our apparel is sold through our on-line shop, cannabis retailers, non-cannabis retailers, and specialty t-shirt and gift shops. Chiefton Design provides design, branding and marketing strategy consulting services to the cannabis industry, which frequently includes sourcing and selling customer-specific apparel and accessories. On December 26, 2019, the board of directors and management made the strategic move to cease operations of Chiefton. All operations of Chiefton were abandoned on December 31, 2019.

Our CBD retail business, STOA Wellness, opened in July of 2019. STOA Wellness offers a curated collection of high quality CBD products for athletes and general wellness. On December 26, 2019, the board of directors committed to a plan to cease operations of STOA Wellness. We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease.

Basis of Presentation

The accompanying consolidated financial statements include the results of GCC and its ten wholly-owned subsidiary companies: (a) 6565 E. Evans Owner LLC, a Colorado limited liability company formed in 2014; (b) General Cannabis Capital Corporation, a Colorado corporation formed in 2015; (c) GC Security LLC (“GCS”), a

Table of Contents

Colorado limited liability company formed in 2015; (d) GC-NY Health, LLC, a New York limited liability company formed in 2019; (e) Standard Cann, Inc., a Colorado corporation formed in 2019; (f) Cannasseur, LLC, a Colorado limited liability company formed in 2019; (g) Cannasseur Dispensary, LLC, a limited liability company formed in 2019; (h) Cannasseur Cultivation, LLC, a limited liability company formed in 2019; (i) Cannasseur Extraction, LLC, a limited liability company formed in 2019 and (j) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp. In 2015, the name was changed to GC Corp. Intercompany accounts and transactions have been eliminated.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

Going Concern

The consolidated financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. Our cash of approximately $225,000 as of December 31, 2019, is not sufficient to absorb our operating losses and retire our debt of approximately $2,330,000. The warrants associated with this debt, if exercised, would provide sufficient funds to retire the debt; however, there is no guarantee that these warrants will be exercised. Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management believes that (a) we will be successful obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances to that effect. Accordingly, there is substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase. We maintain our cash balances in financial institutions that, from time to time, may exceed amounts insured by the Federal Deposit Insurance Corporation ($250,000 as of December 31, 2019).

Inventory

Our inventory consists of finished goods, including apparel and supplies for the cannabis market. Inventory is stated at the lower of cost (net realizable value), using average cost to determine cost. We monitor inventory cost compared to selling price in order to determine if a write down to net realizable value is necessary. In December 2019, we ceased all operations of Chiefton and determined we would be ceasing operations of STOA in January 2020. As a result, we wrote down all of the remaining inventory to $0 as of December 31, 2019. We recognized $147,035 in expense as a result of this write down of inventory and is included in loss on discontinued operations on the statement of operations.

Accounts Receivable, net

Accounts receivable are recorded at the original invoiced amount due from our customers less an allowance for any potential uncollectible amounts. We control credit risk related to accounts receivable through credit approvals, credit limits and monitoring processes. In making the determination of the appropriate allowance for doubtful accounts, management considers prior experience with customers, analysis of accounts receivable aging reports, changes in customer payment patterns, and historical write-offs. The allowance for doubtful accounts totaled $111,000 and $9,000 as of December 31, 2019 and 2018, respectively. The amounts charged to operations and write-offs were immaterial for the periods presented.

Table of Contents

Notes Receivable

Notes receivable consist primarily of amounts due to us related to the financing of different business ventures. Direct loan origination costs we incur are netted with loan origination fees we receive and the net amount, loan origination fees or costs, is included in notes receivable on the consolidated balance sheets. The loan origination fees or costs are amortized over the term of the underlying note receivable and included in interest income in the consolidated statements of operations. We report notes receivable at the principal balance outstanding less an allowance for losses. We monitor the financial condition of the notes receivable and record provisions for estimated losses when we believe it is probable that the holders of the notes receivable will be unable to make their required payments. We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance.

Right-of-use Asset / Lease Liability

We adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842)” on January 1, 2019, which requires all assets and liabilities arising from leases to be recognized in our consolidated balance sheets. In July 2018, the FASB added an optional transition method which the Company elected upon adoption of the new standard. This allowed us to recognize and measure leases existing at January 1, 2019 without restating comparative information. In addition, the Company elected to apply the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification. We first evaluated our leases to determine whether they are classified as a finance lease or as an operating lease. A lease is a finance lease if any of the following criteria are met: (a) ownership transfers, (b) the lease includes an option to purchase the underlying asset, (c) the lease term is for the major part of the remaining economic life of the underlying asset, (d) the present value of the lease payments equals or exceeds the fair value of the underlying asset, or (e) the underlying asset is of a specialized nature that is expected to have no alternative use to the lessor at the end of the lease term. All of our leases are classified as operating leases. We then determined whether the short-term exemption applies; that is, is the lease term 12 months or less and does not include a purchase option whose exercise is reasonably certain. If the short-term exemption applies then lease payments are recognized as expense and no asset or liability is recorded. If the short-term exemption does not apply, then we recorded an operating lease right-of-use asset and a corresponding operating lease liability equal to the present value of the lease payments. All of our leases entered into prior to 2019 met the short-term exemption, so modification to prior period financial position was is not required. The two-year commercial real estate lease we entered into in February 2019 did not meet the short-term exemption and, accordingly, we recorded the present value of the lease payments of $83,525, as a right-of-use asset and a lease liability in the consolidated balance sheet. We recognize operating lease expense on a straight-line basis over the life of the lease.

Property and Equipment, net

Property and equipment are recorded at historical cost, less accumulated depreciation. Major additions and improvements are capitalized, while replacements, maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: thirty years for buildings, the lesser of five years or the life of the lease for leasehold improvements, and three to five years for furniture, fixtures and equipment, software and vehicles. Land is not depreciated. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations.

Business Combinations

Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. We allocate any excess purchase price over the fair value of the net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.

Intangible Assets

Intangible assets consist primarily of customer relationships and marketing-related intangibles. Our intangible assets are being amortized on a straight-line basis over a period of two years and are fully amortized as of December 31, 2019.

Table of Contents

Impairment of Long-lived Assets

We periodically evaluate whether the carrying value of property, equipment and intangible assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.

Our impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third-party comparable sales and undiscounted cash flow models. If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

Investments

We use the equity method for investments when we are able to exercise significant influence over, but do not control, the investee, and are not the primary beneficiary of the investee’s activities. We include our portion of an equity-method investee’s net income or loss within other expense on the consolidated statements of operations. In the event that the cost basis in an investment exceeds the fair value of the underlying business, we record an impairment charge to reduce our carrying value to the estimated fair value.

We record investments that do not qualify for treatment under the equity method at fair value, unless there is no readily determinable fair value. We record at cost equity investments that do not have readily determinable fair value and assess for impairment at each reporting period. We are able to switch to fair value at our option.

Debt

We issue debt that may have separate warrants, conversion features, or no equity-linked attributes.

Debt with warrants — When we issue debt with warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in our consolidated balance sheets. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations. The debt is treated as conventional debt.

We determine the value of the non-complex warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”) using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the volatility of our stock. For warrants with complex terms, we use the binomial lattice model to estimate their fair value.

Modification of Debt - When we change the terms of existing notes payable, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine whether the change should be treated as a modification or as a debt extinguishment. This evaluation includes analyzing whether there are significant and consequential changes to the economic substance of the note. If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment.

Fair Value of Financial Instruments

U.S. generally accepted accounting principles (“GAAP”) requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

Table of Contents

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including accounts receivable and accounts payable, the Company estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.

GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs consist of items that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below:

Level 1 — Quoted prices in active markets for identical assets or liabilities. There are no fair valued assets or liabilities classified under Level 1 as of December 31, 2019 and 2018.

Level 2 — Observable prices that are based on inputs not quoted on active markets but corroborated by market data. There are no fair valued assets or liabilities classified under Level 2 as of December 31, 2019 and 2018.

Level 3 — Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs (see Note 12).

Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer.

Level 3 Valuation Techniques:

Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments. In accordance with GAAP the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction could give rise to an obligation of the Company to pay cash to its warrant holders. Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities. Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated statements of operations in each subsequent period.

The Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs.

Extinguishment of Notes Payable

When we change the terms of existing notes payable subsequent to the maturity date, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine whether the change should be treated as a debt extinguishment or as a debt modification. This evaluation includes analyzing whether there are significant and consequential changes to the economic substance of the note. If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment. If determined to be a debt extinguishment, the difference between the fair value of the new instrument compared to the original instrument is reflected as a gain or loss on extinguishment of debt.

Warrants Instruments

Warrants with derivative features — When we raise capital by issuing warrants that do not have complex terms, they are recorded as additional paid in capital in our consolidated balance sheet. When we issue warrants that have complex terms, such as a clause in which the warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash upon a fundamental transaction that is considered outside of the control of management, such as a change of control, the warrants are considered to be a derivative that are recorded as a liability at fair value. The warrant derivative liability is adjusted to its fair value at the end of each reporting period, with the change being recorded as other expense or gain.

Table of Contents

Revenue Recognition

We have two main revenue streams: (i) product sales; and (ii) licensing and consulting.

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.

Revenue from licensing and consulting services is recognized when our obligations to our client are fulfilled which is determined when milestones in the contract are achieved.

ASC Topic 606 is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance. Application of ASC Topic 606 requires a five-step model applicable to all product offerings revenue streams as follows:

Identification of the contract, or contracts, with a customer

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance and, (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.

Identification of the performance obligations in the contract

Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.

When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.

Determination of the transaction price

The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below.

Allocation of the transaction price to the performance obligations in the contract

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines.

Table of Contents

Recognition of revenue when, or as, we satisfy a performance obligation

We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer.

Principal versus Agent Considerations

When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent. Our evaluation to determine if we control the goods or services within ASC Topic 606 includes the following indicators:

We are primarily responsible for fulfilling the promise to provide the specified good or service.

When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer.

We have risk before the specified good or service have been transferred to a customer or after transfer of control to the customer.

We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer.

The entity has discretion in establishing the price for the specified good or service.

We have discretion in establishing the price our customer pays for the specified goods or services.

Contract Liabilities

Contract liabilities consist of customer advance payments and billings in excess of revenue recognized. We may receive payments from our customers in advance of completing our performance obligations. We record contract liabilities equal to the amount of payments received in excess of revenue recognized, including payments that are refundable if the customer cancels the contract according to the contract terms. Contract liabilities have been historically recorded as current liabilities on our consolidated financial statements when the time to fulfill the performance obligations under terms of our contracts is less than one year. We have no Long-term contract liabilities which would represent the amount of payments received in excess of revenue earned, including those that are refundable, when the time to fulfill the performance obligation is greater than one year.

Share-based Payments

Employee and non-employee awards — We account for share-based compensation in accordance with the fair value recognition provisions of ASC 718, Compensation — Stock Compensation, and ASC 505, Equity, which require all share-based payments to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate and the expected term of the option. Stock options generally vest in one year. The Company accounts for forfeitures of share-based grants as they occur. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, share-based compensation expense may differ materially in the future from that recorded in the current period.

Market price-based awards — We may issue share-based payments that vest when certain market conditions are met, such as our common stock trading above a certain value for a specific number of days. We recognize expense for market price-based options at the estimated fair value of the options using the binomial lattice model over the estimated life of the options used in the model, or immediately upon the market conditions being met. We use historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option.

Table of Contents

Shipping and Handling

Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of goods sold. Shipping and handling for inventory are included as a component of inventory on the consolidated balance sheets, and in cost of goods sold in the consolidated statements of operations when the product is sold.

Income Taxes

We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities and would be recorded in income tax expense. Our assessment of tax positions as of December 31, 2019 and 2018, determined that there were no material uncertain tax positions.

In general, the tax returns for the years ending December 31, 2016 through 2018 are open to examination by federal and state authorities.

Reportable Segments

Our reporting segments consist of: a) Operations Consulting and Products; and b) Capital Investments and Real Estate. Our Chief Executive Officer has been identified as the chief decision maker. Our operations are conducted primarily within the United States of America.

Related Parties

Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. We disclose related party transactions that are outside of normal compensatory agreements, such as salaries or board of director fees. We consider the following individuals / companies to be related parties:

· Michael Feinsod — Executive Chairman of our Board of Directors (“Board”).

· Infinity Capital West, LLC (“Infinity Capital”) — An investment management company that was founded and is controlled by Michael Feinsod.

· Peter Boockvar — Audit committee chairman.

· Seth Oster — Board member

· DB Arizona — A company that borrowed $825,000 from GC Finance Arizona. Prior to our purchase in June 2017, we did not possess the ability to influence DB Arizona and DB Arizona did not have the ability to influence us. We include DB Arizona as a related party due to our relationship with Michael Feinsod and Infinity Capital, and their relationship with DB Arizona.

Recently Issued Accounting Standards

FASB ASU 2019-12 — “Income Taxes (Topic 740)” — In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We do not expect adoption of this ASU to have a material effect on our consolidated financial statements.

FASB ASU 2018-013 — “Fair Value Measurement (Topic 820)”- In August 2018, the FASB issued new disclosure guidance on fair value measurement. This new guidance modifies the disclosure requirements on fair value measurements, including removal and modifications of various current disclosures as well as some additional disclosure requirements for Level 3 fair value measurements. Some of these disclosure changes must be applied prospectively while others retrospectively depending on requirement. This guidance is required to be adopted by the Company beginning in fiscal year 2020, with early adoption permitted. We did not early adopt this guidance. The adoption of these changes is not expected to have an impact on our consolidated financial statements other than disclosures.

Table of Contents

NOTE 2. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

On July 1, 2020, the audit committee of the board of directors and management of the Company concluded that the Company’s previously issued audited consolidated financial statements for the year ended December 31, 2019, should no longer be relied upon because of an error in the Company’s accounting for certain outstanding common stock warrants, which are referred to as the 2019 Warrants herein. The error relates to the determination of the number of shares of common stock subject to the 2019 Warrants that were issued by the Company in May 2019, which contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. At the time of issuance, the 2019 Warrants represented the right to purchase 3,000,000 shares of common stock at a per share exercise price of $1.30. In the Company’s Form 10-K for the year ended December 31, 2019, the Company accounted for certain dilutive issuances of securities by the Company during 2019 by reflecting that the exercise price of such warrants had decreased to $0.45 per share as a result of the anti-dilution adjustment provisions contained in the warrants, but the Company did not correctly account for the increase in shares subject to such warrants resulting from the anti-dilution adjustment provisions contained in the warrants. Such adjustment provisions increased the number of shares subject to the 2019 Warrants to 8,666,666 shares as of December 31, 2019.

The cumulative effect of the restatement on the Company’s financial statements is an increase in the derivative liability balance and a corresponding increase in loss on derivative instruments of $3.2 million at December 31, 2019. These adjustments are non-cash and do not impact the Company’s revenue, operating expenses, operating income, cash flows or cash and cash equivalents as previously reported.

The effects of the restatement on the consolidated balance sheets are summarized in the following table:

	December 31, 2019
	As Originally Reported			Adjustments			As Restated
ASSETS
Current Assets
Cash and Cash Equivalents	$	122,390		$	—		$	122,390
Accounts receivable, net	85,204			—			85,204
Note receivable, net — current portion	375,000			—			375,000
Prepaid expenses and other current assets	546,970			—			546,970
Assets held for sale	375,218			—			375,218
Assets of discontinued operations	47,453			—			47,453
Total Current Assets	$	1,552,235		—			$	1,552,235

Note receivable, net	93,333			—			93,333
Property and equipment, net	1,507,327			—			1,507,327
Investment	250,000			—			250,000
Assets held for sale	15,584			—			15,584
Assets of discontinued operations	83,525			—			83,525
Total Assets	$	3,502,004		$	—		$	3,502,004

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses	$	1,221,194		$	—		$	1,221,194
Interest payable	93,375			—			93,375
Customer deposits	562,803			—			562,803
Accrued stock payable	80,657			—			80,657
Notes payable (net of discount)	2,230,684			—			2,230,684
Related party note payable (net of discount)	99,667			—			99,667
Warrant derivative liability	1,599,436			3,201,157			4,620,593
Liabilities held for sale	149,249			—			149,249
Liabilities of discontinued operations	207,993			—			207,993
Total current liabilities	$	6,245,058		$	3,201,157		$	9,266,216
Stockholders’ Equity (Deficit)
Common Stock	39,498			—			39,498
Additional paid-in capital	61,468,034			—			61,468,034
Accumulated deficit	(64,250,586		)	(3,201,157		)	(67,271,744		)
Total Stockholders’ Equity (Deficit)	$	(2,743,054	)	$	(3,201,157	)	$	(5,764,212	)
Total Liabilities & Stockholders’ Equity (Deficit)	$	3,502,004		$	—		$	3,502,004

Table of Contents

The effects of the restatement on the consolidated statements of operations and comprehensive income/loss are summarized in the following table:

	Year Ended December 31, 2019
	As Originally Reported			Adjustments			As Restated
Revenues
Services	$	1,787,863		$	—		$	1,787,863
Rent and interest	95,437			—			95,437
Product sale	1,783,046			—			1,783,046
Total revenues	3,666,346			—			3,666,346
Costs and Expenses
Cost of service revenues	858,714			—			858,714
Cost of goods sold	1,608,386			—			1,608,386
Selling, general, and administrative	4,379,800			—			4,379,800
Share-based expense	3,966,621			—			3,966,621
Professional fees	1,598,818			—			1,598,818
Depreciation and amortization	115,696			—			115,696
Total costs and expenses	12,528,035			—			12,528,035

Operating Loss	(8,861,689		)	—			(8,861,689		)
Other (Income) Expense
Amortization of debt discount and equity issuance costs	2,019,726			—			2,019,726
Loss on extinguishment of debt	377,300			—			377,300
Interest expense, net	345,371			—			345,371
(Gain) loss on warrant derivative liability	(816,916		)	3,201,157			2,204,172
Total other expense, net	1,925,411			3,201,157			4,946,569

Net Loss from Continuing Operations	$	(10,787,100	)	$	(3,201,157	)	$	(13,808,258	)
Loss from discontinued operations	(1,675,539		)	—			(1,675,539		)
Net Loss	$	(12,462,639	)	$	(3,201,157	)	$	(15,483,797	)
Deemed dividend	(2,341,000		)	—			(2,341,000		)
Net Loss Attributable to Common Stockholders	$	(14,803,639	)	$	(3,201,157	)	$	(17,824,797	)

Per Share Data — Basic and diluted
Net loss from continuing operations	$	(0.28	)	$	(0.08	)	$	(0.36	)
Net loss from discontinued operations	$	(0.04	)	$	—		$	(0.04	)
Net loss attributable to common stockholders per share	$	(0.39	)	$	(0.08	)	$	(0.47	)
Weighted average number of common shares outstanding	38,106,781			—			38,106,781

Table of Contents

The effects of the restatement on the consolidated statement of cash flows are summarized in the following table:

	December 31, 2019
	As Originally Reported			Adjustments			As Restated
Operating Activities
Net loss	$	(12,462,639	)	$	(3,201,157	)	$	(15,483,797	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt discount and equity issuance costs	2,019,726			—			2,019,726
Loss on extinguishment of debt	377,300			—			377,300
Depreciation and amortization expense	196,247			—			196,247
Amortization of loan origination fees	(13,333		)	—			(13,333		)
Bad debt expense	174,249			—			174,249
Impairment of assets	147,035			—			147,035
Loss on disposal of property and equipment	104,803			—			104,803
(Gain) loss on warrant derivative liability	(816,986		)	3,201,157			2,204,172
Share-based payments	3,966,621			—			3,966,621
Changes in operating assets and liabilities:
Accounts receivable	(101,766		)	—			(101,766		)
Prepaid expenses and other assets	(138,254		)	—			(138,254		)
Inventory	(23,772		)	—			(23,772		)
Accounts payable and accrued liabilities	1,242,108			—			1,242,108
Net cash used in operating activities:	(5,328,661		)	—			(5,328,661		)

INVESTING ACTIVITIES
Purchase of property and equipment	(318,639		)	—			(318,639		)
Lending on notes receivable	(705,000		)	—			(705,000		)
Proceeds on notes receivable	270,000			—			270,000
Net cash used in investing activities	(753,639		)	—			(753,639		)

FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants	2,604,355			—			2,604,355
Proceeds from exercise of stock options	188,770			—			188,770
Proceeds from notes payable	1,455,000			—			1,455,000
Payments on notes payable	(5,898,000		)	—			(5,898,000		)
Payments on Infinity Note — related party	—			—			—
Net cash provided by (used in) financing activities	(1,649,875		)	—			(1,649,875		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(7,732,175		)	—			(7,732,175		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	7,957,169			—			7,957,169
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	224,994		$	—		$	224,994

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest	$	305,195		$	—		$	305,195

NON-CASH INVESTING & FINANCING ACTIVITIES
Deemed dividend from warrant repricing	$	2,603,000		$	—		$	2,603,000
Operating lease right-of-use asset/Operating lease liability	154,200			—			154,200
12% Warrants recorded as a debt discount and loss on extinguishment of debt	392,000			—			392,000
SBI Warrants recorded as a debt discount and loss on extinguishment of debt	28,800			—			28,800
15% Warrants recorded as a debt discount and additional paid-in capital	158,100			—			158,100

NOTE 3. INVESTMENTS AND ACQUISITIONS

Flowhub SAFE

On November 7, 2018, we invested $250,000 in Flowhub Holdings, LLC (“Flowhub”) through a simple agreement for future equity (the “Flowhub SAFE”). The Flowhub SAFE provides us with the right to either (a) future equity in Flowhub when it completes an equity financing, or (b) future equity in Flowhub or cash proceeds if there is a liquidity event. If there is an equity financing, Flowhub would issue to us (a) a number of standard preferred units equal to our investment divided by the price per share of the standard preferred units if the pre-money valuation is less than or equal to the valuation cap ($35 million); or (b) a number of safe preferred units equal to the purchase amount divided by the valuation cap ($35 million), if the pre-money valuation is greater than the valuation cap. If there is a liquidity event, we will receive either (a) a cash payment equal to the purchase amount or (b) automatically receive a number of common units equal to the purchase amount divided by the liquidity price. Our investment in

Table of Contents

the Flowhub SAFE is recorded on the cost method of accounting and included under investment on the consolidated balance sheet and is shown as long-term, as it is not readily convertible into cash.

Desert Created Company LLC / DB Products Arizona, LLC

In January 2018, we entered into a limited liability company operating agreement with DNFC LLC (“DNFC”), pursuant to the formation of Desert Created Company LLC (“Desert Created”). Each party owned a 50% interest in Desert Created, which took over the assets and operations of DB Products Arizona, LLC (“DB Arizona”). Desert Created produces and distributes cannabis-infused edible products in Arizona. In connection with the formation of Desert Created, we contributed 75,000 shares of our common stock and warrants to purchase 75,000 shares of our common stock, at an exercise price of $2.00 per share, to members of DNFC (collectively, the “DNFC Sellers”). This pricing was agreed to in November 2017, however, the transaction did not close until January 2018. In the interim, our stock price increased substantially, which was the reason for the initial impairment noted below. In October 2018, we sold our 50% interest to DNFC for cash consideration of $23,045 and, accordingly, impaired the remaining balance.

The 75,000 shares of our common stock were valued at $461,000, based on the closing price per share of our common stock on January 24, 2018, or $7.23 per share, reduced by a discount of 15% due to the restrictions on the DNFC Seller’s ability to immediately sell such shares. The warrants were valued at $518,000, using the Black-Scholes model, assuming a life of 5.0 years, a risk-free interest rate of 1.2% and a volatility of 150%. The fair value of Desert Created was estimated based on the relative fair value of the underlying assets and liabilities, consisting primarily of cash, accounts receivable, equipment and accounts payable.

The purchase price allocation was as follows:

Common Stock	$	461,000
Warrants	518,000
Initial investment in Desert Created	$	979,000

Fair value of Desert Created	$	347,000
Percentage ownership	50		%
Fair value of 50% of Desert Created	173,500
Initial investment in Desert Created	979,000
Initial impairment	$	805,500

The income and losses related to Desert Created were recognized using the equity method of accounting. The value of the investment as of December 31, 2018, consists of the following and is included in prepaid expenses and other current assets on the balance sheet:

Initial investment in Desert Created	$	979,000
Initial impairment	(805,500		)
Additional investment	50,000
Net loss	(182,136		)
Additional impairment	(18,319		)
Proceeds from sale of investment	(23,045		)
December 31, 2018	$	—

NOTE 4. DISCONTINUED OPERATIONS

Security Segment

On December 26, 2019, the board of directors and management made the strategic decision to investigate a possible buyer for the security segment and if no buyer could be found, cease operations of the security segment. We transferred all our Colorado security contracts and employees to a company on January 16, 2020. We will receive $1.00 per man hour worked on existing contracts for a period of one year. On February 6, 2020 we cancelled all our security contracts in California. The assets and liabilities classified as held for sale for the security segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2019 and 2018 are presented as discontinued operations.

Table of Contents

Assets and liabilities of discontinued operations held for sale included the following:

	December 31,
	2019		2018
Cash and cash equivalents	$	77,380	$	352,607
Accounts receivable, net	280,058		277,857
Prepaid expenses and other current assets	17,780		19,311
Current assets held for sale	$	375,218	$	649,775

Property and equipment, net	$	15,584	$	24,008
Intangibles	—		42,247
Noncurrent assets held for sale	$	15,584	$	66,255

Accounts payable and accrued expenses	$	88,309	$	78,065
Customer deposits	60,940		81,879
Current liabilities held for sale	$	149,249	$	159,944

A breakdown of the discontinued operations is presented as follows:

	Year ended December 31,
	2019			2018
Service revenues	$	2,118,732		$	2,602,365

Cost of service revenues	1,650,823			2,033,544
Cost of goods sold	—			4,373
Selling, general and administrative	877,795			795,381
Professional fees	4,219			104,730
Depreciation and amortization	51,654			87,061
Total costs and expenses	2,584,491			3,025,089

OPERATING LOSS	(465,759		)	(422,724		)

Interest expense, net	3,422			2,421

NET LOSS FROM DISCONTINUED OPERATIONS	$	(469,181	)	$	(425,145	)

The cash flows related to discontinued operations have not been segregated, and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for 2019 and 2018.

	Year ended December 31,
	2019		2018
Receivables	(2,201	)	(86,373	)
Prepaids and other	10,951		(7,715	)
Depreciation and amortization	51,654		87,061
Capital expenditures	(2,556	)	(11,139	)
Accounts payable and accrued expenses	10,244		2,479
Customer deposits	(20,939	)	60,878

Consumer Goods Segment

On December 26, 2019, the board of directors and management made the strategic move to cease operations of Chiefton. On December 26, 2019, the board of directors committed to a plan to cease operations of STOA Wellness. We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease. The assets and liabilities classified as discontinued operations for the consumer goods segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2019 and 2018 are presented as discontinued operations.

Table of Contents

Assets and liabilities of discontinued operations included the following:

	December 31,
	2019		2018
Cash and cash equivalents	$	25,223	$	—
Accounts receivable, net	7,836		21,102
Prepaid expenses and other current assets	14,394		—
Inventory	—		123,263
Current assets discontinued operations	$	47,453	$	144,365

Right to use asset	$	83,525	$	—
Noncurrent assets discontinued operations	$	83,525	$	—

Accounts payable and accrued expenses	$	124,468	$	4,920
Customer deposits	—		1,300
Operating lease liability — current portion	83,525		—
Current liabilities discontinued operations	$	207,993	$	6,220

A breakdown of the discontinued operations is presented as follows:

	Year ended December 31,
	2019			2018
Service	$	—		$	145,079
Product	222,220			134,012
Total Revenues	222,220			279,091

Cost of service revenues	—			59,227
Cost of goods sold	223,354			186,120
Selling, general and administrative	833,742			410,529
Professional fees	110,064			36,518
Depreciation and amortization	28,897			—
Impairment of assets	232,521			—
Total costs and expenses	1,428,578			692,394

OPERATING LOSS	(1,206,358		)	(413,303		)

NET LOSS FROM DISCONTINUED OPERATIONS	$	(1,206,358	)	$	(413,303	)

	Year ended December 31,
	2019		2018
Receivables	13,266		1,962
Prepaids and other	(14,394	)	—
Inventory	—		(88,494	)
Depreciation and amortization	28,897		—
Capital expenditures	(114,384	)	—
Accounts payable and accrued expenses	119,548		4,920
Customer deposits	(1,300	)	1,300
Loss on disposal of segment	232,521		—

NOTE 5. ACCOUNTS RECEIVABLE AND CUSTOMER DEPOSITS

Our accounts receivable consisted of the following:

	December 31,
	2019			2018
Accounts receivable	$	196,204		$	125,622
Less: Allowance for doubtful accounts	(111,000		)	(9,000		)
Total	$	85,204		$	116,622

Table of Contents

We record bad debt expense when we conclude the credit risk of a customer indicates the amount due under the contract is not collectible. We recorded bad debt expense of $103,182 and $15,864, respectively, during the years ended December 31, 2019 and 2018.

As of December 31, 2019, and 2018, prepaid expenses and other current assets includes $0 and $18,164 of unbilled revenue, respectively, representing amounts for services completed but not billed.

Our customer deposit liability had the following activity:

	Amount
December 31, 2018	$	308,111
Additional deposits received	2,252,416
Less: Deposits recognized as revenue	(1,997,724		)
December 31, 2019	$	562,803

NOTE 6. NOTES RECEIVABLE

Our notes receivable consisted of the following:

	December 31,			December 31
	2019			2018
CCR Note	$	375,000		$	—
BB Note	100,000			—
BRB Realty	—			50,000
Total Principal	475,000			50,000
Unamortized loan origination fee	(6,667		)	—
	468,333			50,000
Less: Current portion	(375,000		)	(50,000		)
Long-term portion	$	93,333		$	—

In March 2019, we agreed to loan $375,000 to Consolidated C.R., LLC (“CCR”) pursuant to the terms of a convertible promissory note (“CCR Note”), bearing interest at 12% per annum, collateralized by virtually all of the assets of CCR and a maturity date of September 2020. Interest is due on the first of every month starting in November 2019. CCR is a vertically integrated medical cannabis company located in San Juan, Puerto Rico. As of December 31, 2019, we had loaned $375,000, of which $155,000 was loaned in the first quarter, to CCR under the CCR Note. The CCR Note included a loan origination fee of $15,000, which is being recognized as interest income over the term of the agreement.

On January 3, 2019, we loaned $100,000 to Beacher Brewing, LLC (“BB”) pursuant to the terms of a promissory note (“BB Note”), bearing interest at 11% per annum and a maturity date of January 3, 2020. Interest is due in advance at the beginning of each quarter. On December 13, 2019, we agreed to extend the maturity date to January 3, 2021.

On December 13, 2018, we loaned $50,000 to BRB Realty, LLC (“BRB”) pursuant to the terms of a promissory note (“BRB Note”), bearing interest at 13% per annum and a maturity date of June 12, 2019. On January 19, 2019 the BRB Note was amended with an additional loan amount of $250,000 bearing an interest rate of 13% and a new maturity date of July 15, 2019. On July 15, 2019, BRB Realty extended the maturity date, in accordance with the terms of the BRB Note, an additional six months with an increased interest rate to 15%. Interest is due at the beginning of each month. In December 2019, we agreed to forgive $30,000 of the note receivable in exchange for early payment. The note was paid off on December 3, 2019 and the $30,000 was recorded as bad debt expense and is included in sales, general and administrative on the consolidated statement of operations. The BRB Note included a loan origination fee of $5,000, which is being recognized as interest income over the term of the agreement.

Table of Contents

NOTE 7. PREPAIDS AND OTHER CURRENT ASSETS

Our Prepaids and other current assets consist of the following:

	December 31,
	2019		2018
Prepaid insurance	$	74,026	$	81,667
Prepaid product for resale	292,306		173,852
Other	180,638		166,060
	$	546,970	$	421,579

NOTE 8. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

	December 31,
	2019			2018
Land	$	800,000		$	800,000
Buildings	508,104			508,104
Furniture, fixtures and equipment	331,467			274,380
Software	120,111			—
	1,759,682			1,582,484
Less: Accumulated depreciation	(252,355		)	(143,417		)
	$	1,507,327		$	1,439,067

Depreciation expense was $115,696 and $62,443, respectively, for the years ended December 31, 2019 and 2018.

NOTE 9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Our accounts payable and accrued expenses consist of the following:

	December 31,
	2019		2018
Accounts payable	$	879,347	$	125,151
Accrued payroll, taxes and vacation	305,259		232,313
Property taxes and other	36,588		85,243
	$	1,221,194	$	442,707

NOTE 10. ACCRUED STOCK PAYABLE

The following tables summarize the changes in accrued common stock payable:

	Amount		Number of Shares
December 31, 2018	$	—	—
Employee stock award — accrual	80,657		34,469
December 31, 2019	$	80,657	34,469

On January 29, 2019, we granted an employee $100,000 worth of our common stock, with fifty percent vesting on July 29, 2019 and the remaining amount vesting over eighteen months. Based on a stock price of $2.34 on the date of grant, the employee would receive 42,736 shares of our common stock upon vesting. We are recognizing the value of the grant ratably over the vesting periods. As of December 31, 2019, no stock had been issued to the employee and as a result we are recognizing the stock liability.

NOTE 11. NOTES PAYABLE

Our notes payable consisted of the following:

	December 31,			December 31
	2019			2018
2019 12% Notes	$	1,506,000		$	—
8.5% Notes	—			6,849,000
SBI Note	750,000			—
2019 15% Notes	200,000			—
Related party note payable	100,000			—
Unamortized debt discount	(225,649		)	(1,575,094		)
	2,330,351			5,273,906
Less: Current portion	(2,330,351		)	(5,273,906		)
Long-term portion	$	—		$	—

Table of Contents

2019 12% Notes

In September 2019, we completed a private placement with certain accredited investors pursuant to (a) a senior unsecured promissory note, bearing interest at 12% payable quarterly, with principal due October 31, 2020, with an option for us to extend the due date to October 31, 2021 (“2019 12% Notes”) and (b) warrants with an exercise price of $1.30 per share and a life of 1.1 years; however, if we prepay at any time the life extends to October 31, 2022 (“2019 12% Warrants”) (combined the “2019 12% Agreements”). We may prepay the 2019 12% Notes at any time, but in any event must pay at least one year of interest.

We issued an aggregate of $1,506,000 under the 2019 12% Notes and warrants to purchase an aggregate of 1,506,000 shares of common stock. We received $400,000 in cash and $1,106,000 from modifying the outstanding principal under the 8.5% Notes; see 8.5% Notes below. The change in terms of the 8.5% Notes is treated as a debt extinguishment and the fair value of the warrants of $298,500 is included in our consolidated statement of operations and as additional paid-in capital.

The relative fair value of the 2019 12% Warrants was recorded as a debt discount and additional paid-in capital of $93,500. For the year ended December 31, 2019, amortization of debt discount includes $23,432. The 2019 12% Notes are otherwise treated as conventional debt.

For purposes of determining the loss on extinguishment of debt and the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 2019 12% Warrants were:

Current stock price		$0.82 - 0.92
Exercise price		$1.30
Risk-free interest rate		1.63 - 1.68%
Expected dividend yield		—
Expected term (in years)		1.10
Expected volatility		124%

8.5% Notes

In April 2018, we completed a $7,500,000 private placement pursuant to a promissory note (“8.5% Notes”) and warrant purchase agreement (the “8.5% Agreement”) with certain accredited investors, bearing interest at 8.5%, with principal due May 1, 2019, and interest payable quarterly. During the second quarter this note was extended to be due June 1, 2019. On June 6, 2019, we made payments of approximately $5.7 million, leaving approximately $1.1 million outstanding. In the event of default, the interest rate increases to 18%. The 8.5% Notes are collateralized by a security interest in substantially all of our assets. We may prepay the 8.5% Notes at any time, but in any event must pay at least one year of interest. In September 2019, we modified the debt agreement into the 2019 12% Notes.

Subject to the terms and conditions of the 8.5% Agreement, each investor was granted fully-vested warrants equal to their note principal times 80%, or six million warrants, with an exercise price of $2.35 per share and a life of two years (the “8.5% Warrants”). Should we issue any equity-based instruments at a price lower than the exercise price(s) of the 8.5% Warrants, other than under our Incentive Plan (as defined below), the exercise price(s) of the 8.5% Warrants will be adjusted to the lower price. If the shares underlying the 8.5% Warrants were not registered for resale on a registration statement within six months, we would have issued an additional warrant to each purchaser at the same exercise price for one-half of the shares covered by the initial 8.5% Warrants. A registration statement related to the 8.5% Warrants was declared effective on June 5, 2018. We may call the 8.5% Warrants at $0.01 per share if our stock trades above $8.00 per share for 15 consecutive days. The 8.5% Warrants may be exercised at the option of the holder by paying cash or by applying the amount due under the 8.5% Notes as consideration.

We received $7,500,000 of cash for issuing the 8.5% Notes. The relative fair value of the 8.5% Warrants was recorded as a debt discount and additional paid-in capital of $5,366,000. For the years ended December 31, 2019 and 2018, amortization of debt discount expense was $1,575,094 and $3,790,906, respectively, from the 8.5% Notes. The 8.5% Notes are otherwise treated as conventional debt.

Table of Contents

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5% Warrants as of April 2018, were:

Current stock price		$4.18
Exercise price		$2.35
Risk-free interest rate		2.46%
Expected dividend yield		—
Expected term (in years)		2.0
Expected volatility		134%
Number of iterations		5

SBI Debt

In July 2019, we completed a $855,000 private placement pursuant to a promissory note (“SBI Note”) with a certain accredited investor, bearing interest at 10% with principal due on October 18, 2019. On October 18, 2019, SBI agreed to an extension to November 1, 2019. On November 1, 2019, SBI agreed to another extension of the debt to November 15, 2019. On November 15, 2019, SBI agreed to another extension of debt to November 29, 2019 with an increase in principal amount of the note from $855,000 to $905,000. On November 27, 2019, SBI agreed to an extension of the note to December 13, 2019. On December 13, 2019, SBI agreed to extend the maturity date to December 20, 2019. On December 30, 2019 SBI agreed to extend the maturity date of the note to January 31, 2020, upon the payment of $195,911, of which $40,911 was for accrued interest and $155,000 towards the outstanding principal of the note. See Note 16 for further detail. The change in terms of the SBI note is treated as a debt extinguishment. The additional $50,000 of principal was treated as a debt extinguishment and included in our consolidated statement of operations.

We received $755,000 of cash for issuing the SBI Note and the difference between the cash received and the principal amount was recorded as a debt discount of $100,000 and has been fully amortized.

15% Notes

In December 2019, we sold $300,000 promissory notes (“15% Notes”) and warrants to certain accredited investors. The promissory notes, bear interest at 15%, with principal due January 31, 2021, and interest payable quarterly. We may prepay the 15% Notes at any time, but in any event must pay at least six months of interest. Included in these notes is an amount of $100,000 from a board member, a related party.

The warrants granted to the investors are fully-vested and the number of shares underlying the warrants three time the principal amount of the Notes or nine hundred thousand warrants, with an exercise price of $0.45 per share (the “15% Warrants”). The 15% Warrants were issued in three tranches, A, B, and C. All the warrants have the same terms except the expiration dates. Warrant A has an expiration date of December 31, 2020, Warrant B has an expiration date of December 31, 2021 and Warrant C has an expiration date of December 31, 2022.

We received $300,000 of cash for issuing the 15% Notes. The relative fair value of the 15% Warrants was recorded as a debt discount and additional paid-in capital of $158,100. For the years ended December 31, 2019 and 2018, amortization of debt discount expense was $2,519 and $0, respectively, from the 15% Notes. The 15% Notes are otherwise treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 15% Warrants as of December 2019, were:

Current stock price		$ 0.54 - 0.67
Exercise price		$ 0.45
Risk-free interest rate		1.60 - 1.62%
Expected dividend yield		—
Expected term (in years)		1.01 – 3.06
Expected volatility		118 - 119%

NOTE 12. WARRANT DERIVATIVE LIABILITY RESTATED

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (together “2019 Units”) in a registered direct offering for $1.00 per 2019 Unit (combined the “2019 Capital Raise”). The 2019 Warrants, issued

Table of Contents

with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside of the control of management, such as a change of control, The original exercise price of the 2019 Warrants was $1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during 2019, the exercise price of the 2019 Warrants had decreased to $0.45 per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019.

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

				December 31,
	May 31, 2019			2019 (Restated)
Number of shares underlying the warrants	3,000,000			8,666,666
Fair market value of stock	$	0.95		$	0.63
Exercise price	$	1.30		$	0.45
Volatility	133		%	124		%
Risk-free interest rate	1.93		%	1.69		%
Warrant life (years)	5.00			4.41

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

	December 31,
	2019 (Restated)		2018
Beginning balance	$	—	$	—
Recognition of warrant derivative liability on May 31, 2019	2,416,421		—
Change in fair value of warrants derivative liability	2,204,172		—
Ending balance	$	4,620,593	$	—

NOTE 13. COMMITMENTS AND CONTINGENCIES

Legal

From time to time, the Company is a party to various litigation matters incidental to the conduct of its business. The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition or cash flows.

NOTE 14. DEFERRED TAXES

The income tax was $0 as of December 31, 2019 and 2018.

Significant components of the Company’s deferred tax assets at December 31, 2019 and 2018 are shown below. A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement. The increase in the valuation allowance in 2019 represents the increase in deferred tax assets that the Company has determined is not more likely than not of being recovered. If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

Table of Contents

The components of net deferred tax assets are as follows:

	December 31,
	2019			2018
	(Restated)
Net operating loss carryforwards	$	7,116,767		$	5,383,012
Equity-based instruments	5,810,660			5,004,624
Long-lived assets and other	491,730			555,138
Capital loss carryforward	120,318			—
Deferred tax asset valuation allowance	(13,539,475		)	(10,942,774		)
	$	—		$	—

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

	Year ended December 31,
	2019			2018
		(Restated)
Income tax benefit at statutory rate	$	(3,251,597	)	$	(3,564,489	)
State income tax benefit, net of Federal benefit	(566,351		)	(620,849		)
Equity-based instruments	146,446			(326,242		)
Fair market value adjustment/loss on extinguishment — derivative liabilities	636,532			—
Amortization of debt discount	498,018			1,044,210
Other	(59,749		)	47,895
Valuation allowance	2,596,701			3,419,475
	$	—		$	—

As of December 31, 2019 and 2018, the Company had federal and state net operating loss carryforwards of approximately $29 million and $22 million, respectively. Of the current net operating loss carryforwards, $14 million expire starting in 2033 through 2037 and $15 million do not expire.

Pursuant to the Internal Revenue Code Sections 382 and 383, use of the Company’s U.S. federal and state net operating loss carryforwards may be limited in the event of a cumulative change in ownership of more than 50% within a three-year period.

NOTE 15. STOCKHOLDERS’ EQUITY

2019 Capital Raise Restated

On May 31, 2019 we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants to purchase shares of our common stock in a registered direct offering for $1.00 per 2019 Unit. The 2019 Warrants had an exercise price of $1.30 per share at issuance and are exercisable for five years from the date of issuance. The number of shares issuable pursuant to the warrants granted under the 2019 Warrants, as well as the exercise price of those warrants, is subject to adjustment as a result of certain future equity issuances of securities by the Company at a price below the then-effective exercise price of the 2019 Warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter of 2019, the exercise price of the 2019 Warrants had decreased to $0.45 per share and the number of shares subject to the 2019 Warrants had increased to 8,666,666 shares of common stock as of December 31, 2019.

We received cash of $2,604,355 which is net of $395,645 of issuance costs, of which $318,681 is included as equity issuance costs and $76,964 is included as a reduction of additional paid in capital. Of the gross proceeds, we recorded $2,416,422 as a warrant derivative liability, as discussed in Note 11. We used a portion of the net proceeds from the issuance of the 2019 Units to pay down the 8.5% Notes by $5,743,000, leaving $1,106,000 outstanding.

Share-based compensation

Share-based compensation expense consisted of the following:

	Year ended December 31,
	2019		2018
Employee Awards	$	3,040,497	$	3,626,271
Consulting Awards	85,683		306,466
Feinsod Agreement	840,441		2,062,270
	$	3,966,621	$	5,995,007

Table of Contents

Employee Stock Options

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 15 million shares of our common stock and is designed to provide an additional incentive to executives, employees, directors and key consultants, aligning our long term interests with participants. A Registration Statement on Form S-8 for the initial 10 million shares automatically became effective in May 2016, and a Registration Statement on Form S-8 for the additional 5 million shares and 900,000 shares under the Feinsod Agreement automatically became effective in June 2018 (collectively, the “Registration Statements”). The Registration Statements relate to 15,000,000 shares of our common stock, which are issuable pursuant to or, upon exercise of, options that have been granted or may be granted under our Incentive Plan. As of December 31, 2019, there were 986,442 shares available to issue under the Incentive Plan.

Share-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:

	Year ended December 31,
	2019	2018
Exercise price	$0.55 – 2.37	$1.71 – 7.17
Stock price on date of grant	$0.55 – 2.37	$1.71 – 7.17
Volatility	119 - 130%	131 – 140%
Risk-free interest rate	1.43 – 2.60%	2.1 – 2.9%
Expected life (years)	3.0	3.0
Dividend yield	—	—

The following summarizes Employee Awards activity:

	Number of Shares		Weighted- average Exercise Price per Share		Weighted- average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	9,173,380		1.68
Granted	5,927,390		0.98
Exercised	(269,728	)	0.70
Forfeited or expired	(3,947,262	)	1.80
Outstanding at December 31, 2019	10,883,780		1.28		5.4	$	61,000

Exercisable at December 31, 2019	7,331,365		$	1.51	5.8	$	8,000

As of December 31, 2019, there was approximately $838,267 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of twelve and a half months.

Consulting Services

As needed, we may issue warrants and options to third parties in exchange for consulting services. Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the contractual term.

The fair value of each warrant grant is estimated using Black-Scholes. We use historical data to estimate the expected price volatility. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of valuation for the estimated life of the option. The following summarizes the Black-Scholes assumptions to value the Consulting Awards granted:

	Year ended December 31,
	2019	2018
Exercise price	$0.71 – 2.37	$3.08
Stock price, date of valuation	$0.71 – 2.37	$3.08
Volatility	125 - 141%	134%
Risk-free interest rate	1.64 – 2.62%	2.3%
Expected life (years)	2.0 – 5.0	2.0
Dividend yield	—	—

The following summarizes Consulting Awards activity:

Table of Contents

	Number of Shares		Weighted- average Exercise Price per Share	Weighted- average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2018	50,000		2.53
Granted	85,000		1.31
Exercised	—		—
Forfeited or expired	(10,000	)	1.40
Outstanding and exercisable at December 31, 2019	125,000		1.79	1.1	$	0.00

We granted 25,000 shares of common stock with a fair value of $92,500 to a non-employee for consulting services, which were issued in July 2018. Additionally, we granted 47,933 shares of common stock with a fair value of $142,500 to non-employees for consulting services, which were issued in October 2018. During 2019, we granted 85,000 options with a fair value of $93,614 to non-employees for consulting services.

Feinsod Employment Agreement

On December 8, 2017, we entered into an agreement (the “Feinsod Agreement”) with Michael Feinsod for his continued service as our Executive Chairman of our Board of Directors. Pursuant to the agreement, Mr. Feinsod received (a) 600,000 stock options that vest on the anniversary date of the agreement for the next three years, or 200,000 per year (“Time-based Options”); and (b) three tranches of 100,000 stock options that vest when our stock price has an average trading price for 20 days of $3.50, $5.00 and $6.50 (“Market-based Options”). The options have an exercise price of $3.45 per share and a ten-year life. These options were not issued under the Incentive Plan; however, the underlying shares were included in the Registration Statement on Form S-8 that automatically became effective in June 2018. During the quarter ended March 31, 2018, the $3.50 and $5.00 Market-based Options vested and, accordingly, the expense associated with those options was recognized immediately.

On August 6, 2019, we entered into an agreement (the “Feinsod Agreement”) with Michael Feinsod for his permanent service as our Chief Executive Officer. Pursuant to the agreement, Mr. Feinsod received 1,000,000 stock options that vest when our stock price has a trading price of equal to or above $4.51 per share for five consecutive days. The options have an exercise price of $0.83 per share and a ten-year life. These options were issued under the Incentive Plan. The options were valued using the Monte Carlo method. For the year ended December 31, 2019, we recognized approximately $116,000 of share-based compensation expense related to these options.

The underlying assumptions used in the Monte Carlo simulations to determine the fair value of options were:

	August 6, 2019
Current stock price	$	0.83
Exercise price	$	0.83
Vesting goal	$	4.51
Risk-free interest rate	1.73		%
Expected term (in years)	10
Expected volatility	123		%

DB Option Agreement warrants

In order to extend the DB Option Agreement with Infinity Capital, in March 2016 we granted Infinity Capital warrants to purchase 100,000 shares of our common stock at an exercise price of $0.67 per share with a five year life. All 100,000 warrants were still outstanding as of December 31, 2019.

Table of Contents

IPG Acquisition Warrants

In connection with the IPG acquisition in 2015, we issued to IPG 500,000 fully-vested warrants to purchase a) 250,000 shares of our common stock at $4.50 per share, (the “IPG $4.50 Warrants”), and b) 250,000 shares of our common stock at $5.00 per share (the “IPG $5.00 Warrants”) (collectively, the “IPG Warrants”). All of these warrants expired unexercised during the quarter ended March 31, 2018.

Warrants with Debt

The following summarizes warrants issued with debt activity:

	Number of Shares		Weighted- average Exercise Price per Share		Weighted- average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2017	3,351,700		$	0.65
Granted	6,000,000		2.35
Exercised	(3,316,786	)	0.77
Expired	(42,700	)	5.00
Outstanding at December 31, 2018	5,992,214		2.26
Granted	2,481,000		0.98
Exercised	—		—
Expired	—		—
Outstanding and exercisable at December 31, 2019	8,473,214		0.64		0.5	$	1,169,583

On May 31, 2019, we issued the 2019 Units at $1.00, which triggered the “down round” feature specified in the 8.5% Warrants. We calculated the difference between the 8.5% Warrants’ fair value on the date the down round feature was triggered using the original exercise price and the new exercise price. On October 18, 2019, November 1, 2019 and again on December 11, 2019, we issued additional warrants at $1.00, $0.68 and $0.45, respectively. These triggered the “down round” feature on both the 8.5% warrants and the 2019 Units. The difference in fair value of the effect of the down round feature is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The underlying assumptions used in the binomial lattice model to determine the fair value of the 8.5% Warrants were:

	Pre-Trigger			Post-Trigger
Current stock price	$	0.95		$	0.95
Exercise price	$	2.35		$	1.00
Risk-free interest rate	2.21		%	2.21		%
Expected dividend yield	—			—
Expected term (in years)	0.89			0.89
Expected volatility	123		%	123		%

	Pre-Trigger			Post-Trigger
Current stock price	$	0.70		$	0.70
Exercise price	$	1.00		$	0.68
Risk-free interest rate	1.55		%	1.55		%
Expected dividend yield	—			—
Expected term (in years)	0.47			0.47
Expected volatility	114		%	114		%

	Pre-Trigger			Post-Trigger
Current stock price	$	0.67		$	0.67
Exercise price	$	0.68		$	0.45
Risk-free interest rate	1.61		%	1.61		%
Expected dividend yield	—			—
Expected term (in years)	0.36			0.36
Expected volatility	113		%	113		%

Table of Contents

The underlying assumptions used in the binomial lattice model to determine the fair value of the 2019 Warrants were:

	Pre-Trigger			Post-Trigger
Current stock price	$	0.63		$	0.63
Exercise price	$	1.30		$	1.00
Risk-free interest rate	1.56		%	1.56		%
Expected dividend yield	—			—
Expected term (in years)	4.62			4.62
Expected volatility	115		%	115		%

	Pre-Trigger			Post-Trigger
Current stock price	$	0.70		$	0.70
Exercise price	$	1.00		$	0.68
Risk-free interest rate	1.55		%	1.55		%
Expected dividend yield	—			—
Expected term (in years)	4.58			4.58
Expected volatility	114		%	114		%

	Pre-Trigger			Post-Trigger
Current stock price	$	0.67		$	0.67
Exercise price	$	0.68		$	0.45
Risk-free interest rate	1.61		%	1.61		%
Expected dividend yield	—			—
Expected term (in years)	4.47			4.47
Expected volatility	113		%	113		%

Fall 2017 Capital Raise

During the year ended December 31, 2017, in a private placement we raised $4 million of equity by issuing four million shares of our common stock and four million warrants (“Fall 2017 Warrants”) to purchase shares of our common stock (together “Units”) for $1.00 per Unit. The Fall 2017 Warrants had an exercise price of $0.50 per share and were exercisable for two years. If our common stock closed above $5.00 for ten consecutive days, we could call the warrants, giving the warrant holders 10 days to exercise. During the quarter ended March 31, 2018, we called the warrants and all were exercised. In consideration for the sale of the Units, we received $3,750,000 in cash and extinguished $250,000 of 12% Notes.

NOTE 16. NET LOSS PER SHARE

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.

Outstanding stock options and common stock warrants are considered anti-dilutive because we are in a net loss position. Accordingly, the number of weighted average shares outstanding for basic and fully diluted net loss per share are the same.

The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:

	December 31,
	2019 (Restated)	2018
Stock options	12,833,780	10,073,380
Warrants	17,439,881	6,217,214
Accrued stock payable	42,736	—
	30,316,397	16,290,594

Table of Contents

NOTE 17. SUBSEQUENT EVENTS

Beginning in early 2020, there has been an outbreak of coronavirus (COVID-19), initially in China and which has spread to other jurisdictions, including locations where we do business. The full extent of the outbreak, related business and travel restrictions and changes to behavior intended to reduce its spread are uncertain as of the date of the Report as this continues to evolve globally. Therefore, the full extent to which coronavirus may impact our results of operations, liquidity or financial position is uncertain. Management continues to monitor the impact that the COVID-19 pandemic is having on the Company and the economies in which we operate. We anticipate that our liquidity may be materially impacted by the coronavirus outbreak.

On January 8, 2020 we entered a $975,000 deed of trust (the “Mortgage Loan”) secured by a first mortgage lien on the property located in Denver, Colorado. The Mortgage Loan matures on December 31, 2020 and accrues interest at a rate of equal to the greater of 5.25% in excess of the Prime Rate or 10% per annum, payable on a monthly basis. This loan was paid in full on March 20, 2020 with the sale of our building.

On January 24, 2020, we entered into an asset purchase agreement with Dalton Adventures, LLC (the “Seller”), pursuant to which we agreed to acquire the assets of the Seller and which constitutes the business of SevenFive Farm, a cultivation facility in Boulder, Colorado. The purchase price to be paid for the assets is equal to 1.4 times the Seller’s gross revenue for the 12-month period prior to the closing; provided that the purchase price will not be lower than $3,000,000. The purchase price will be paid by issuing to the Seller shares of common stock of the Company equal to the purchase price divided by the volume weighted average per share price of our shares for 30 consecutive trading days ending on the second trading day prior to the closing (the “VWAP”); provided that if the VWAP exceeds $0.85 per share, then the VWAP will equal $0.85 per share for purposes of the forgoing calculation. The Seller may require us to repurchase in cash 25% of the shares issued to the Seller at the closing at a repurchase price equal to the same VWAP used to determine the number of shares issued to the Seller at closing. The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, which was received on May 13, 2020, as well as other customary closing conditions.

On February 18, 2020, we entered into a promissory note exchange agreement (the “Exchange Agreement”) pursuant to which the original SBI Note was exchanged for a new convertible promissory note (the “Convertible Note”). The Convertible Note has a principal amount of $934,000, an interest rate of 10% per annum and a maturity date of February 18, 2021. The Convertible Note may be converted at the option of SBI into shares of Common Stock at a conversion price equal to 80% of the Market Price; provided that the conversion price shall in no event be less than $0.45 per share.

In February and March 2020, we issued and sold unsecured promissory notes (the “Unsecured Notes”) with an aggregate principal amount of $2,031,000 to certain investors in exchange for $525,000 of new funding and the cancellation of outstanding indebtedness of $1,506,000 represented by prior promissory notes issued by us in September 2019. The Unsecured Notes have an annual interest rate of 15% and mature on January 31, 2021 and March 1, 2021. Interest is due on a quarterly basis. In connection with the issuance of the Unsecured notes, each holder of Unsecured Notes received three warrants (i.e., a 2020 A Warrant, a 2020 B Warrant and a 2020 C Warrant) to acquire shares of Common Stock at an exercise price equal to $0.45 per share.

On March 20, 2020 we sold our greenhouse office building located in Denver, Colorado, to certain individuals for a sale price of $1,499,000 and net proceeds of approximately $600,000.

On April 7, 2020, we entered into an Asset Purchase Agreement (the “Agreement”) with The Organic Seed, LLC, doing business under the name Cannasseur (the “Seller”), pursuant to which we agreed to acquire the assets of the Seller which includes a recreational retail dispensary, a 12,000 square foot light deprivation greenhouse, and a manufacturing facility based in Pueblo West, Colorado. The Agreement provides the purchase price to acquire Cannasseur is $2,350,000 (the “Purchase Price”). The purchase price will be paid by issuing to the Seller shares of common stock of the Company equal to the purchase price divided by the volume weighted average per share price of the Company’s shares for 30 consecutive trading days ending on the second trading day prior to the closing (the “VWAP”); provided that if the VWAP exceeds $0.55 per share, then the VWAP will equal $0.55 per share for purposes of the foregoing calculation; and if the VWAP is less than $0.45 per share, then the VWAP will be adjusted to equal $0.45 for the purposes of the foregoing calculation. The closing is subject to approval of the transaction by the Colorado Marijuana Enforcement Division, as well as other customary closing conditions.

NOTE 18. SEGMENT INFORMATION

Our operations are organized into two segments: Operations Consulting and Products; and Capital Investments and Real Estate. All revenue originates, and all assets are located in the United States. Segment information is presented in accordance with ASC 280, “Segments Reporting.” This standard is based on a management approach that requires segmentation based upon the Company’s internal organization and disclosure of revenue and certain expenses based

Table of Contents

upon internal accounting methods. The Company’s financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP. The following information is presented net of discontinued operations. For more information see Note 3.

Year ended December 31

2019	Operations			Investments			Total
Services	$	1,787,863		$	—		$	1,787,863
Rent and interest	—			95,437			95,437
Product	1,783,046			—			1,783,046
Total Revenues	3,570,909			95,437			3,666,346
Costs and expenses	(3,372,174		)	(71,723		)	(3,443,897		)
	$	198,735		$	23,714		222,449
Corporate (Restated)							(14,030,707		)
Net loss							$	(13,808,258	)

2018	Operations			Investments			Total
Service	$	1,186,624		$	—		$	1,186,624
Rent and interest	—			18,749			18,749
Product	531,883			—			531,883
Total revenue	1,718,507			18,749			1,737,256
Costs and expenses	(1,932,598		)	—			(1,932,598		)
Investment in Desert Created	—			(1,005,955		)	(1,005,955		)
	$	(214,091	)	$	(987,206	)	(1,201,297		)
Corporate							(14,934,013		)
Net loss							$	(16,135,310	)

	December 31,
Total assets	2019		2018
Operations	$	441,841	$	134,786
Investments	402,988		300,000
Corporate	2,135,395		9,447,044
	$	2,980,224	$	9,881,830

Table of Contents

ITEM 9A. CONTROLS AND PROCEDURES

Restatement of Consolidated Financial Statements

Table of Contents

Evaluation of Disclosure Controls and Procedures (Restated)

Our management, with the participation of our Chief Executive Officer and Principal Accounting and Financial Officer, previously evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019 in connection with the Original Filing on May 14, 2020. Subsequently, our management, with participation of our Chief Executive Officer and Principal Accounting and Financial Officer, reevaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019. The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended. Management recognizes that any disclosure controls and procedures no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on that reevaluation, our Chief Executive Office and Principal Accounting and Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2019 because of the identification of a material weakness in our internal control over financial reporting, as described below.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

· Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and

· Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Assessment of Internal Control over Financial Reporting (Restated)

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) or Rule 15d-15(f) of the Securities and Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

a. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the Company’s assets;

b. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and the directors of the Company; and

c. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Table of Contents

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the restatement discussed above and in Note 2 to our consolidated financial statements in this Annual Report on Form 10-K/A, management, including our Chief Executive Officer and Principal Accounting and Financial Officer, reassessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Based on management’s reassessment, management is restating its report on internal control over financial reporting and has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2019, because of the material weakness described below.

We did not maintain effective controls over the accounting for the anti-dilution adjustment provisions contained in the 2019 Warrants. Specifically, the control did not operate effectively relating to the accuracy and presentation and disclosure of the accounting for certain outstanding warrant agreements. This control deficiency resulted in the misstatement of liability warrants and the misstatement of non-cash expense resulting from required periodic “mark-to-market” adjustments of the aforementioned warrants. The control deficiency described above resulted in a restatement of the Company’s consolidated financial statements as discussed above and in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K/A. If not remediated, this control deficiency could result in future material misstatements of these accounts and disclosures that would not be prevented or detected on a timely basis. Accordingly, our management has determined that this control deficiency constitutes a material weakness.

Changes in Internal Control over Financial Reporting

There have been no changes in our existing internal control structure over financial reporting during 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan

Management has developed a remediation plan to address the material weakness. Implementation of the remediation plan consists of redesigning existing quarterly control procedures to enhance management’s accounting for any derivative or convertible sercurities issued by the Company.

Management believes the foregoing efforts will effectively remediate the material weakness. As the Company continues to evaluate and work to improve its internal control over financial reporting, management may execute additional measures to address potential control deficiencies or modify the remediation plan described above. Management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as to policies and procedures to improve the overall effectiveness of internal control over financial reporting. Management also recognizes the Company’s operations and business have been disrupted to an unprecedented degree due to the conditions surrounding the COVID-19 pandemic spreading throughout the United States. These disruptions have resulted in limited access to the Company’s facilities and have interfered with management’s ability to work with its independent accountants, professional advisors and support staff in order to complete the Company’s financial statements and related disclosures. Management is also making necessary changes to the Company’s internal control environment and policies and procedures to improve the overall effectiveness of the Company’s internal control in light of the disruptions caused by the ongoing COVID-19 pandemic.

Table of Contents

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following Exhibits are filed with this Report:

Exhibit Number		Exhibit Name
2.1		Articles of Merger (Acquisition of shares in Advanced Cannabis Solutions) (Incorporated by reference to Exhibit 2 to our registration statement on Form S-1, File No. 333-193890)
2.2*		Asset Purchase Agreement dated as of January 24, 2020, by and between the Company and Dalton Adventures, LLC
2.3*		Asset Purchase Agreement, dated as of April 7, 2020, between the Company and the Organic Seed, LLC
3.1		Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.3 to our registration statement on Form S-1, File No. 333-163342)
3.2		Articles of Amendment (name change) (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on June 18, 2015)
3.3		Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to our Form 8-K filed on February 1, 2017)
10.1		Warrant to Purchase Common Stock (Incorporated by reference to Exhibit 4.2 to our Form 8-K filed on April 6, 2016)
10.2		Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 to our Form 8-K filed June 4, 2019)
10.3†		Executive Chairman of the Board and Director Agreement between the Company and Michael Feinsod dated August 4, 2014 (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on August 5, 2014)
10.4		Form of Employee Nonstatutory Stock Option Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on July 16, 2015)
10.5		Warrant to Purchase Common Stock (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on August 3, 2015)
10.6		Option for the Company to Purchase Note and Equity Interest (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on November 9, 2015)
10.7		Form of Amendment to Option to Purchase Note and Equity Interest (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on June 8, 2016)
10.8		Form of Warrant to Purchase Common Stock (Incorporated by reference to Exhibit 10.2 to our Form 8-K filed on June 8, 2016)
10.9†		Employment Agreement, dated as of December 8, 2017, among the Company and Michael Feinsod (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on December 14, 2017)
10.10†		Form of Time-Based Options Award (Incorporated by reference to Exhibit 10.2 to our Form 8-K filed on December 14, 2017)
10.11†		Form of Performance-Based Options Award (Incorporated by reference to Exhibit 10.3 to our Form 8-K filed on December 14, 2017)
10.12†		Amended and Restated 2014 Equity Incentive Plan (Incorporated by reference to Exhibit 10.2 to our Form 10-Q filed on November 8, 2018)
10.13		Agreement with Flowhub Holdings, LLC Safe dated November 5, 2018 (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed on November 9, 2018)
10.14		Form of First Amendment to Secured Promissory Note (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed May 6, 2019)
10.15		Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed June 4, 2019)
10.16		Promissory Note Purchase Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed July 24, 2019)
10.17		Form of Promissory Note (Incorporated by reference to Exhibit 10.2 to our Form 8-K filed July 24, 2019)
10.18†		Amendment to Agreements, dated August 6, 2019 (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed August 6, 2019)
10.19		Form of Securities Exchange Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed September 17, 2019)
10.20		Form of Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed September 26, 2019)
10.21		Contract to Buy and Sell Real Estate (Commercial) (Incorporated by reference to Exhibit 10.5 to our Form 8-K filed November 20, 2019)
10.22		Deed of Trust Note dated December 31, 2019 (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed January 14, 2020)
10.23		Deed of Trust, Assignment of Leases and rents, Security Agreement and Fixture Filing dated January 8, 2020 (Incorporated by reference to Exhibit 10.2 to our Form 8-K filed January 14, 2020)

Table of Contents

10.24		Form of Unsecured Promissory Note (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed February 24, 2020)
10.25		Form of 2020 A Warrant to Purchase Shares of Common Stock (Incorporated by reference to Exhibit 10.2 to our Form 8-K filed February 24, 2020)
10.26		Convertible Promissory Note (Incorporated by reference to Exhibit 10.3 to our Form 8-K filed February 24, 2020)
10.27		Promissory Note Exchange Agreement (Incorporated by reference to Exhibit 10.4 to our Form 8-K filed February 24, 2020)
10.28†*		Employment Agreement, dated December 13, 2019, between Steve Gutterman and the Company
10.29†*		Amendment to Employment Agreement, dated April 29, 2020, between Steve Gutterman and the Company
10.30†*		Amendment to Employment Agreement, dated April 24, 2020, between Michael Feinsod and the Company
14.1		Code of Ethics (Incorporated by reference to Exhibit 14.1 to our Form 10-K filed March 31, 2017)
21.1*		Subsidiaries
23.1**		Consent of Hall & Company
23.2**		Consent of Marcum LLP
31.1**		Certification pursuant to Section 302 of the Sarbanes—Oxley Act of 2002 of Principal Executive Officer
31.2**		Certification pursuant to Section 302 of the Sarbanes—Oxley Act of 2002 of Principal Financial and Accounting Officer
32.1**		Certification pursuant to Section 906 of the Sarbanes—Oxley Act of 2002 of the Principal Executive and Financial Officers
101		XBRL Interactive Data Files

(*) Filed with the Original Filing.

(**) Filed herewith

(†) Denotes management contract or compensatory plan, contract or arrangement

Table of Contents

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signature	Title	Date

/s/ Steve Gutterman	Principal Executive Officer	July 6, 2020
Steve Gutterman

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Steve Gutterman	Principal Executive Officer and Director	July 6, 2020
Steve Gutterman

/s/ Jessica Bast	Principal Financial and Accounting Officer	July 6, 2020
Jessica Bast

/s/ Michael Feinsod	Director	July 6, 2020
Michael Feinsod

/s/ Seth Oster	Director	July 6, 2020
Seth Oster

/s/ Peter Boockvar	Director	July 6, 2020
Peter Boockvar

/s/ Mark Green	Director	July 6, 2020
Mark Green

Trees (CANN) 10-K/A2019 FY Annual report (amended)