Notes to Unaudited
Condensed Consolidated Financial Statements
1. BUSINESS
Generation Hemp, Inc. (the “Company”),
formerly known as Home Treasure Finders, Inc. (“HTF”), was initially incorporated on July 28, 2008 in the State of
Colorado. On March 3, 2014, the Company formed a wholly-owned subsidiary, HMTF Cannabis Holdings, Inc. to purchase properties
that qualify for legal cultivation of cannabis. The Company generates income from its real estate holdings.
On November 27, 2019, HTF completed the
purchase of approximately 68% of the common stock of Energy Hunter Resources, Inc. (“EHR”) through the issuance of
6,328,948 shares of the Company’s Series A Preferred Stock (“Series A Preferred”). Each share of the Series
A Preferred; (a) converts into 12 shares of common stock of the Company, (b) possesses full voting rights, on an as-converted
basis, with the common stock of the Company, and (c) has no dividend rate. The acquisition, together with the other transactions
contemplated by the Stock Purchase Agreement, dated August 15, 2019 are referred to herein as the “Transaction”. In
connection with the closing of the Transaction, HTF changed its name to Generation Hemp, Inc.
In an exchange transaction also effective
November 27, 2019, the Company acquired an additional 26% of the common stock of EHR through the issuance of common stock and
warrants.
The Company owns approximately 94% of
the issued and outstanding common stock of EHR. Thus, EHR is a majority-owned subsidiary of the Company. EHR is an oil and gas
exploration and production company whose core properties as of June 30, 2020 were located in the Cochran County, Texas within
the Slaughter-Levelland Field of the San Andres formation in the Northwest Shelf of West Texas. EHR held an 8.0% interest in certain
oil and gas and/ or oil, gas and mineral leases, lands interests, and other properties located in Cochran County. EHR’s
oil & gas activities are currently held for sale and are presented in these consolidated financial statements as discontinued
operations for each of the periods presented.
Going
Concern and Management’s Plans – The Company is dependent upon
obtaining additional funding to continue ongoing operations, pursue its new strategy and execute its acquisition plans. The Company
currently has limited revenue.
Management plans to continue to pursue
additional funding opportunities, in order for the Company to meet its obligations as they become due and may not be successful
in obtaining additional financing. In the event financing cannot be obtained, the Company may not be able to satisfy its obligations
as they become due.
Based on these factors, there is substantial
doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Response
to the Coronavirus Disease 2019 (COVID-19) Pandemic on Our Business—On March 11, 2020, the World
Health Organization declared the current COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the United
States declared a national emergency. In an effort to contain COVID-19 or slow its spread, governments around the world have
enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to
their homes or places of residence and practice social distancing when engaging in essential activities. These actions and
the global health crisis caused by COVID-19 have created significant volatility, uncertainty and economic
disruption.
Our business, results of operations and
financial condition were adversely affected by the COVID-19 pandemic, especially beginning in mid-March, and such impact has materially
worsened to date in the second quarter. The COVID-19 pandemic and measures taken to contain it have subjected our business, results
of operations, financial condition, stock price and liquidity to a number of material risks and uncertainties, all of which may
continue or worsen.
The extent of the potential effect of
the COVID-19 pandemic will depend on future actions and outcomes, which are highly uncertain and cannot be predicted with confidence,
including the scope, severity and duration of the outbreak, the short-term and long-term economic impact of the outbreak (including
the effect on consumer discretionary spending and our employees in the markets in which we operate), the actions taken to mitigate
the impact of the virus, and the pace of economic and financial market recovery when the COVID-19 pandemic subsides, among others.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation—These interim financial statements are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures
have been condensed or omitted from these financial statements. Accordingly, they do not include all the information and notes
required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated
financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included
in our Annual Report on Form 10-K for the year ended December 31, 2019.
In the opinion of management, the accompanying
unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary
to fairly present the financial position as of, and the results of operations for, all periods presented. In preparing the accompanying
financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated
financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim
periods are not necessarily indicative of annual results. Certain reclassifications have been made to the prior period’s
consolidated financial statements and related footnotes to conform them to the current period presentation. Intercompany balances
and transactions between consolidated entities are eliminated.
Common
stock units issuable—From time to time, the Company accepts payment from investors for common stock unit subscriptions
pursuant to approved offerings of securities. Amounts received before completion and closing of the offerings are reported as
liabilities.
Fair
Value Measurement—Our financial assets and liabilities consist of cash, accounts receivable, accounts payable
and notes payable. The fair values of these instruments approximate their carrying amounts at each reporting date.
The Company’s non-financial assets
measured at fair value on non-recurring basis include impairment measurements of oil and gas properties and the Company’s
investment in common stock before it became publicly traded. These are considered Level 3 measurements as they involve significant
unobservable inputs.
Major
Customer and Concentration of Credit Risk—We have a limited number of customers. We estimate an allowance for
doubtful accounts based on an analysis of specific customers, taking into consideration the age of past due accounts and an assessment
of the customer’s ability to pay. An allowance for doubtful accounts was not needed as of June 30, 2020 or December 31,
2019.
Our rental income is derived from a single
lessee on a commercial warehouse owned by the Company. There were no amounts due from this customer at June 30, 2020 or December
31, 2019.
Recent
Accounting Pronouncements—In February 2016, the FASB issued ASU 2016-02, Leases, which aims to make leasing
activities more transparent and comparable and requires substantially all leases be recognized by lessees on their balance sheet
as a night-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases, Leases
of mineral reserves and related land leases are exempted from the standard. The Company adopted ASU 2016-02 on January 1, 2019
and elected the package of practical expedients within the standard which permits the Company not to reassess prior conclusions
about lease identification, lease classification and initial direct costs, The Company made an accounting policy election to not
separate lease and non-lease components for all leases. The adoption of this standard resulted in the recognition of right-of-use
assets and lease liabilities for the Company’s office lease totaling $279,111 on January 1, 2019.
3. DISCONTINUED OPERATIONS
In connection with the Transaction, management
determined to fully divest of EHR’s oil and gas activities. These activities are presented as discontinued operations for
each of the periods presented and are being actively marketed for sale.
The following is a summary of the carrying
amounts of major classes of assets and liabilities of the discontinued operations to assets and liabilities held for sale:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
Accounts receivable -
|
|
|
|
|
|
|
Current assets of discontinued operations held for sale
|
|
$
|
-
|
|
|
$
|
20,835
|
|
|
|
|
|
|
|
|
|
|
Oil and Natural Gas Properties held for sale, at cost, using the successful efforts method
|
|
|
1,874,849
|
|
|
|
5,285,340
|
|
Accumulated DD&A
|
|
|
(1,874,849
|
)
|
|
|
(4,089,179
|
)
|
Total oil and gas properties, net of discontinued operations held for sale
|
|
|
-
|
|
|
|
1,196,161
|
|
Total assets of discontinued operations held for sale
|
|
$
|
-
|
|
|
$
|
1,216,996
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
20,517
|
|
|
$
|
92,196
|
|
Asset retirement obligations
|
|
|
55,447
|
|
|
|
52,776
|
|
Revenue payable
|
|
|
52,117
|
|
|
|
70,609
|
|
Note payable
|
|
|
-
|
|
|
|
1,100,000
|
|
Current liabilities of discontinued operations held for sale
|
|
|
128,081
|
|
|
|
1,315,581
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations -
|
|
|
|
|
|
|
|
|
Long term liabilities of discontinued operations held for sale
|
|
|
119,346
|
|
|
|
119,657
|
|
Total liabilities of discontinued operations held for sale
|
|
$
|
247,427
|
|
|
$
|
1,435,238
|
|
The following is a summary of the major
classes of line items constituting loss on discontinued operations shown in the consolidated statements of operations:
|
|
For the three months ended
June 30,
|
|
|
For the six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenue -
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales
|
|
$
|
9,217
|
|
|
$
|
78,447
|
|
|
$
|
80,325
|
|
|
$
|
367,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense
|
|
|
22,033
|
|
|
|
45,796
|
|
|
|
60,337
|
|
|
|
237,225
|
|
Depreciation, depletion & amortization
|
|
|
1,928
|
|
|
|
19,709
|
|
|
|
9,942
|
|
|
|
47,717
|
|
Accretion
|
|
|
4,309
|
|
|
|
3,966
|
|
|
|
8,605
|
|
|
|
25,042
|
|
Gain on disposal of oil & gas property interests
|
|
|
(24,008
|
)
|
|
|
-
|
|
|
|
(24,008
|
)
|
|
|
(1,666,790
|
)
|
Impairment & abandonment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
229,466
|
|
Mergers & acquisition costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
Total costs and expenses
|
|
|
4,262
|
|
|
|
69,471
|
|
|
|
54,876
|
|
|
|
(1,027,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(881,697
|
)
|
Interest expense
|
|
|
9,167
|
|
|
|
13,750
|
|
|
|
22,917
|
|
|
|
13,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
(4,212
|
)
|
|
$
|
(4,774
|
)
|
|
$
|
2,532
|
|
|
$
|
2,262,674
|
|
2019
Disposal of Oil & Gas Property Interests—On March 1, 2019, the Company entered into a Termination,
Repurchase and Release Agreement (the “Agreement”) with Lubbock Energy Partners LLC (“LEP”) wherein
the Company reassigned a 52% working interest in the oil & gas assets acquired in the San Andres Acquisition #1 back to LEP
(with the Company continuing to hold an 8% working interest in those assets) in exchange for the return and cancellation of 412,500
shares of the Company’s Series A Preferred Stock plus all accrued and unpaid dividends thereon and LEP’s assumption
of the Company’s obligations under its Senior Subordinated Debentures totaling $400,000. Operatorship of the oil & gas
assets was transferred by the Company to LEP, and amounts owed by the Company to LEP and all trade payables associated with the
assets were memorialized in the form of a non-recourse promissory note totaling $1.1 million. The Company and LEP also entered
into certain financial arrangements and mutual releases in order to settle all existing disputes relating to the assets arising
prior to the effective date. The promissory note was due March 1, 2020, bore interest at 5% per annum and required no payments
until maturity. The Company recognized a gain on disposal of $1,666,790 within the loss from discontinued operations in the consolidated
statements of operations. In May 2020, the $1.1 million non-recourse promissory note and accrued interest thereon was settled
upon LEP’s foreclosure of the Company’s Gap Band property interest.
Impairment
of Oil & Gas Property Interests—In the fourth quarter of 2019, the Company’s oil and gas properties
became impaired due to the market decline and the Company’s determination to exit the oil and gas business. The Company’s
interest in the San Andres Acquisition #1 was determined to be fully impaired and its interest in the Gap Band property was determined
to have a fair value of $1.2 million. Impairment expense totaling $3,730,678 was recorded in the fourth quarter of 2019 within
the loss from discontinued operations in the consolidated statements of operations to reduce the carrying values of the Company’s
oil and gas property interests to their estimated fair values.
2020
Disposal of Gap Band Property Interest—In May 2020, LEP completed the foreclosure of the Company’s
remaining ownership interest in the Gap Band property due to the Company’s default on its $1.1 million non-recourse promissory
note and accrued interest thereon. The Company recognized a gain of $24,008 in the second quarter of 2020 as a result of this
disposal.
4.
NOTES PAYABLE—RELATED PARTIES
Senior
Secured Promissory Note—On March 31, 2017, the Company entered into a subscription agreement under which
we issued a $3,000,000 10% Senior Secured Promissory Note with an initial maturity of September 1, 2017 to Satellite Overseas
(Holdings) Limited (“SOHL”), a stockholder of the Company’s common shares. The Senior Secured Promissory Note
was funded through three equal monthly draws of $1 million made in April, May, and June 2017. Upon maturity, at the option of
the holder, the Senior Secured Promissory Note may either become due and payable or convert into shares of common stock at 75%
of the share price in a qualified equity offering.
The
Company and SOHL agreed to nine interim extensions of the maturity date. As extended, the maturity date was April 30, 2020. There
have been no formal demands of repayment since this maturity. The interest rate of the Senior Secured Promissory Note is
12%.
The
contingent put option in the Senior Secured Promissory Note is an embedded derivative that is recorded at fair value. The fair
value calculation includes Level 3 inputs including the estimated fair value of the Company’s common stock and assumptions
regarding the probability that the contingent put will be exercised. Management determined that the probability that the convertible
note will be settled in shares was near zero at inception and has remained near zero during the term of the promissory note. The
holder has indicated to the Company that they do not intend to exercise the conversion option. Therefore, the Company concluded
that the fair value of the embedded derivative was near zero throughout the term of the convertible note.
The
outstanding balance of the Senior Secured Promissory Note was $1,500,000 at June 30, 2020 and December 31, 2019. Accrued interest
and fees on the Senior Secured Promissory Note were $327,500 and $247,500 at June 30, 2020 and December 31, 2019, respectively.
Convertible
Promissory Note—In October 2019, HTF issued a convertible promissory note to EHR in exchange for EHR’s
payment of HTF’s accounts payable and Transaction expenses. The convertible promissory note bears interest at 4% per annum
and matures on November 1, 2021. Commencing 180 days subsequent to the date of the convertible promissory note, any portion or
all of the principal and accrued interest payable is convertible by the holder at any time prior to payment into the common stock
of the Company at a rate of $0.352 of principal and/or interest per share.
EHR distributed the convertible promissory
note receivable to its shareholders prior to consummation of the Transaction. The outstanding balance owed by the Company under
this convertible promissory note was $208,874 at June 30, 2020 and December 31, 2019.
Subordinated
Promissory Note—Our CEO made advances totaling $205,000 during the first six months of 2020 under a subordinated
promissory note due September 30, 2021. The note bears interest at 10% per annum. Accrued interest on this subordinated promissory
note totaled $11,266 at June 30, 2020.
5. OTHER INDEBTEDNESS
Mortgage
Payable and Operating Lease—The Company is obligated under a mortgage
payable, dated September 15, 2014 and as amended October 1, 2019, secured by its warehouse property located in Denver, Colorado.
The note provides for a 25 year amortization period and an initial interest rate of 9% annually. As amended, the note matured
on July 15, 2020 but was extended under terms of the amendment to January 15, 2021 after payment by the Company of a extension
fee of 1% of the then outstanding principal. The rate during this first extension period is 10% annually and the monthly payment
is $5,590. The maturity date may be subsequently extended at the Company’s option to July 15, 2021 after payment again of
a extension fee of 1% of the then outstanding principal. The interest rate will increase to 11% annually if this extension is
made.
As of June 30, 2020, the balance of the
mortgage payable was $622,471 and the present maturity is January 15, 2021. As of December 31, 2019, the balance of the mortgage
payable was $626,086.
The Company leases the Denver warehouse
property to a tenant under an operating leases expiring June 30, 2021 for a monthly rent of $7,500. The lease requires the tenant
reimburse us for property taxes and insurance and maintains the interior and exterior of the warehouse (except for the roof).
Minimum future rents for the remainder of 2020 are $45,000 and for 2021 are $45,000.
Paycheck
Protection Program Loan— Congress created the Payroll Protection Program (“PPP”) under the
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide forgivable loans to eligible small businesses
facing economic hardship to retain U.S. employees on their payroll during the Coronavirus Disease 2019 (“COVID-19”)
pandemic.
PPP loan recipients may be eligible to
have their loans forgiven if the funds were used for eligible expenses over the eight-week coverage period commencing when the
loan was originally disbursed. The amount of forgiveness may be reduced if the percentage of eligible expenses attributed to nonpayroll
expenses exceeds 25% of the loan, if employee headcount decreases, or compensation decreases by more than 25% for each employee
making less than $100,000 per year, unless the reduced headcount or compensation levels are restored.
On April 29, 2020, Generation Hemp, Inc.
received disbursement of an approved PPP loan in the amount of $25,200. The Company anticipates that this entire disbursement
amount will be forgiven under the current program requirements for forgiveness eligibility.
6. COMMITMENTS AND CONTINGENCIES
Leases—On
March 31, 2019, the Company abandoned its office lease. This office lease required monthly payments of $10,802 until its expiration
on May 31, 2021. No rent payments have been made since abandonment. The lessor has made a claim for rent and the Company has made
a counterclaim due to the premises being uninhabitable due to the actions of other tenants located on the floor. At June 30, 2020,
the Company had accrued unpaid rent totaling $252,583.
Rent expense for the three and six months
ended June 30, 2020 totaled $4,555 and $8,380, respectively. Rent expense for the three and six months ended June 30, 2019 totaled
$8,339 and $55,076, respectively.
Litigation—From
time to time, we are subject to various litigation and other claims in the normal course of business. Below is a discussion
of two specific matters. We cannot estimate the ultimate outcome of these matters.
JDONE, LLC v. Grand Traverse Holdings,
LLC and John Gallegos, Denver District Court Case No. 2019CV33723
JDONE is a wholly owned subsidiary of
the Company and landlord of a commercial warehouse building that was leased to Grand Traverse on December 31, 2018 for a term
of 61 months, with a personal guaranty from Defendant John Gallegos. On April 12, 2019, Grand Traverse presented JDONE with a
forged, signed copy of the draft early termination amendment that JDONE had previously rejected. JDONE has suffered damages due
to Defendant’s misconduct of $823,504 plus interest and attorney’s fees. A court ordered mediation was held in May
2020 without success. All material defendant motions have been denied by the court. The case is set for jury trial in calendar
year 2021.
KBSIII Tower at Lake Carolyn, LLC and
Prime US-Tower at Lake Carolyn, LLC (collectively – “KBSIII”) vs. Energy Hunter Resources, Inc.
Plaintiff/Counterdefendant KBSIII is seeking
lost rent on office space for periods after EHR vacated office premises located in Las Colinas, Texas. EHR has filed a counter
suit alleging specific damages due to uninhabitable premises of the office space due to the intolerable conduct of other tenants
located on the same floor. On December 23, 2020, the trial court entered a summary judgment against EHR for $230,712. The judgment provides for post-judgment interest
at a rate of 5% per annum until paid and further provides for additional amounts owed should EHR pursue unsuccessful appeals to higher
courts. The previous judge who entered the judgment has left the bench. A new judge has been appointed to this court and the Company has
filed a motion for a new trial based upon erroneous amounts awarded in the summary judgment.
7. EQUITY
Issuance
of common stock units—In February 2020, the Company issued 250,000 common units for $100,000. Each unit
consisted of one share of common stock and a warrant for purchase of one common share for $0.40 per share. The warrant expires
March 1, 2022 and contain certain anti-dilution provisions requiring a downward adjustment to the exercise price of the warrant
if dilutive instruments are issued at prices less than the warrant exercise price. Proceeds of this issuance were used for general
corporate purposes.
The common stock issued in the exchange
was valued using the traded price of the common stock on February 20, 2020. The warrants were valued at $45,848 using a binomial
lattice valuation model using inputs as of the exchange date. Our expected volatility assumption was based on the historical volatility
of the Company’s common stock (252%). The expected life assumption was based on the expiration date of the warrant (two
years). The risk-free interest rate for the expected term of the warrant was based on the U.S.Treasury yield curve in effect at
the time of measurement (1.39%). The warrants are classified within equity in the consolidated balance sheets. Under GAAP, the
anti-dilution provisions will be accounted for if and when these provisions are triggered.
Common
stock warrants outstanding—Following is a summary of warrants outstanding as of June 30, 2020:
|
|
# of Warrants
|
|
|
Exercise
Price (each)
|
|
|
Expiration Date
|
|
Method of Exercise
|
|
|
|
|
|
|
|
|
|
|
|
Issued upon exchange of EHR Series C Preferred Stock (1)
|
|
|
7,244,319
|
|
|
$
|
0.352
|
|
|
November 27, 2021
|
|
Cash
|
Issued upon exchange of EHR Series C Preferred Stock (1)
|
|
|
7,244,319
|
|
|
$
|
0.352
|
|
|
November 27, 2021
|
|
Cashless
|
Issued in February 2020 with common stock units (2)
|
|
|
250,000
|
|
|
$
|
0.400
|
|
|
March 1, 2022
|
|
Cash
|
(1)
|
May be redeemed beginning October
1, 2020 for $0.0001 per warrant at the Company’s option with 30 days advanced notice should the weighted average market
price of common stock exceed $1.00 for any five out of seven consecutive trading days with a minimum average daily trading
volume for such seven-day period of at least 25,000 shares of common stock.
|
|
|
(2)
|
Contains certain anti-dilution provisions
requiring a downward adjustment to the exercise price of the warrant if dilutive instruments are issued at prices less than
the warrant exercise price.
|
8. INCOME TAXES
Income tax provisions for interim quarterly
periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant,
infrequent or unusual items related specifically to interim periods.
An income tax benefit for the three or
six months ended June 30, 2020 was not recognized because the Company expects to incur a tax loss in the current year. This tax
loss is expected to result in a net operating loss carryforward at year-end; which is expected to be fully offset by a valuation
allowance.
The Company did not recognize any income
tax benefit for the three or six months ended June 30, 2019 because tax losses incurred for the year were fully offset by a valuation
allowance against deferred tax assets.
There were no uncertain tax positions
as of June 30, 2020.
9. SUPPLEMENTAL CASH FLOW INFORMATION
|
|
For the six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Initial recognition of right to use asset and lease liabilities
|
|
|
-
|
|
|
|
279,111
|
|
Right of use asset amortization
|
|
|
-
|
|
|
|
31,537
|
|
Apply deposit against lease liability
|
|
|
-
|
|
|
|
10,690
|
|
10. EARNINGS (LOSS) PER SHARE
The following is the computation of earnings
(loss) per basic and diluted share:
|
|
For the three months ended
June 30,
|
|
|
For the six months ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Amounts attributable to Generation Hemp:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations attributable to common stockholders
|
|
$
|
(256,337
|
)
|
|
$
|
(288,358
|
)
|
|
$
|
(975,224
|
)
|
|
$
|
(1,358,803
|
)
|
(Loss) income from discontinued operations
|
|
|
(3,948
|
)
|
|
|
(4,774
|
)
|
|
|
2,373
|
|
|
|
2,262,674
|
|
Net (loss) income attributable to common stockholders
|
|
$
|
(260,285
|
)
|
|
$
|
(293,132
|
)
|
|
$
|
(972,851
|
)
|
|
$
|
903,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used to compute basic EPS
|
|
|
17,380,317
|
|
|
|
418,342
|
|
|
|
17,311,636
|
|
|
|
418,342
|
|
Dilutive effect of preferred stock
|
|
|
75,947,376
|
|
|
|
75,947,376
|
|
|
|
75,947,376
|
|
|
|
75,947,376
|
|
Dilutive effect of common stock warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
743,784
|
|
|
|
-
|
|
Weighted average shares used to compute diluted EPS
|
|
|
93,327,693
|
|
|
|
76,365,718
|
|
|
|
94,002,796
|
|
|
|
76,365,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(3.25
|
)
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.69
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(3.25
|
)
|
(Loss) income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
5.41
|
|
Diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
0.00
|
|
|
$
|
0.03
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.01
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
2.16
|
|
Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The computation of diluted earnings per
common share excludes the assumed conversion of the Series A Preferred Stock and exercise of common stock warrants in periods
when we report a loss. The dilutive effect of the assumed exercise of outstanding warrants was calculated using the treasury stock
method. A total of 14,601,275 outstanding warrants are excluded from the computation of diluted shares for the three months ended
June 30, 2020 because their effect would be anti-dilutive. A total of 181,319 warrants were similarly excluded in the computation
for the six months ended June 30, 2020.
11. SUBSEQUENT EVENTS
Issuance
of Subordinated Promissory Note to Our CEO—Our CEO made additional advances through 2020 under a subordinated
promissory note due September 30, 2021. The total outstanding balance at January 29, 2021 was $490,000.
Issuance
of Preferred Stock Units—On December 30, 2020, the Company sold to certain accredited investors,
including Gary C. Evans, Chief Executive Officer, an aggregate of 135 common stock units comprised of (i) one share of Series
B Redeemable Convertible Preferred Stock, no par value, and (ii) one warrant exercisable for 50,000 shares of common stock of
the Company.
The
sale of the Preferred stock units for $10,000 each resulted in aggregate gross proceeds of approximately $1.35 million,
before deducting estimated offering expenses payable by the Company. Substantially all of the proceeds raised in the offering
were used to fund the acquisition of assets of Halcyon Thruput, LLC, expenses related thereto and for general
corporate purposes.
Each share of Series B Preferred Stock
is initially convertible into 25,000 shares of common stock, subject to adjustment. Holders of Series B Preferred Stock are entitled
to receive dividends of 6.00% per annum based on the stated value equal to $10,000 per share. Except as otherwise required by
law, the Series B Preferred Stock does not have voting rights. However, as long as any shares of Series B Preferred Stock are
outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of
the Series B Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Series B Preferred
Stock, (b) alter or amend the related certificate of designation, (c) amend its certificate of incorporation or other charter
documents in any manner that adversely affects any rights of the holders of Series B Preferred Stock, (d) repay, repurchase or
offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its common stock, (e) enter into any
agreement with respect to any of the foregoing, or (f) pay cash dividends or distributions on any equity securities of the Company
other than pursuant to the terms of the its outstanding Series B Preferred Stock. The Series B Preferred Stock does not have a
preference upon any liquidation, dissolution or winding-up of the Company.
Beginning
the later of June 30, 2021 or the effectiveness of any registration statement registering the underlying common shares,
all or any portion of the Series B Preferred Stock may be converted, at their holder’s option, into 25,000 shares of common
stock, as adjusted for any stock dividends, splits, combinations or similar events.
At any time after the occurrence of a
“Qualifying Event,” the Company, upon 5-day written notice, shall have the right to cause each share of Series B Preferred
Stock (and all accrued in-kind dividends with respect thereto) to be converted into common stock. For purposes this automatic
conversion of the Series B Preferred Stock, a "Qualifying Event" shall have occurred if (A) (1) the rolling five (5)-trading
day volume-weighted average trading price of shares of the common stock exceeds $1.00, and (2) there shall be an effective registration
statement under the Securities Act of 1933, as amended covering all of the shares of common stock which would be issuable upon
conversion of all of the outstanding shares of Series B Preferred Stock or (B) the Company closes a firm commitment underwriting
of the common stock on a Form S-1 Registration Statement with aggregate gross proceeds of at least $5,000,000 at a price per share
equal to or greater than $1.00.
The Series B Preferred Stock may be redeemed
by the Company for its stated value, plus accrued and unpaid dividends, at any time. On March 31, 2021, and June 30, 2021, September
30, 2021, December 31, 2021, a payment of 12.5% of the total amount of Series B Preferred Stock then outstanding plus accrued
dividends will be due from the Company to each Holder of Series B Preferred Stock as a partial redemption by the Company of such
Holder.
Each warrant is exercisable until the
24-month anniversary of the date of issuance at an exercise price of $0.352 per share. The exercise price of the warrants will
be subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization
or similar transaction. The warrants may only be exercised for cash.
Issuance
of Subordinated Promissory Note and Warrants to Investor—On December 30, 2020, the Company issued a subordinated
promissory note in principal amount of $500,000 to an accredited investor. The unpaid balance of the Subordinated Note bears interest
at a rate of 10% per annum. The subordinated note and accrued and unpaid interest are due September 30, 2021. The Company will
make payments of principal of $250,000 on March 30 and September 30, 2021.
If at any time prior to September 30,
2021, the Company raises new equity capital in the amount of $5,000,000 or more, then within five (5) business days of closing,
repayment of all outstanding principal and interest on the Subordinated Note will be due.
In addition, the holder of the Subordinated
Note received a warrant to purchase 500,000 shares of Common Stock on terms and conditions substantially similar to those provided
in the above described warrant.
Acquisition
of Assets of Halcyon Thruput, LLC—On January 11, 2021, the Company completed the acquisition of 100% of
the assets of Halcyon Thruput, LLC (“Halcyon Thruput”) pursuant to the Asset Purchase Agreement dated March 7, 2020,
as amended on January 11, 2021. The purchase consideration totaled approximately $5.1 million consisting of 6,250,000 shares of
Company common stock valued at $2.5 million (valued at $0.40 per share; restricted from trading for a period of up to one year),
$1.75 million in cash, a promissory note for $850 thousand issued by the Company’s subsidiary, GenH Halcyon Acquisition,
LLC, and guaranteed by Gary C. Evans, CEO of the Company, and assumption of approximately $1.0 million of new indebtedness of
Halcyon Thruput.
The Company will continue Halcyon Thruput’s
business of providing post-harvest and midstream services to growers by drying, processing, cleaning, stripping harvested hemp
directly from the field and wetbaled at its 48,000 square foot facility located in Hopkinsville, Kentucky.
Concurrent with the closing of the asset
acquisition, the Company entered into term employment agreements with Jack Sibley and Watt Stephens to serve as Vice Presidents
of GenH Halcyon Acquisition, LLC for a term of at least two years. The term employment agreements each provide for the issuance
of 250,000 shares of restricted common stock of the Company as a signing bonus. Such shares are subject to restrictions on the
trading or transfer of such common stock as described therein.
Further, the term employment agreements
each provide for the payment by the executives of liquidated damages if the employee terminates his employment without good reason
during the initial term, other than due to the employee’s death or disability. Such liquidated damages total $600,000 if
such termination occurs on or prior to January 11, 2022 or $375,000 if such termination occurs after January 11, 2022 and prior
to January 11, 2023.
* * *
* *