Post Qualification Amendment No. 4

File No. 024-11093

Explanatory Note

This Post-Qualification Amendment No. 4 (this “Amendment No. 4”) amends and supplements the information contained in the Offering Circular on Form 1-A/A of Mystic Holdings, Inc. that was qualified by the Securities and Exchange Commission (the “SEC”) on March 20, 2020 (as the same may be amended and supplemented from time to time, the “Offering Circular”), and should be read in conjunction with the Offering Circular, the exhibits thereto and any materials distributed therewith. No person has been authorized to make representations or give any information with respect to the securities offered hereby other than those contained in the Offering Circular, as amended hereby.

This Amendment No. 4 has been prepared to reflect certain changes that have occurred subsequent to the date of the Offering Statement and certain changes to the terms of the offering described in the Offering Circular. Terms used in this Amendment No. 4 and not defined herein have the meanings ascribed to them in the Offering Circular. As used herein, the terms “we,” “our,” “us” and similar phrases refer to Mystic Holdings, Inc. To the extent any information disclosed in this Amendment No. 4 is inconsistent with the Offering Circular, the information disclosed herein shall be deemed to update and supersede such information in the Offering Circular and all other information in the Circular and the exhibits thereto directly derived therefrom. However, except as amended hereby, the Offering Circular shall remain unmodified. See “Incorporation by Reference of Offering Circular” below.

PART II - OFFERING CIRCULAR

50,000,000 Shares

Mystic Holdings, Inc.

Common Stock

This is an initial public offering of shares of our common stock. We are offering on a best efforts basis up to 50,000,000 shares of our common stock, with a minimum offering amount of 5,000,000 shares of our common stock. The initial public offering price is $1.00 per share.

Prior to this offering, there has been no public market for our common stock. This offering is being conducted pursuant to Regulation A (Regulation A+) of Section 3(6) of the Securities Act of 1933, as amended (the “Securities Act”), for Tier 2 offerings, where the offered securities will not be listed on a registered national securities exchange upon qualification.

We have entered into a tax-free share-for-share exchange transaction (the “Share Exchange”) pursuant to which Qualcan (Canada) Holdings Inc., a newly-formed British Columbia corporation (“Qualcan Canada”), would acquire all of the outstanding shares of our company. If the Share Exchange is completed, our company would become a wholly-owned subsidiary of Qualcan Canada and the former stockholders of our company, including investors in this offering, would become shareholders of Qualcan Canada, holding collectively approximately 90% of its outstanding shares. Qualcan Canada, which would retain its corporate name, would continue our existing cannabis operations as its only line of business and our existing management would assume their same positions with Qualcan Canada. If the Share Exchange is completed, Qualcan Canada would pursue an initial public offering of its common shares in Canada and seek to list the shares for trading on the Canadian Securities Exchange (the “Canadian Public Offering”). We are contractually obligated to seek stockholder approval for the Share Exchange by affirmative vote of a majority of our outstanding shares after the closing of this offering so that any investors in this offering would have the opportunity to vote along with our three affiliated stockholders, Lorenzo Barracco, Daniel V. Perla and Alexander Scharf. These individuals, who have not previously approved the Share Exchange in their capacities as stockholders, collectively own approximately 100%, 93% and 58% of our outstanding shares of common stock before this offering and after this offering assuming the minimum and maximum number of shares are sold, respectively (without giving effect to the conversion of our 8% convertible debentures into an aggregate of 16,500,000 shares). The Share Exchange is subject to various closing conditions, including the approval of Nevada governmental authorities to transfer our cannabis licenses, and we cannot predict when, or even if, such approval will be granted. If we fail to obtain the requisite stockholder and governmental approvals or satisfy any of the other conditions precedent to the Share Exchange, the Share Exchange and Canadian Public Offering will not be completed. Even if the Share Exchange is completed, we cannot predict exactly when, or even if, the Canadian Public Offering will take place.

For a detailed description of the Share Exchange and Canadian Public Offering, see “The Share Exchange Transaction” beginning on page 8 of the Offering Circular.

The Share Exchange, if completed, would result in the exchange of common stock held by our stockholders, including investors in this offering, for shares of Qualcan Canada. Our former stockholders would become the holders of shares in the capital of a British Columbia corporation organized under the Business Corporations Act (British Columbia) (the “BCA”). For a detailed description of the differences between the laws of the State of Nevada and the laws of the Province of British Columbia that may impact our stockholders, including investors in this offering, see “Material Differences of the Rights of Our Stockholders after the Share Exchange” beginning on page 10 of the Offering Circular.

Investing in our common stock may be considered speculative and involves a high degree of risk, including the risk of losing your entire investment. See “Risk Factors” beginning on page 15 of the Offering Circular to read about the risks you should consider before buying shares of our common stock.

We intend to sell our shares directly to investors and not through a placement agent or other registered broker-dealer who is paid sales commissions. We do not intend to close this offering unless we sell at least a minimum number of 5,000,000 shares of common stock, at the price per share set forth in the table above. This offering will terminate on June 30, 2021, unless we sell the maximum number of shares of common stock set forth above before that date or we decide to terminate this offering prior to that date. The gross proceeds of this offering will be deposited at a bank or other financial institution in a segregated account. Subscription funds placed in the segregated account may only be released if the minimum stock sale condition is satisfied. In the event we do not sell a minimum of 5,000,000 shares of common stock and raise minimum gross proceeds of $5,000,000 by June 30, 2021, all funds received will be promptly returned to investors without interest or offset.

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or your net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

This offering circular contains all of the representations by us concerning this offering, and no person shall make different or broader statements than those contained herein. Investors are cautioned not to rely upon any information not expressly set forth in this offering circular.

The securities underlying this offering circular may not be sold until qualified by the SEC. This offering circular is not an offer to sell, nor soliciting an offer to buy, any of our securities in any state or other jurisdiction in which such sale is prohibited.

THE SEC DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SEC; HOWEVER, THE SEC HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

TABLE OF CONTENTS

INCORPORATION BY REFERENCE OF OFFERING CIRCULAR

The Offering Circular, including this Amendment No. 4, is part of an Offering Statement (File No. 024-11093) that we filed with the SEC. We hereby incorporate by reference into this Amendment No. 4 all information contained in the Offering Circular to the extent permitted pursuant to General Instruction III(a)(1) of Form 1-A. Information incorporated by reference to the Offering Circular is further amended, updated and/or replaced as set forth below under “Amended and Updated Information”. Note that any statement made in this Amendment No. 4 (or in the Offering Circular) may be further modified or superseded by us in a subsequent offering circular supplement or post-qualification amendment.

AMENDED AND UPDATED INFORMATION

The following sections of the Offering Circular are amended as set forth below.

Status of Offering

The following disclosure is added on page 29 of the Offering Circular in a new subsection entitled “Status of Offering” following the subsection “Plan of Distribution.”

Through November 5, 2020, we have received approximately $6,358,410 in cleared subscriptions for this offering. Discussions and marketing efforts with investors are ongoing. To date, no funds have been released to us from the segregated bank account holding such funds. We currently expect to hold an initial closing for the minimum offering amount by the end of December 2020.

Offering Period and Expiration Date

The following replaces the subsection entitled “Offering Period and Expiration Date” on page 30 of the Offering Circular.

This offering will start on or after the date that this offering is qualified by the SEC and will terminate on June 30, 2021.

Results of Operations

The following is added on page 33 of the Offering Circular under “Results of Operations.”

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this Amendment No. 4. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the Statements Regarding Forward Looking Information contained in the Offering Circular.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue for the six months ended June 30, 2020 was $5,617,446, with $2,358,733 in gross profit, and 42% gross margin. Average quarterly revenue was $2,808,723 over the two first quarters of 2020, compared to average quarterly revenue of $1,115,656 over the four quarters of 2019, an increase of $1,693,067, or 152%.

These numbers reflect our recent efforts to ramp up administrative operations in two dispensary outlets. In addition to focusing on various preparations for adding the retail channel to our management structure, we have also been allocating a percentage of our production capacity to a holding vault to be utilized in stocking our new dispensary outlets. This has had an effect on sales as we’ve managed to increase our quarterly pace nominally, with revenue holding constant for the most part. This improvement was a direct result of an increase in the popularity of our flower and edible brands, having been fueled by a growth in our client base from 29 dispensaries in the first quarter of 2019, to as many as 34 in the first quarter of 2020. This revenue growth was made possible through increases in flower yield per plant, which trickles down as a cost benefit to the production level by providing our extraction team with additional in-house source material and gaining operational control over the two dispensaries being acquired from Medifarm LLC and Medifarm I LLC.

In addition to the focus on improving wholesale market presence, we were also able to increase our gross margin from 16% to 42% and increase our revenues by 171% from the first six months of 2019 to the first six months of 2020, with only a nominal increase to our direct costs of 88%. These metrics imply an improvement to overall efficiency of production, thus rendering a 579% increase to gross profit and 163% increase to gross margin from the first six months of 2019 to the first six months of 2020. Moving forward, we will continue to employ several mechanisms designed to sustain our aggressive trend in the increase of overall efficiency and improved margins, including (1) a more economically-compelling cultivation program (increasing our yield per plant/square foot), (2) automation of some aspects of the production chain and supply chain optimization, (3) economies of scale and (4) the effective operation of our dispensary outlets which will implicitly increase revenues while also reducing our cost of labor.

Operating expenses for the six months ended June 30, 2020 were $2,920,844, and include depreciation expense of equipment amortization of intangible assets which together equate to $851,731, or 29% of operating expenses for the six months ended June 30, 2020. An increase in expenses overall in 2020 is anticipated due to the costs associated with the holding inventory in exchange for the forfeitures of sales and increasing administrative functions of our dispensary outlets.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue for the year ended December 31, 2019 was $4,462,624, compared to $3,779,214 for the year ended December 31, 2018, an increase of $683,410, or 18% year over year. This increase in revenue from 2018 to 2019 is indicative of an increase in popularity of our flower and edible brands. This revenue growth was made possible through increases in flower yield per plant, which trickles down as a cost benefit to the production level by providing our extraction team with additional in-house source material. Meanwhile, gross profit and gross margin were $150,518 and 3%, respectively for the year ended December 31, 2019, compared to ($426,222) and 0%, respectively for the year ended December 31, 2018. These numbers reflect an improvement to overall efficiency of production. Moving forward, we will continue to employ several mechanisms designed to sustain our aggressive trend in the increase of overall efficiency and improved margins, including (1) a more efficient cultivation program (increasing our yield per plant/square foot), (2) automation of some aspects of the production chain and supply chain optimization, (3) economies of scale, and (4) the effective operation of our planned dispensary outlets which will increase revenues while also reducing our cost of labor.

Operating expenses for the year ended December 31, 2019 were $1,957,719, compared to $1,543,471 for the year ended December 31, 2018, an increase of $414,248, or 26.8% year over year. This was primarily due to increased depreciation and amortization expense resulting from the operational control transfer to our subsidiary Picksy, LLC, of Medifarm LLC’s cannabis dispensary located at 1130 East Desert Inn Road, Las Vegas. The depreciation and amortization expenses for the year ended December 31, 2019 were $423,118, which equates for 22% of the total operating expenses.

Liquidity and Capital Resources

The following is added on page 34 of the Offering Circular under “Liquidity and Capital Resources.”

As of June 30, 2020, we had cash and cash equivalents of $1,333,502, compared to $247,926 as of December 31, 2019, an increase of $1,085,576. Management anticipates that going forward, we will be able to generate sufficient cash flows from our operating activities to meet our short-term capital requirements.

Net cash used in operating activities was $2,363,761 for the six months ended June 30, 2020, compared to $696,927 for the six months ended June 30, 2019, an increase of $1,666,834.

Net cash used in investing activities was $13,044,292 for the six months ended June 30, 2020, compared to $0 for the six months ended June 30, 2019, an increase of $13,044,292. In 2020, this primarily consisted in the acquisition of dispensary assets.

Net cash provided from financing activities was $16,493,629 for the six months ended June 30, 2020, compared to $1,681,483 for the six months ended June 30, 2019, an increase of $14,812,146. In 2019, this primarily consisted of proceeds from debt borrowings. In 2020, this primarily consisted of proceeds from issuance of notes payable and proceeds from this offering.

Short-term Debt

As of June 30, 2020 and December 31, 2019, our short-term debt consisted of the following:

Long-term Debt

As of June 30, 2020 and December 31, 2019, our long-term debt consisted of the following:

Related Party Transactions

As of June 30, 2020 and December 31, 2019, we had the following balances due from (to) to related parties:

Previously, Convenient Labor, LLC and Employees4Hire, LLC were used to lease employees to the Company on a “pass-through” basis, in which the Company reimbursed the applicable entity for all of the employees’ compensation including related taxes, without any markup. Convenient Labor, LLC is controlled by Lorenzo Barracco and Employees4Hire, LLC is controlled by Heather Cranny, our Chief Financial Officer. As of June 30, 2020, no employees are leased from related parties. The balances due to these related entities are due on demand and bear a nominal rate of interest.

Dal Toro Holdings II, LLC, a company controlled by Lorenzo Barracco, our Chairman and Chief Executive Officer, loaned funds to us in 2017 and 2018. The balances due to this related entity are due on demand and bear a nominal rate of interest.

Green Wagon Holdings, LLC is an entity that shares common ownership with our company, and its two subsidiaries lease building space to us. The balances due to this entity are due on demand and bear a nominal rate of interest.

Ketores Holdings, LLC, a company controlled by Alexander Scharf, a director, loaned funds to us in 2017 and 2019. The balances due to this related entity are due on demand and bear a nominal rate of interest.

Panorama Crest, LLC, a company controlled by Daniel V. Perla, a director, loaned funds to us in 2017 and 2018. The balances due to this related entity are due on demand and bear a nominal rate of interest.

The related individual is the mother of Lorenzo Barracco. The balances due to this related individual began bearing interest in September 2018 at 10% per annum, with a maturity date of December 31, 2019.

Business Developments

The following disclosure is added on page 47 of the Offering Circular in a new subsection entitled “Business Developments.”

Legal Proceedings; Conditional Licenses Granted

As discussed in the Offering Circular, on or about September 5, 2019, our subsidiary Qualcan filed an action (the “Action”) against the Nevada Department of Taxation (the “DOT”) in the Eighth Judicial District Court, Clark County, Nevada concerning the DOT’s denial of our application for five licenses to own and operate recreational marijuana retail stores in Clark County (Henderson), Clark County (Las Vegas), Clark County (North Las Vegas), Clark County (unincorporated), and Washoe County (Reno). The Action sought, among other things, to (i) find that the DOT improperly denied our applications, (ii) compel the DOT to revoke the conditional licenses previously issued in those jurisdictions to several other companies with whom we compete, and (iii) direct the DOT to issue Qualcan, LLC five conditional licenses for the operation of recreational marijuana establishments in those jurisdictions. Our Action was joined and consolidated with separate lawsuits brought by other plaintiffs challenging the DOT’s issuance of licenses into case No. A-19-787004-B, filed in the Eight District Court, Clark County, Nevada (the “Consolidated Lawsuit”).

On July 27, 2020, Qualcan entered into a Settlement Agreement (the “Settlement Agreement”) with the DOT and other parties to the Consolidated Lawsuit. Under the terms of the Settlement Agreement, Qualcan received two (2) conditional Nevada cannabis dispensary licenses – one for the City of Las Vegas, and one for Carson City. We are currently exploring locations within Las Vegas and Carson City that would be suitable for opening two additional retail dispensaries (where the licenses would be deployed). The Settlement Agreement was ratified by the CCB (as defined below) on September 3, 2020.

Dispensary Acquisitions

As discussed in the Offering Circular, in May 2019, we entered into an Asset Purchase Agreement with Medifarm LLC (“Medifarm”) to acquire 100% of the assets of Medifarm’s cannabis dispensary located at 1130 East Desert Inn Road, Las Vegas, Nevada, and in August 2019, we entered into an Asset Purchase Agreement with MediFarm I LLC (“Medifarm I”), a wholly owned subsidiary of Terra Tech Corp. (“Terra Tech”), to acquire 100% of the assets of Medifarm I’s cannabis dispensary located at 1085 S. Virginia Street, Reno, Nevada (the “Reno Dispensary Asset Purchase Agreement”). The closing of these dispensary acquisitions is subject to various closing conditions, including the receipt of license transfer approvals.

On October 22, 2020, we entered into a Letter Agreement (the “Letter Agreement”) with MediFarm I, Terra Tech, and Picksy Reno, LLC, modifying certain terms of the Reno Dispensary Asset Purchase Agreement. The Letter Agreement provides, among other things, that $8,332,096 of the cash portion of the purchase price to be paid for the dispensary assets will be paid in 8,332,096 shares of Mystic common stock (the “Dispensary Shares”), upon approval of such issuance by the CCB. Under the Letter Agreement, Mystic is required to register the Shares on Form S-1 by no later than the date the Dispensary Shares are listed or quoted for trading on a trading market. In the event the CCB does not approve issuance of the Dispensary Shares, the cash portion of the purchase price to be paid for the dispensary assets will be due at closing of the transaction. In addition, the Letter Agreement provides, among other things, that (i) Terra Tech has the right to require Mystic to repurchase the Dispensary Shares at a price of $1.00 per share under certain circumstances, and (ii) during the first six (6) months Terra Tech is able to sell Dispensary Shares on a trading market, Terra Tech will not sell more than 1,500,000 Dispensary Shares during any thirty (30) calendar day period; provided such limitation will not apply to Dispensary Shares sold at a price equal to or greater than $2.00 per share. The transaction is subject to approval by the CCB and is expected to close promptly following receipt of such approval.

Since the commencement of the offering, the moratorium on the transfer of Nevada cannabis licenses that was imposed by Nevada state regulators in October 2019 has been lifted. In July 2020, the Cannabis Compliance Board (the “CCB”) took over administration of the Nevada cannabis industry from the DOT. The CCB lifted the moratorium and advised that the review of license transfers has resumed. Although we fully expect to receive approval for the transfer of the dispensary licenses and close the acquisitions described above, we have been advised that this may take some time as the CCB has a backlog of license transfers to review.

8% Convertible Debentures

In July 2020, we extended the maturity of our C$0.30 8% convertible debentures (of which approximately $1,800,000 in aggregate principal amount was sold in the First 2019 Private Placement) until January 2021, having received the consent of the holders of a majority of the C$0.30 8% convertible debentures.

In September 2020, we extended the maturity of our C$0.80 8% convertible debentures (of which approximately $6,000,000 in aggregate principal amount was sold in the Second 2019 Private Placement) until March 2021, having received the consent of the holders of a majority of the C$0.80 8% convertible debentures.

Transfer Agent and Registrar

The following replaces the subsection entitled “Transfer Agent and Registrar” on page 59 of the Offering Circular.

Upon the closing of this offering, the transfer agent and registrar for our shares of common stock will be Equiniti Trust Company, located in Mendota Heights, MN.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Mystic Holdings, Inc. and Affiliates

INDEPENDENT AUDITOR’S REPORT

To the Board of Director(s) of

Mystic Holdings, Inc. and Affiliates

Las Vegas, Nevada

Report on Financial Statements

We have audited the accompanying consolidated financial statements of Mystic Holdings Inc. and Affiliates, which comprise the consolidated balance sheets as of December 31, 2019 and 2018 and the related consolidated statements of income, stockholders equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United State of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the 2019 and 2018 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mystic Holdings, Inc., and Affiliates as of December 31, 2019 and 2018, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 20 to the financial statements, the Company has sustained significant net losses and had a working capital deficit for the years ended December 31, 2019 and 2018. Management’s evaluation of the events and conditions and management’s plans regarding those matters also are described in Note 20. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

Restatement of Consolidated Financial Statements

Without modifying our opinion, we draw attention to Note 17 to the restated consolidated financial statements, which explains that the restated financial statements for the year ended December 31, 2019 & 2018 have been restated from those which we originally reported on July 15, 2020.

Garden City, New York
December 16, 2020

MYSTIC HOLDINGS, INC. AND AFFILIATES

RESTATED AUDITED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

RESTATED CONSOLIDATED BALANCE SHEETS

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

MYSTIC HOLDINGS, INC. AND AFFILIATES

RESTATED AUDITED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

RESTATED CONSOLIDATED STATEMENT OF INCOME

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

MYSTIC HOLDINGS, INC. AND AFFILIATES

RESTATED AUDITED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

RESTATED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

MYSTIC HOLDINGS, INC. AND AFFILIATES

RESTATED AUDITED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

RESTATED CONSOLIDATED STATEMENTS OF CASH FLOW

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

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 1: DESCRIPTION OF BUSINESS ACTIVITIES

Mystic Holdings, Inc. is a holding company which, through its wholly-owned subsidiaries, is engaged in the cannabis industry in the State of Nevada. Since obtaining Nevada wholesale licenses for the cultivation and production of medical cannabis in 2014 and recreational cannabis in 2016, Qualcan, LLC, the wholly owned operating subsidiary (“Qualcan”), has constructed and has recently begun operating a highly efficient, state-of-the-art 24,000 square foot cannabis cultivation and production facility with the capacity to produce as much as 600 pounds of sellable cannabis per month utilizing the latest concepts in agronomic farming practices and sustainable technologies. Qualcan’s facility adheres to best practices in quality control standards and regulatory compliance that are believed to be as good as or better than those used throughout the cannabis industry. Qualcan currently wholesales its products, which include cannabis flowers, edibles and concentrates, under the trademark “Qualcan” to state-licensed dispensaries utilizing METRC, a state-mandated tracking system. The company has recently entered into asset purchase agreements to add a future retail dispensary component to its operations in Las Vegas and Reno, Nevada. The Company operates a state licensed medical and recreational marijuana cultivation and production facility. The Company wholesales its products, which include flowers, edibles and concentrates, to state licensed dispensaries utilizing METRC, a state mandated tracking system under the mark “Qualcan”. All sales, deliveries and SKU’s are tracked through the METRC system.

Looking ahead, the company has prepared a strategic plan to extend the Nevada footprint by becoming a vertically integrated company providing medical and recreational cannabis cultivation and production, and retail dispensary operations for high quality marijuana and marijuana consumer products. The company also intends to expand our wholesale operations to capture expected retail demand for the cultivation and production activities, including from its own retail locations that the company plans to build (and license) or acquire. A key element of the company’s strategic plan is to make acquisitions of or investments in complementary businesses, products and technologies in the cannabis industry.

The consolidated accounts of the Company include the accounts of Mystic Holdings, Inc., Qualcan, LLC, Picksy LLC and Wagon Trail 4145, LLC. Picksy LLC, Qualcan, LLC and Wagon Trail 4145, LLC are owned 100% by Mystic Holdings, Inc. All significant intercompany accounts have been eliminated in consolidation.

NOTE 2: BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), and include the accounts of Mystic Holdings, Inc. and affiliates (collectively “Mystic Holdings” or the “Company”). The basis used for the preparation and presentation of the financial statements is based on the needs of the financial statement users. Financial presentation under the accrual method (basis of presentation under accounting principle generally accepted in the United States) provides the best approach to present the financial statements with the appropriate revenues since accounts receivable, net of allowance for doubtful debts, can be recorded against appropriate expenses which are incurred in the same period to generate those revenues.

We conduct business through a variety of corporate structures, including subsidiaries, variable interest entity (VIE) and primary beneficiary. Subsidiaries are those where we exercise control through 100% ownership, VIE are those where we have controlling interest despite not having a majority of voting rights and primary beneficiary are those where we retain the authority to direct the activities. All of the assets, liabilities, revenues and expenses of our subsidiaries, VIE and primary beneficiary are included in our consolidated financial statements. All significant intercompany transactions and balances are eliminated.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of consolidated 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 and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Effective January 1, 2018, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method. Under this method, the Company recorded the cumulative effect of initially applying the new standard to all contracts as of the date of adoption.

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows. Under the new standard, the Company recognizes a sale as follows.

Cannabis Dispensary, Cultivation and Production

The Company recognizes revenue from manufacturing and distribution product sales when our customers obtain control of our products. Revenue from our retail dispensaries is recorded at the time customers take possession of the product. Revenue from our retail dispensaries is recognized net of discounts, promotional adjustments and returns. We collect taxes on certain revenue transactions to be remitted to governmental authorities, which may include sales, excise and local taxes. These taxes are not included in the transaction price and are, therefore, excluded from revenue. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase.

Revenue related to distribution customers is recorded when the customer is determined to have taken control of the product. This determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with collected taxes recorded as current liabilities until remitted to the relevant government authority.

Disaggregation of Revenue

The company generated revenue through its Cannabis Dispensary, cultivation and Production line. The Company operates in one reportable segments, cultivation operation.

Contract Balances

Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets or liabilities that fall under the scope of ASC Topic 606.

Contract Estimates and Judgments

The Company’s revenues accounted for under ASC Topic 606, generally, do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash in hand/bank and highly liquid investments that are readily convertible into cash. The Company considers securities when purchased with maturities of three months or less to be cash equivalents. The carrying amount of these securities approximate fair market value because of the short-term maturity of these instruments.

Leases

The Company leases facilities, equipment and vehicles under capital and operating leases. The commencement date of all leases is the earlier of the date that the Company becomes legally obligated to remit rent payments or the date that the Company exercises control over the use of the property. In addition to minimum rental payments, certain leases provide for contingent rentals based upon equipment usage. Rent expense associated with contingent rentals are recorded as incurred. The related rent expense is recorded on a straight line basis over the lease term. The cumulative excess of rent payments over rent expense, if any, is accounted for as a deferred lease asset and recorded in “Other Assets”. The cumulative excess of rent expense over rent payments, if any, is accounted for as deferred lease obligation. Leasehold improvements associated with assets utilized under capital or operating leases are amortized over the shorter of the assets useful life or the lease term.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are carried at their estimated collectible amounts. Trade accounts receivable are periodically evaluated for collectability based on past credit histories with customers and their current financial conditions. Uncollectible trade accounts receivable are written off based on individual credit evaluation and specific circumstances of the customer. Trade accounts receivable are reported net of an allowance for doubtful accounts.

Credit is granted to the Company’s customers; consequently, its ability to collect the amounts due from their respective customers is affected by economic fluctuations in the respective industries.

The Company allows for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables. Bad debt recoveries are charged against the allowance account as realized.

Prepaid Expenses and Other Current Assets

Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance, and service or other contracts requiring up-front payments.

Cost of Goods Sold

Cost of goods sold includes the costs indirectly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles and concentrates, as well as packaging and other supplies, fees for services and processing, other expenses for services, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

Valuation of Inventory

Inventory is valued at the lower of actual cost, as determined using the first-in, first-out (“FIFO”) method of accounting, or its net realizable value. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items and reserves. The reserve estimate for excess and obsolete inventory is based on expected future use. The reserve estimates have historically been consistent with actual experience as evidenced by actual sale or disposal of the goods.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values Measurements

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis have been categorized based upon a fair value hierarchy. Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities. Level 2 inputs are based on other observable market data, such as quoted prices for similar assets and liabilities, and inputs other than quoted prices that are observable, such as interest rates and yield curves. Level 3 inputs are developed from unobservable data reflecting our own assumptions, and include situations where there is little or no market activity for the asset or liability.

Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis, including property, plant, and equipment, goodwill and intangible assets. These assets are not measured at fair value on a recurring basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence of an impairment. A general description of the valuation methodologies used for assets and liabilities measured at fair value, including the general classification of such assets and liabilities pursuant to the valuation hierarchy, is included in each footnote with fair value measurements presented.

The Company’s financial instruments consist principally of cash and cash equivalents, short-term marketable securities, accounts receivable, notes receivable, accounts payable, notes payable and long-term debt. The recorded values of cash and cash equivalents, accounts receivable, notes receivable, accounts payable approximate their fair values based upon their short-term nature. The recorded values of notes payable and long-term debt approximate their fair values, as interest approximates market rates.

The fair value of a financial instrument is the amount that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated with observable market data.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The fair value of the Company’s, short-term marketable securities, were determined based on “Level 1” inputs. The Company does not have any financial instruments in the “Level 2” and “Level 3” category. The Company believes that the recorded values of all the other financial instruments approximate their current fair values because of their nature and relatively short maturity dates or durations.

There have been no changes in Level 1, Level 2, and Level 3 and no changes in valuation techniques for these assets or liabilities for the periods ended December 31, 2019 and 2018.

FASB ASC 825-10 requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial condition. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. FASB ASC 825-10 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and cash equivalents - The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’ fair values. Investment securities which consist of marketable securities - Fair values for investment securities are based on quoted market prices, where available.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, Equipment and Depreciation

Property and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets. The Company has a policy of capitalizing purchases over $5,000. Expenditures for routine maintenance and repairs on property and equipment are charged to expense.

The Company reviews long lived assets for impairment when circumstances indicate the carrying value of an asset may not be recoverable based upon the undiscounted future cash flows of the asset. If the carrying value of the asset is determined not to be recoverable, a write down to fair value is recorded. Fair values are determined based on quoted market values, discounted cash flows or external appraisals as appropriate. We review long lived assets for impairment at the individual asset or asset group level for which the lowest level of independent cash flows can be identified.

Depreciation is provided for financial reporting purposes utilizing both the accelerated and straight-line methods over the estimated useful lives of the assets, which are as follows:

Goodwill

Goodwill is the excess of the consideration transferred over the fair value of the acquired assets and assumed liabilities in a business combination. In accordance with ASC 350, “Intangibles—Goodwill and Other, “goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.

The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of first day of the fourth quarter each fiscal year and whenever events or changes in circumstances indicate carrying amount may not be recoverable. In the impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit.

The carrying amount of each reporting unit is determined based upon the assignment of our assets and liabilities, including existing goodwill and other intangible assets, to the identified reporting units. Where an acquisition benefits only one reporting unit, the Company allocates, as of the acquisition date, all goodwill for that acquisition to the reporting unit that will benefit. Where the Company has had an acquisition that benefited more than one reporting unit, The Company has assigned the goodwill to our reporting units as of the acquisition date such that the goodwill assigned to a reporting unit is the excess of the fair value of the acquired business, or portion thereof, to be included in that reporting unit over the fair value of the individual assets acquired and liabilities assumed that are assigned to the reporting unit.

If the carrying amount of a reporting unit is in excess or its fair value, the Company recognizes an impairment charge equal to the amount in excess.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible Assets

Intangible assets continue to be subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment, “intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows:

The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.

The Company calculates fair value of our intangible assets as the present value of estimated future cash flows the Company expects to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, the Company uses estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).

Intangible assets that have indefinite useful lives are tested annually for impairment and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair value.

Other Assets

Other assets is comprised primarily of deposits for the purchase of real property and security deposits for leased properties in Nevada. The deposits for the purchase of real property are reclassified to Property and Equipment once the purchase is final.

Business Combinations

The Company accounts for its business acquisitions in accordance with ASC 805-10, “Business Combinations.” The Company allocates the total cost of the acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions regarding multiple, highly subjective variables, including those with respect to future cash flows, discount rates, asset lives, and the use of different valuation models, and therefore require considerable judgment. The Company’s estimates and assumptions are based, in part, on the availability of listed market prices or other transparent market data. These determinations affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Income taxes are accounted for on an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than proposed changes in the tax law or rates. Valuation allowances are provided if it is more likely than not that a deferred tax asset will not be realized.

The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. Once it is determined that the position meets the recognition threshold, the second step requires an estimate and measure the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement. The difference between the amount of recognizable tax benefit and the total amount of tax benefit from positions filed or to be filed with the tax authorities is recorded as a liability for uncertain tax benefits. It is inherently difficult and subjective to estimate such amounts due to the probability of various possible outcomes. The Company reevaluates uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an additional charge to the tax provision.

A valuation allowance was taken by the Company as it believes there is no sufficient positive evidence to support its conclusion not to record a valuation allowance. Management believes that there can be no assurance that the Company will generate taxable income or that all of its timing differences between tax and financial reporting will be utilized.

Tax Cuts and Job Act. The Tax Cuts and Jobs Act was enacted in December 2018. Among other things, the new law (i) establishes a new, flat corporate federal statutory income tax rate of 21%, (ii) eliminates the corporate alternative minimum tax and allows the use of such carryforwards to offset regular tax liability for any taxable year, (iii) limits the deduction for net interest expense incurred by U.S. corporations, (iv) allows businesses to immediately expense, for tax purposes, the cost of new investments in certain qualified depreciable assets, (v) eliminates or reduces certain deductions related to meals and entertainment expenses, (vi) modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee and (vii) limits the deductibility of deposit insurance premiums. The Tax Cuts and Jobs Act also significantly changes the US tax law related to foreign operations, however, such changes do not currently impact the Company.

Advertising

The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2019 and 2018 were $63,859 and $87,811, respectively.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 4: ACCOUNTS RECEIVABLE

As of December 31, 2019, and 2018, the company carried accounts receivable of $261,425 & $54,419 respectively. The industry in which the company operates does not have large amount of accounts receivable at any given time. Company provides credit term to certain customers which usually are net 15 days. Company has not experienced any bad debts in previous years and it reasonably believes to collect all of its accounts receivable as of December 31, 2019 & 2018. As of December 31, 2019, and 2018, no allowance for doubtful accounts was deemed necessary.

NOTE 5: INVENTORY

As of December 31, 2019, and 2018, the Company carried the following inventory balances. Company did not recognize any obsolete in inventory due to impairment or damages in its inventory during the years 2019 and 2018.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 6: NOTE RECEIVABLE

As of December 31, 2019, and 2018, the Company was carrying an outstanding loan balance made to Desert Aire Wellness, LLC (the Buyer) in the amount of $0 and $91,500 respectively. In June 2019, the Company reached an agreement with the Buyer in which the loan balance was extinguished and replaced with a purchase and supply agreement. Under the terms of this agreement, the buyer was required to purchase $1,600,000 in goods from the Company provided the Company makes available a monthly maximum of $65,000 in goods. The Buyer will purchase at a minimum, $35,000 in goods per month and a maximum of $65,000, but must purchase $1,600,000 within 36 months from June 2019. If the Buyer does not purchase the full $1,600,000 worth of goods, cash must be paid to the Company for the difference. During the year 2019, the buyer rendered services to the company and subsequently, the loan was cancelled out.

In 2016 company deposited $56,658 under equipment lease agreement. The original lease agreement contained the buyout option at the end of the lease. The company exercise its buyout option in 2018 and the original deposit of $56,658 was applied towards the buyout of the equipment.

In 2017, the company loaned $250,000 to its related party Green Wagon Holding LLC. The loan did not carry any interest provision. The loan balance was $586,797 and $50,000 in the year 2019 and 2018 respectively. (See Note 10- “Related Parties”).

NOTE 7: BUSINESS COMBINATIONS

On May 8, 2019, Picksy LLC (“Purchaser”), a wholly owned subsidiary of Mystic Holdings Inc., entered into Asset Purchase Agreement with MediFarm LLC (“Seller”), for the purchase of MediFarm LLC’s Blum-Desert Inn distribution facility at the purchase price of $10 million. The closing of this purchase agreement is contingent upon obtainment of approval from state of Nevada for the sale and transfer of seller’s existing Marijuana Dispensary license to Purchaser, as well as all associated state or county business licenses or permits.

On November 1, 2019, the company entered into an agreement to assume all management responsibilities over the operations of Blum Desert Inn distribution facility. As per the agreement, Picksy LLC would realize all the benefits and bear risks arising from the operations of Desert Inn distribution facility, as well as complete managerial authority over the operations making the Picksy LLC the primary beneficiary of Blum Desert Inn upon execution of the agreement. As per ASC 810-10 “Consolidation”, the company consolidated the financial position and result of operations as of November 1, 2019. Picksy LLC recorded its business combinations as per ASC 805-10 on November 1, 2019 when operational control was transferred from MediFarm LLC. The purchase price was adjusted downward to $9.8 M to give an adjustment to inventory acquired as of November 1, 2019. $1.4M of the purchase price was allocated to tangible assets including inventory, $6.2 million of the purchase price was allocated to intangible assets, and the balance of $2.1 million was attributed to goodwill. (See Note 19- “Intangible Asset and Goodwill”).

On August 19, 2019, Picksy Reno LLC, (“Purchaser”), a wholly owned subsidiary of Mystic Holdings entered into Asset Purchase Agreement with the MediFarm I LLC (“Seller”), for the purchase of distribution facility located at Reno at the purchase price of $13.5 million. As per the agreement, the payments will consist of $9.3 million in cash and $4.2 million in a 12-month promissory note bearing 5% interest. The closing of this purchase agreement is contingent upon obtainment of approval from state and local governmental authorities for the sale and transfer of Seller’s existing State licenses to Purchaser, as well as all associated State or County business licenses and permits. The operational control of the Reno distribution facility was not transferred until January 1, 2020. (See Note 24- “Subsequent Events”).

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 8: ACCOUNT PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

The accounts payable and accrued expenses consists of trade payables arising from company’s normal course of business.

NOTE 9: PROPERTY AND EQUIPMENT

Property and equipment consists of the following as of December 31:

Depreciation expense for the years ended December 31, 2019 and 2018 was $361,944 and $305,780, respectively.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 10: RELATED PARTIES

From time to time the Company is involved in transactions with related parties. The Company had the following balances due from (to) related parties as of December 31:

Convenient Labor, LLC and Employees4Hire, LLC are owned by related parties of the Company and are used to lease employees to the Company. The balances due to these related entities as of December 31, 2019 and 2018 are due on demand and bear no interest. The total cost of employees leased from these related entities for the years ended December 31, 2019 and 2018 was $2,681,059 and $1,883,517, respectively, and is included on the accompanying statements of income under the caption “Cost of Goods Sold”.

Dal Toro Holdings II, LLC is one of the stockholders of the Company. The balances due to this related entity as of December 31, 2019 and 2018 are due on demand and bear no interest.

Green Wagon Holdings, LLC is an entity that shares common ownership with the Company and leases building space to the Company on a month to month basis as further explained in Note 8. The balances due (to) from this related entity as of December 31, 2019 and 2018 are due on demand and bear no interest.

Ketores Holdings, LLC is one of the stockholders of the Company. The balances due to this related entity as of December 31, 2019 and 2018 are due on demand and bear no interest.

Panorama Crest, LLC is one of the stockholders of the Company. The balances due to this related entity as of December 31, 2019 and 2019 are due on demand and bear no interest.

Related individual is a family member of one of the stockholders of the Company. The balances due to the related individual as of December 31, 2019 and 2018 began bearing interest in September 2018 at 10% per annum, with a maturity date of December 31, 2019.

See Note 14 for disclosure of a consulting agreement with a former stockholder.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 11: CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. Concentrations of credit with respect to trade receivables are limited due to the large number of customers comprising the Company’s customer base. Also, the credit term determines the amount of receivables along with the concentration of customers determining single purchasers on credit.

As new legal enterprises, marijuana growers, distributors and dispensaries need financial services like those required by other businesses. But local banks and credit unions in many jurisdictions are still subject to laws prohibiting the offering of business accounts and services to organizations involved in cannabis production and distribution. At the federal level, U.S. law still forbids commerce in marijuana. While the U.S. Department of Justice has indicated that it will defer to the legislative intent of individual states regarding legalization, overlapping federal and state banking laws still present real risk management uncertainties for financial organizations.

Furthermore, only about one in 30 banks or credit unions in the U.S. currently accepts marijuana-related businesses as clients. Those providing services often require much higher servicing and transaction fees to offset complicated and strict reporting requirements.

NOTE 12: BUSINESS RISK

The Company’s primary business, cultivation and production of medical cannabis and recreational cannabis, is heavily regulated state levels although remains illegal at the federal level in the United States. While the Company is unable to predict what regulatory changes may occur or the impact on the Company of any particular change, the Company’s operations and financial results could be negatively affected. Further, the Company operates in a highly regulated industry, which may limit the Company’s ability to price its services at levels that the Company believes appropriate. These competitive factors may adversely affect the Company’s financial results.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 13: SHORT-TERM DEBT

Short-term debt consists of the following as of December 31:

As presented in Note 21, the company effected a stock split which was approved by Board of Directors on September 8, 2019 and initially filed with the Secretary of State of Nevada on September 10, 2020 (the “Stock Split”). The number of common voting shares of Qualcan Canada into which the Note Payable to Qualcan Canada (the “Note”) is convertible already accounted for the effect of the Stock Split. There is no further adjustment to the number of shares into which the Note may be converted as a result of the Stock Split.

NOTE 14: LONG-TERM DEBT

Long-term debt consists of the following as of December 31:

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 15: DEBENTURES

The principal amount under the debentures is convertible into shares of our common stock at any time at the option of the holder; provided, that, if on or before the maturity date, the Canadian Public Offering is consummated, 100% of the outstanding principal amount of the debentures will be automatically converted into common shares of Qualcan Canada. The conversion price of the debentures issued in the First 2019 Private Placement is C$0.30 ($0.23) per share and the conversion price of the debentures issued in the Second 2019 Private Placement is C$0.80 ($0.60) per share. The conversion price is subject to adjustment in the event of specified dilutive or accretive events, such as stock splits and stock combinations. The principal amount and accrued interest under the debentures are payable by us upon the earlier to occur of the closing of the Canadian Public Offering or 12 months after the date of issuance. The debentures bear interest at an annual cumulative rate of 8.0%, due and payable in cash on the maturity date.

In the event of any liquidation, dissolution or winding up of our company, either voluntary or involuntary, the holders of the debentures will receive, in preference to any distribution of any of our assets to the holders of any of our other debt securities or credit facilities, an amount equal to the unpaid and unconverted principal amount of their debentures and any accrued and unpaid interest on the debentures. The holders will be paid in preference to any of our unsecured creditors and will be paid pro rata in proportion to the principal amount of debentures held by the holders (together with the holders of the debentures issued in the Second Mystic Financing) if the available assets are not sufficient to repay the debentures. The debentures are unsecured, general obligations of our company. The debentures are not be redeemable by us or subject to voluntary prepayment prior to maturity.

The carrying value of the Debentures, as of December 31, 2019 and 2018, are $7,392,240 and $100,000 respectively. The company accrued interest of $167,577 and $0 for year 2019 and 2018 respectively.

As presented in Note 21, the company effected a stock split which was approved by Board of Directors on September 8, 2019 was initially filed with the Secretary of State of Nevada on September 10, 2020 (the “Stock Split”). The conversion price of the Debentures and the number of shares into which the Debentures are convertible as set forth in the Debentures already accounted for the effect of the Stock Split. There is no further adjustment to the number of shares into which the Debentures are convertible as a result of the the Stock Split.

NOTE 16: COMMITMENTS AND CONTINGENCIES

In October 2017, the Company entered into a consultation agreement with Western Desert Holdings, LLC, and a former stockholder. Under the terms of this agreement, the Company incurred consulting expenses of $270,000 and $180,000 for the years ended December 31, 2019 and 2018, respectively, which is included on the accompanying statements of income under the caption “Professional fees”. Future consulting expenses to be incurred by the Company in accordance with this agreement are estimated to be $360,000 and $60,000 for the years ended December 31, 2020 and 2021, respectively.

Uncertain Tax Position

The Company follows the FASB Accounting Standards Codification, which provides guidance on accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of December 31, 2019 and 2018, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the Company’s financial statements. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the financial statements. No interest and penalties were recorded during the years ended December 31, 2019 and 2018. Generally, the tax years before 2016 are no longer subject to examination by federal, state or local taxing authorities.

Litigation

The Company is involved, from time to time, in disputes and claims incidental to the conduct of its business. The company reviews any such legal proceedings and claims on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. Based upon present information, the company determined that there was no matters that required an accrual as of December 31, 2019 nor were there any asserted or unasserted material claims for which material losses are reasonably possible.

On December 8, 2016, Rauch Organics LLC (“Rauch”) filed a lawsuit in the Eighth Judicial District Court in and for Clark County, Nevada against the company, certain of its subsidiaries and affiliates, and certain related members alleging, among other things, that the company and its affiliates breached the various agreements under which Rauch has not received monies due and owing pursuant to those agreements. Furth more, Rauch alleged that members of the company induced Rauch to enter into various agreements through false or fraudulent misrepresentations. Rauch Plaintiffs, were seeking, among other things, issuance of up to 5% equity interest in the company based upon its loan of $600,000 to the company pursuant to an Agreement for Transfer of Membership Interests dated December 23, 2015. The company denied the allegations of Plaintiff and Qualcan has filed a Counterclaim against Plaintiff and certain companies affiliated with Plaintiff. Qualcan alleged that Plaintiff breached the various agreements, violated its fiduciary duties owed to Qualcan and converted Qualcan’s property by wrongfully destroying certain cannabis corps at or near the time the agreements were terminated. The case is currently scheduled for Trial on August 31, 2020. It is not certain that the trial will proceed on that date. The parties are currently discussing settlement.

MYSTIC HOLDINGS, INC. AND AFFILIATES

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2019 & 2018

NOTE 17: RESTATEMENT OF FINANCIAL RESULTS

The company’s Board of Directors authorized a 14,350.143-for-1 split of Mystic common stock on September 8, 2019 (See Note 21 - “Stock Split”). The originally issued financial report failed to show the retroactive effect of stock split on the financial statements. Accordingly, the Company has restated its previously reported consolidated financial statements as at and for the years ended December 31, 2019 and 2018 and all related disclosures. As a result of stock split, the number of authorized shares and the par value of common stock have been restated in balance sheet. The stock split did not effect on the valuation or principal balance of short-term debt, long-term debt and convertible debentures.

The stock options (See Note 22- “Stock Option”) authorized on September 30, 2019 did not have an effect on the financial statements.

Upon the adoption of ASC Topic 606 (See Note 3 - “Summary of Significant Accounting Policies: Revenue Recognition”), the company has determined that no correction was required on the previously issued financial statements. The re-adjusted financial statements are presented below along with the originally issued financial statements.

CONSOLIDATED BALANCE SHEETS