TREES Corp (Colorado) 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of TREES Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of TREES Corporation (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years ended December 31, 2023 and 2022, 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 1 to the financial statements, the Company has suffered recurring losses from operations and has a negative working capital that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 1 Business Combination – Refer to Note 2 to the consolidated financial statements As discussed in Note 2 to the consolidated financial statements, the Company acquired several entities as follows: Trees MLK Inc. on January 5, 2022, Green Tree entities on December 12, 2022, and Green Man Cannabis on December 19, 2022, in separate business combinations. Management of the Company estimated the allocation of the purchase price to cash, fixed assets, inventory, trade names, and goodwill based on formal valuation prepared by a third-party. The accounting for the purchase price allocation is complex due to the significant estimation uncertainty in determining the fair values of identified intangibles. We deem the purchase price allocation as a significant audit matter because of the significant estimates and assumptions made by management to estimate the fair value of trade names and allocation to goodwill. These estimates include the impact of forecasted growth and the consideration of comparable transactions in their industry. This required a high degree of auditor judgment and an increased extent of effort, including the use of valuation specialists. Addressing the matter involved obtaining the purchase agreements and interpreting the terms are in agreement with the assumptions used by the Company. For valuations completed by the third-party specialist, we evaluated the expertise, qualifications, and independence of the management’s specialist engaged to complete the evaluation. Finally, we used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology. Goodwill — Refer to Note 10 to the consolidated financial statements As discussed in Note 10 to the consolidated financial statements, the Company has goodwill of $15,880,097 on December 31, 2023, after recognizing impairment expense of $1,516,000 during the year then ended. The Company evaluates its goodwill at least annually or more frequently when events or changes in circumstances indicate the carrying value may not be recoverable. The Company performed a goodwill analysis by calculating the fair value by operating segment using primarily an income approach and comparing it to the carrying amount of its goodwill. The income approach employed a discounted cash flow using a forecast developed by management. This valuation method requires management to make significant estimates and assumptions related to projected cash flows. We identified goodwill as a critical audit matter because of the significant estimates and assumptions made by management to estimate fair value, including the impact of forecasted growth, and the difference between the fair values and the carrying values as of December 31, 2023. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialist, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to certain assumptions within the projected cash flows. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, gaining an understanding of management's process for developing the fair value estimate. We also evaluated the expertise, qualifications, and independence of the management’s specialist engaged to complete the evaluation. We used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology and assumptions used such as discount rate used. In evaluating the Company’s assumptions, we compared them to historical results. /s/ Haynie & Company Haynie & Company Salt Lake City, Utah April 10, 2024 PCAOB ID 457 We have served as the Company’s auditor since 2021. F- 2 TREES CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 969,676 $ 2,583,833 Accounts receivable, net of allowance for credit losses of $ 41,000 and $ 42,000 , respectively 111,863 41,373 Inventories 860,918 2,066,662 Prepaid expenses and other current assets 411,911 259,598 Total current assets 2,354,368 4,951,466 Right-of-use operating lease asset 1,979,833 3,866,406 Property and equipment, net 1,395,104 1,947,969 Intangible assets, net 1,637,491 2,543,898 Goodwill 15,880,097 18,384,974 Total assets $ 23,246,893 $ 31,694,713 Liabilities and Stockholders’ Equity Current liabilities Accounts payable and accrued expenses $ 2,617,536 $ 1,899,450 Interest payable 1,570,077 488,813 Income tax payable 392,765 204,917 Operating lease liability, current 846,201 1,433,184 Finance lease liability, current 205,400 55,777 Accrued stock payable 60,900 60,900 Accrued dividends 106,200 88,500 Warrant derivative liability 4,716 5,508 Accrued legal fees 102,000 — Notes payable - current 1,092,382 1,903,344 Contingent Earnout Liability 367,056 — Total current liabilities 7,365,233 6,140,393 Operating lease liability, non-current 1,218,392 2,541,590 Finance lease liability, non-current 501,248 706,653 Notes payable - non-current (net of unamortized discount) 14,013,861 15,899,588 Total liabilities 23,098,734 25,288,224 Commitments and contingencies (Note 17) Stockholders’ equity Preferred stock, no par value; 5,000,000 shares authorized; 1,180 issued and outstanding 1,073,446 1,073,446 Common stock, $ 0.001 par value; 200,000,000 shares authorized; 108,746,520 and 118,664,094 shares issued and outstanding, respectively 108,746 118,664 Additional paid-in capital 99,450,307 98,598,761 Accumulated deficit ( 100,484,340 ) ( 93,384,382 ) Total stockholders’ equity 148,159 6,406,489 Total liabilities and stockholders’ equity $ 23,246,893 $ 31,694,713 The accompanying notes are an integral part of these consolidated financial statements. F- 3 TREES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31, 2023 2022 Revenue Retail sales $ 17,722,565 $ 12,934,904 Cultivation sales 414,315 509,638 Total revenue 18,136,880 13,444,542 Costs and expenses Cost of sales 11,564,386 8,577,487 Selling, general and administrative 8,223,102 6,557,992 Stock-based compensation 69,071 188,330 Professional fees 1,380,567 964,282 Depreciation and amortization 874,412 331,376 Total costs and expenses 22,111,538 16,619,467 Operating loss ( 3,974,658 ) ( 3,174,925 ) Other expenses (income) Amortization of debt discount 811,722 1,817,334 Interest expense 1,763,413 983,181 Loss on extinguishment of debt 218,237 310,622 Loss on impairment of assets 1,516,000 3,004,319 Gain on derivative liability ( 792 ) ( 22,809 ) Gain on change in fair value of contingent earnout ( 492,148 ) — Other (income) expense, net ( 896,680 ) 8,056 Total other expenses, net 2,919,752 6,100,703 Net loss from continuing operations before income taxes ( 6,894,410 ) ( 9,275,628 ) Provision for income taxes 187,848 204,917 Loss from continuing operations ( 7,082,258 ) ( 9,480,545 ) Income from discontinued operations, net of tax — 5,478 Net loss $ ( 7,082,258 ) $ ( 9,475,067 ) Accrued preferred stock dividend ( 17,700 ) ( 88,500 ) Net loss attributable to common stockholders $ ( 7,099,958 ) $ ( 9,563,567 ) Per share data - basic and diluted Net loss from continuing operations per share $ ( 0.06 ) $ ( 0.10 ) Net loss from discontinued operations per share $ — $ — Net loss attributable to common stockholders per share $ ( 0.06 ) $ ( 0.10 ) Weighted average number of common shares outstanding 117,196,836 97,166,607 The accompanying notes are an integral part of these consolidated financial statements. F- 4 TREES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2023 2022 Cash flows from operating activities Net loss $ ( 7,082,258 ) $ ( 9,475,067 ) Adjustments to reconcile net loss to net cash used in provided by operating activities: Amortization of debt discount 811,722 1,817,334 Depreciation and amortization 874,412 331,376 Amortization of right-of-use lease assets 1,806,918 774,353 Loss on extinguishment of debt 218,237 310,622 Provision for credit losses ( 114 ) ( 6,280 ) Impairment of assets 1,516,000 3,004,319 Loss (gain) on disposal of property and equipment — 8,056 Gain on derivative liability ( 792 ) ( 22,809 ) Gain on change in fair value of contingent earnout ( 492,148 ) — Stock-based compensation 69,071 188,330 Changes in operating assets and liabilities, net of acquisitions Accounts receivable ( 70,376 ) 43,095 Prepaid expenses and other assets ( 152,313 ) ( 16,523 ) Inventories 1,040,527 753,419 Income taxes 187,848 204,917 Accounts payable, accrued liabilities, and interest payable 1,901,350 785,405 Operating lease liabilities ( 1,753,566 ) ( 750,404 ) Net cash used in operating activities ( 1,125,482 ) ( 2,049,857 ) Cash flows from investing activities Purchase of property and equipment ( 47,839 ) ( 61,611 ) Acquisition of Station 2 assets ( 256,581 ) — Proceeds for sale of equipment — 13,000 Proceeds on notes receivable — 75,000 Acquisition of Trees MLK — ( 256,582 ) Acquisition of Green Tree Entities, net of cash acquired — ( 498,987 ) Acquisition of Green Man Corp, net of cash acquired — ( 1,216,406 ) Net cash used in investing activities ( 304,420 ) ( 1,945,586 ) Cash flows from financing activities Proceeds from notes payable 500,000 6,423,320 Payments on notes payable and finance lease ( 684,255 ) ( 1,898,094 ) Net cash (used in) provided by financing activities ( 184,255 ) 4,525,226 Net (decrease) increase in cash and cash equivalents ( 1,614,157 ) 529,783 Cash and cash equivalents, beginning of period 2,583,833 2,054,050 Cash and cash equivalents, end of period $ 969,676 $ 2,583,833 Supplemental schedule of cash flow information Cash paid for interest $ — $ 589,023 Cash paid for taxes $ 6 $ — Non-cash investing & financing activities Non-cash settlement of notes payable netted against proceeds from new notes issuance $ — $ 3,300,000 Operating lease right-of-use asset obtained in exchange for new operating lease liabilities $ 219,438 $ 1,575,607 Reduction of operating lease liabilities and right-of-use assets related to lease modifications $ ( 376,053 ) $ — Issuance of accrued stock $ — $ 383,994 Non-cash debt issuance for acquisition of Station 2 assets $ 333,953 $ — Non-cash extinguishment of debt for the surrender of Station 2 assets $ ( 356,152 ) $ — Accrued dividends on preferred stock $ 17,700 $ — 12 % Warrants recorded as a debt discount and additional paid-in capital $ 177,991 $ 569,223 12 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital $ — $ 103,577 Cashless warrant exercise $ — $ 88,500 The accompanying notes are an integral part of these consolidated financial statements. F- 5 TREES CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022 Additional Preferred Stock Common Stock Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total January 1, 2022 1,180 $ 1,073,446 89,551,993 $ 89,550 $ 92,265,392 $ ( 83,820,815 ) $ 9,607,573 Common stock issued for acquisition of Trees Waterfront LLC — — 1,669,537 1,670 382,324 — 383,994 Common stock issued for acquisition of Trees MLK LLC — — 4,970,654 4,971 1,337,105 — 1,342,076 Common stock issued for Green Tree Acquisition — — 17,977,528 17,978 2,948,314 — 2,966,292 Common stock issued Green Man Acquisition — — 4,494,382 4,495 804,495 — 808,990 Warrants issued with 12 % Notes — — — — 672,801 — 672,801 Share-based compensation — — — — 188,330 — 188,330 Dividends on preferred stock — — — — — ( 88,500 ) ( 88,500 ) Net loss — — — — — ( 9,475,067 ) ( 9,475,067 ) December 31, 2022 1,180 1,073,446 118,664,094 118,664 98,598,761 ( 93,384,382 ) 6,406,489 Share-based compensation — — — — 69,071 — 69,071 Redeemed shares related to Green Tree settlement — — ( 9,917,574 ) ( 9,918 ) ( 1,626,482 ) — ( 1,636,400 ) Capital transaction related to the Green Tree Note restructuring — — — — 1,974,384 — 1,974,384 Capital transaction related to the forgiveness of the Trees Englewood Note 256,582 — 256,582 Modification of warrants issued with 12 % Notes — — — — 177,991 — 177,991 Dividends on preferred stock — — — — — ( 17,700 ) ( 17,700 ) Net loss — — — — — ( 7,082,258 ) ( 7,082,258 ) December 31, 2023 1,180 $ 1,073,446 108,746,520 $ 108,746 $ 99,450,307 $ ( 100,484,340 ) $ 148,159 The accompanying notes are an integral part of these consolidated financial statements. F- 6 TREES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION Nature of Operations TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “TREES”) (formerly, General Cannabis Corp), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. We currently trade on the OTCQB® Market under the trading symbol CANN. As of December 31, 2023, our operations are segregated into the following segments: Retail (“Retail Segment”) Through a series of acquisitions in 2021 and 2022, we operated three retail dispensaries in Colorado and three retail dispensaries in Oregon as of December 31, 2023. See Note 2 for details of the acquisitions. Cultivation (“Cultivation Segment”) Through our acquisition of SevenFive Farm in May 2020, we operate a licensed 17,000 square foot light deprivation greenhouse cultivation facility. During 2023, there was one customer that accounted for over 10 % of our third-party cultivation revenue, and during 2022 there was one customer that accounted for over 10 % of third -party cultivation revenue. Discontinued Operations Through Next Big Crop, LLC (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products included building materials, equipment, consumables, and compliance packaging. NBC also provided operational support for our internal cultivation. On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $ 150,000 and 10 % of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed. Pursuant to an amendment to the Asset Purchase Agreement, the buyer paid an additional $ 75,000 in March 2022, and the 10 % profit share described above was eliminated. Basis of Presentation The accompanying consolidated financial statements include the results of TREES and its nine wholly-owned (direct and indirect) subsidiary companies, each a Colorado corporation or limited liability company: ● 6565 E. Evans Owner LLC ● GC Corp ● GC Capital Corp, LLC ● GC Security LLC ● General Cannabis Capital Corporation ● Standard Cann, Inc. ● SevenFive Farms Cultivation, LLC ● SevenFive Farms, LLC ● Trees Colorado LLC ● Trees Oregon LLC ● Green Tree Colorado LLC F- 7 ● GT Cultivation LLC ● GT Retail LLC ● GT MIP LLC ● Green Man Cannabis, LLC Intercompany accounts and transactions have been eliminated. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result. Going Concern We incurred net losses of $ 7.1 million and $ 9.5 million during the years ended December 31, 2023 and 2022 , respectively, and had an accumulated deficit of $ 100.5 million and $ 93.4 million as of December 31, 2023 and December 31, 2022. We had cash and cash equivalents of $ 1.0 million and $ 2.6 million as of December 31, 2023 , and December 31, 2022, respectively. The consolidated financial statements, have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our operations with proceeds from the issuance of debt and equity. We expect our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern is dependent upon our ability to raise additional capital to fund operations, support our planned investing activities, and repay our debt obligations as they become due. If we are unable to obtain additional funding, we would be forced to delay, reduce, or eliminate some or all of our acquisition efforts, which could adversely affect our growth plans. Liquidity The Company incurred net losses of $ 7.1 million and $ 9.5 million in the years ended December 31, 2023 and 2022, respectively, and had an accumulated deficit of $ 100.5 million as of December 31, 2023. The Company had cash and cash equivalents of $ 1.0 million as of December 31, 2023 . The Company believes that its cash and cash equivalents as of December 31, 2023 will not be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K. The Company will need additional funding to support its planned investing activities. If the Company is unable to obtain additional funding, it would be forced to delay, reduce, or eliminate some or all of its planned operations and acquisition efforts, which could adversely affect its business prospects. Reclassifications Certain prior year amounts have been reclassified for consistency with current year presentation. These reclassifications had no effect on the reported results of operations. F- 8 Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase. Inventories Inventories consist of raw materials, supplies, growing and harvested plants (work-in-process), and finished goods, and are stated at the lower of cost or net realizable value. All direct and indirect costs of growing plants are accumulated until the time of harvest and allocated to the plants during the growing process. All direct and indirect costs of finished goods are accumulated and allocated to the products between the harvest and completion stages. The Company uses an average costing method to allocate costs. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items. Write-downs and write-offs are charged to cost of sales. Accounts Receivable, net Accounts receivable are recorded at the original invoiced amount due from our customers less an allowance for any potential uncollectible amounts. We control credit risk related to accounts receivable through credit approvals, credit limits, and monitoring processes. In making the determination of the appropriate allowance for credit losses, management considers prior experience with customers, analysis of accounts receivable aging reports, changes in customer payment patterns, and historical write-offs. Right-of-use Asset / Lease Liability Right of use (“ROU”) assets represent our right to use an underlying asset in which we obtain substantially all the economic benefits and the right to direct the use of the asset during the lease term. Lease liabilities represent our obligation to make lease payments arising from the lease. We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year . The Company elected to combine the lease and related non-lease components (common area maintenance and operating costs) and treat them as a single lease component. ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of the fixed lease payments over the lease term. The Company’s operating leases include options to extend or terminate the lease, which are not included in the determination of the ROU asset or lease liability unless reasonably certain to be exercised. Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the measurement of the ROU asset and lease liability and are expensed as incurred in the statement of operations. Variable payments typically included payment for common area maintenance and reimbursement of the landlords operating costs as the amounts change from year to year based on actual costs incurred. In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates. Operating lease expense is recognized on a straight-line basis over the lease term. For the Company’s finance lease, interest expense is recognized on the lease liability using the effective interest method and depreciation of the finance lease ROU asset is recognized on a straight-line basis over the lease term. Property and Equipment, net Property and equipment are recorded at historical cost, less accumulated depreciation. Major additions and improvements are capitalized, while replacements, maintenance, and repairs, which do not improve or extend the life of the respective assets, are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets: thirty years for buildings, the lesser of ten years or the life of the lease for leasehold improvements, and one to fifteen years for furniture, fixtures and equipment, software, vehicles, and biological assets. Land is not depreciated. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. F- 9 Business Combinations Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair value at the date of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. We allocate any excess purchase price over the fair value of the net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation, and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. Goodwill and Intangibles Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill and long-lived intangible assets are tested for impairment at least annually in accordance with the provisions of ASC No. 350, Intangibles-Goodwill and Other (“ASC No. 350”). ASC No. 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carry value. Application of the goodwill impairment test requires judgement, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. We test goodwill and long-lived intangible assets annually in December, unless an event occurs that would cause us to believe the value is impaired at an interim date. Intangible assets with finite useful lives are amortized over their respective estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Debt We issue debt that may have separate warrants, conversion features, or no equity-linked attributes. Debt with warrants – When we issue debt with warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations. The offset to the contra-liability is recorded as additional paid in capital in our consolidated balance sheets. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations. The debt is treated as conventional debt. We determine the value of the non-complex warrants using the Black-Scholes Option Pricing Model (“Black-Scholes”) using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the volatility of our stock. For warrants with complex terms, we use the binomial lattice model to estimate their fair value. Modification and Extinguishment of Debt - When we change the terms of existing notes payable, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine whether the change should be treated as a modification or as a debt extinguishment. This evaluation includes analyzing whether there are significant and consequential changes to the economic substance of the note. If the change is deemed insignificant then the change is considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment. Convertible Debt - When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative. If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the estimated volatility of our stock. F- 10 Fair Value of Financial Instruments U.S. generally accepted accounting principles (“GAAP”) requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the consolidated balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including accounts receivable and accounts payable, the Company estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value. GAAP establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use on unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs consist of items that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is described below: Level 1 – Quoted prices in active markets for identical assets or liabilities. There are no fair valued assets or liabilities classified under Level 1 as of December 31, 2023. Level 2 – Observable prices that are based on inputs not quoted on active markets but corroborated by market data. There are no fair valued assets or liabilities classified under Level 2 as of December 31, 2023. Level 3 – Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs (see Note 15). Level 3 liabilities are valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the liabilities. For fair value measurements categorized within Level 3 of the fair value hierarchy, the Company’s accounting, and finance department, which reports to the Chief Financial Officer, determines its valuation policies and procedures. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s accounting and finance department and are approved by the Chief Financial Officer. Level 3 Valuation Techniques Level 3 financial liabilities consist of the derivative liabilities for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company deems financial instruments which do not have fixed settlement provisions to be derivative instruments. In accordance with GAAP the fair value of these warrants is classified as a liability on the Company’s consolidated balance sheets because, according to the terms of the warrants, a fundamental transaction (as defined) could give rise to an obligation of the Company to pay cash to its warrant holders. Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated statements of operations in each subsequent period. The Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs. F- 11 Warrant Instruments Warrants with derivative features – When we raise capital by issuing warrants that do not have complex terms, they are recorded as additional paid in capital in our consolidated balance sheet. When we issue warrants that have complex terms, such as a clause in which the warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash upon a fundamental transaction that is considered outside of the control of management, such as a change of control, the warrants are considered to be a derivative that is recorded as a liability at fair value. The warrant derivative liability is adjusted to its fair value at the end of each reporting period, with the change being recorded as a loss or gain. Revenue Recognition We have two main revenue streams: (i) retail product sales; and (ii) wholesale cultivation sales. Product sales are recorded at the time that control of the product is transferred to customers. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Revenue from cultivation sales is recognized when the products are delivered to the customer. ASU 2014-09, Revenue from Contracts with Customers (“ ASC Topic 606”) is a comprehensive revenue recognition model that requires revenue to be recognized when control of the promised goods or services are transferred to our customers at an amount that reflects the consideration that we expect to receive. Application of ASC Topic 606 requires us to use more judgment and make more estimates than under former guidance. Application of ASC Topic 606 requires a five-step model applicable to all product offerings revenue streams as follows: Identification of the contract, or contracts, with a customer A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer. Identification of the performance obligations in the contract Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the goods or service either on its own or together with other resources that are readily available from third parties or from us, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. When a contract includes multiple promised goods or services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation. Determination of the transaction price The transaction price is determined based on the consideration to which we will be entitled to receive in exchange for transferring goods or services to our customer. We estimate any variable consideration included in the transaction price using the expected value method that requires the use of significant estimates for discounts, cancellation periods, refunds and returns. Variable consideration is described in detail below. F- 12 Allocation of the transaction price to the performance obligations in the contract If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative Stand-Alone Selling Price (“SSP,”) basis. We determine SSP based on the price at which the performance obligation would be sold separately. If the SSP is not observable, we estimate the SSP based on available information, including market conditions and any applicable internally approved pricing guidelines. Recognition of revenue when, or as, we satisfy a performance obligation We recognize revenue at the point in time that the related performance obligation is satisfied by transferring the promised goods or services to our customer. Principal versus Agent Considerations When another party is involved in providing goods or services to our customer, we apply the principal versus agent guidance in ASC Topic 606 to determine if we are the principal or an agent to the transaction. When we control the specified goods or services before they are transferred to our customer, we report revenue gross, as principal. If we do not control the goods or services before they are transferred to our customer, revenue is reported net of the fees paid to the other party, as agent. Our evaluation to determine if we control the goods or services within ASC Topic 606 includes the following indicators: We are primarily responsible for fulfilling the promise to provide the specified good or service. When we are primarily responsible for providing the goods and services, such as when the other party is acting on our behalf, we have indication that we are the principal to the transaction. We consider if we may terminate our relationship with the other party at any time without penalty or without permission from our customer. We have risk before the specified good or service have been transferred to a customer or after transfer of control to the customer. We may commit to obtaining the services of another party with or without an existing contract with our customer. In these situations, we have risk of loss as principal for any amount due to the other party regardless of the amount(s) we earn as revenue from our customer. The entity has discretion in establishing the price for the specified good or service. We have discretion in establishing the price our customer pays for the specified goods or services. Shipping and Handling Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of sales. Shipping and handling for inventory are included as a component of inventory on the consolidated balance sheets, and in cost of sales in the consolidated statements of operations when the product is sold. Advertising Advertising costs are expensed as incurred and are included in selling, general and administrative expenses in the consolidated statements of operations. The Company did not incur any significant advertising costs for the years ended December 31, 2023 and 2022. F- 13 Stock-based Payments Employee and non-employee awards – We account for stock-based compensation in accordance with the fair value recognition provisions of ASC 718 , Compensation – Stock Compensation , and ASC 505 , Equity , which require all stock-based compensation to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values. The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate, and the expected term of the option. The Company accounts for forfeitures of stock-based grants as they occur. If any of the assumptions used in the Black-Scholes model or the anticipated number of shares to be awarded change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. Market price-based awards – We may issue stock-based payments that vest when certain market conditions are met, such as our Common Stock trading above a certain value for a specific number of days. We recognize expense for market price-based options at the estimated fair value of the options using the binomial lattice model over the estimated life of the options used in the model, or immediately upon the market conditions being met. We use historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. Income Taxes We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities and would be recorded in income tax expense. Our assessment of tax positions as of December 31, 2023 and 2022, determined that there were no material uncertain tax positions. Tax returns for the years ending December 31, 2020 through 2022 are open to examination by federal and state authorities. Segments ASC 280, Segment Reporting (“ASC 280”), establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our Chief Executive Officer has been identified as the chief decision maker. Our reporting segments consist of: a) Retail; and b) Cultivation. Our operations are conducted within the United States of America. Recently Issued Accounting Standards FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. This Accounting Standards Update (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted. We adopted this ASU in the first quarter of 2022, and the adoption did not have a material effect on our consolidated financial statements. F- 14 FASB ASU 2016-13 – “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” – In June 2016, the FASB issued guidance that replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities the Company does not intend to sell or believes that it is more likely than not they will be required to sell. The ASU can be adopted no later than January 1, 2020 for SEC filers and January 1, 2023 for private companies and smaller reporting companies. The adoption of the new standard did not have a material effect on our consolidated financial statements. FASB ASU 2017-04 – “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” – In January 2017, the FASB issued ASU No. 2017-04, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under ASU 2017-04, goodwill impairment will be tested by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2022, with early adoption permitted. The adoption of the new standard did not have a material effect on our consolidated financial statements. Recent Accounting Pronouncements FASB ASU 2023-07 – “Segment Reporting – Improvements to Reportable Segment Disclosures” - In November 2023, the FASB issued ASU No. 2023-07, which requires disclosure of more detailed information about a reportable segment’s expenses. The new standard is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The amendments must be applied retrospectively, and early adoption is permitted. The Company is currently assessing the effects of adoption on its consolidated financial statements. NOTE 2. BUSINESS ACQUISITIONS Trees On January 5, 2022, we completed the acquisition of substantially all of the assets of Trees MLK Inc. (“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction. We paid cash in the amount of $ 256,582 and stock consideration of 4,970,654 shares of our Common Stock. The closing price of our Common Stock on January 5, 2022, the date of license transfer, was $ 0.27 per share, as such, fair value of the equity consideration is $ 1,346,076 . Further, cash equal to $ 384,873 will be paid to the sellers in equal monthly installments over a period of 24 months beginning on June 15, 2022. When we closed on MLK it was a non-operating dispensary. We opened the dispensary in the second quarter of 2022. The table below reflects the Company’s final estimates of the acquisition date fair values of the assets acquired: Fixed assets $ 25,150 Tradename 88,000 Goodwill 1,870,381 $ 1,983,531 F- 15 As the MLK dispensary was not operating until the second quarter of 2022, the were no material results of operations prior to the acquisition date. As such, there would be no material proforma impact on the Company’s operating results. On December 12, 2022, we completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a Colorado limited liability company (collectively, the “Green Tree Entities”). We paid cash in the amount of $ 500,000 and stock consideration of 17,977,528 shares of our Common Stock. Additionally, we had a potential obligation to issue additional stock consideration up to 4,879,615 shares of our Common Stock on the achievement of certain performance indicators on or before June 12, 2024. The closing price of our Common Stock on December 12, 2022, the date of license transfer, was $ 0.165 per share, as such, fair value of the equity consideration is $ 2,966,292 . An additional $ 3,500,000 in cash was to be paid to the sellers in fifteen (15) equal month ly payments commencing on the 9-month anniversary of the closing, which based on a discount rate of 12 %, resulted in the fair value of these additional monthly payments to be approximately $ 3,017,510 . In November 2023, the Company transferred a majority of the Green Tree Entities back to the original owners (see Note 6). Subsequent to this transfer, the aforementioned debt was modified. This liability is included in Notes payable- current and Notes payable- non-current in the accompanying consolidated balance sheets. See Note 14 for additional details. The table below reflects the Company’s final estimates of the acquisition date fair values of the assets acquired: Cash $ 3,928 Inventory 1,588,455 Fixed assets 688,655 Tradename 677,000 Goodwill 4,248,000 $ 7,206,038 Compared to the estimated purchase price allocation reported in our financial statements included in Item 8 of our Form 10-K year ended December 31, 2022 filed with the SEC on April 17, 2023, the final purchase price allocation resulted in a reduction of tradename intangible assets of $ 273,000 and an increase in goodwill of $ 995,702 . Additionally, as part of the measurement adjustments, the fair value of the installment payments was remeasured using a 16 % discount rate, resulting in a decrease of debt of $ 136,502 for the purchase consideration. Additionally, a contingent earnout liability with a fair value of $ 859,204 was recognized which increased the purchase consideration and resulting goodwill. The fair value of the contingent earnout liability decreased to $ 367,056 at December 31, 2023, resulting in a gain on change in fair value of $ 492,148 . The accompanying consolidated financial statements include the results of the Green Tree Entities from the date of acquisition for financial reporting purposes, December 12, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows: Year ended December 31, 2022 (unaudited) Total revenues $ 22,556,789 Net income (loss) attributable to Common Stockholders $ ( 9,558,189 ) Net income (loss) per common share $ ( 0.08 ) Weighted average number of basic and diluted common shares outstanding 114,159,065 F- 16 The unaudited pro-forma results of operations are presented for information purpose only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods. In July 2023, the Company entered into an agreement to transfer the Green Tree Entities back to the original owners of these entities (see Note 6). On December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of Green Man. We paid cash in the amount of $ 1,225,000 and stock consideration of 4,494,382 shares of Common Stock. The closing price of our Common Stock on December 19, 2022, the date of license transfer, was $ 0.18 per share, as such, fair value of the equity consideration is $ 808,989 . An additional $ 1,500,000 in cash will be paid to the sellers in eighteen (18) equal month ly payments commencing on the 12-month anniversary of the closing. Based on a discount rate of 12 %, the fair value of these additional monthly payments is approximately $ 1,224,846 . This liability is included in Notes payable-current and Notes payable-non-current in the accompanying consolidated balance sheets. See Note 14 for additional details. The table below reflects the Company’s final estimates of the acquisition date fair values of the assets acquired: Cash $ 8,594 Inventory 108,543 Fixed assets 23,500 Tradename 273,000 Goodwill 2,741,000 $ 3,154,637 Compared to the estimated purchase price allocation reported in our financial statements included in Item 8 of our Form 10-K year ended December 31, 2022 filed with the SEC on April 17, 2023, the final purchase price allocation resulted in an increase of tradename intangible assets of $ 123,000 and a decrease in goodwill of $ 227,198 . Additionally, as part of the measurement adjustments, the fair value of the installment payments was remeasured using a 16 % discount rate, resulting in a decrease of debt of $ 104,198 for the purchase consideration. The accompanying consolidated financial statements include the results of Green Man from the date of acquisition for financial reporting purposes, December 19, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows: Year ended December 31, 2022 (unaudited) Total revenues $ 19,002,698 Net income (loss) attributable to Common Stockholders $ ( 9,641,205 ) Net income (loss) per common share $ ( 0.09 ) Weighted average number of basic and diluted common shares outstanding 101,500,915 The unaudited pro-forma results of operations are presented for information purpose only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods. F- 17 NOTE 3. ASSET ACQUISITION In February 2023, we completed the acquisition of the assets of Station 2, LLC (“Station 2”). The assets consist of a medical and retail cannabis license for a dispensary located in Denver, CO. We also assumed responsibility of the operating lease for the dispensary and recorded the relating ROU asset which is disclosed separately on the accompanying consolidated balance sheets. The consideration paid by the Company consists of cash at closing equal to $ 256,582 plus an additional note equal to $ 384,873 . The relative fair value of the note issued resulted in a debt discount of $ 50,918 . As the dispensary was not in operation and there was no assembled workforce at the time of acquisition, the acquisition was accounted for as an asset acquisition of a license. Subsequently, during the year ended December 31, 2023, the license was transferred as part of a settlement agreement and was derecognized (see Note 6). Timothy Brown, a current member of the Company’s Board of Directors and its Chief Visionary Officer, is the sole owner of Station 2. NOTE 4. DISCONTINUED OPERATIONS On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $ 150,000 and 10 % of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed. Pursuant to amendment, the buyer paid the additional $ 75,000 in March 2022, and the 10 % profit share described above was eliminated. A breakdown of the results of discontinued operations related to the sale of NBC are presented as follows: Year Ended December 31,  2022 Product revenues $ 3,438 Service revenues — Total revenues 3,438 Selling, general and administrative ( 2,040 ) Total costs and expenses ( 2,040 ) Income from discontinued operations $ 5,478 NOTE 5. ACCOUNTS RECEIVABLE, NET Our accounts receivable consisted of the following: December 31, 2023 2022 Accounts receivable $ 152,863 $ 83,373 Less: Allowance for credit losses ( 41,000 ) ( 42,000 ) Total $ 111,863 $ 41,373 We record credit loss expense when we conclude the credit risk of a customer indicates the amount due under the contract is not collectible. We recorded credit loss expense of $ 114 and $ 6,280 during the years ended December 31, 2023 and 2022, respectively. F- 18 NOTE 6. LICENSE TRANSFER AGREEMENTS In August 2023, we entered into an Assignment of Assets (“Assignment”), pursuant to which we agreed to transfer and assign to Station 2 and Timothy Brown (“Brown” and collectively with Station 2, “Assignees”), a board member, shareholder, and executive level employee of the Company, a State of Colorado and corresponding City and County of Denver retail marijuana store cannabis license and related assets owned related to the licensed cannabis dispensary located at 468 S. Federal Boulevard. Timothy Brown is the sole owner of Station 2. In exchange for the transfer to Assignees of the transferred assets, the Assignees agreed to extinguishment and satisfaction of, and unconditional waiver by each of Station 2 and Brown of any claims in respect of, any and all debt or other obligations of the Company, Trees Colorado, and any of their respective affiliates, directors, officers or agents, pursuant to that certain Asset Purchase Agreement dated October 14, 2022, as amended, by and among the Company, Trees Colorado and Assignees, which was issued upon closing of the transaction in February 2023 (“468 Debt”). This transaction closed in October 2023, and the Company recognized a loss on this transfer of $ 202,397 , located in loss on extinguishment of debt on the consolidated statements of operations. A summary of the license transfer is presented as follows: Balance as of August 17, 2023 Asset to be transferred: Intangible assets - License $ 590,536 Accumulated amortization - License ( 31,987 ) Consideration: Extinguishment of 468 debt $ 356,152 In July 2023, we and our subsidiaries Green Tree Colorado, LLC, Green Tree Cultivation LLC, GT Retail LLC, and Green Tree MIP LLC, entered into a settlement agreement (“Settlement Agreement”), (“GT Retail”), (“GT MIP”), with Allyson Feiler Downing (“Downing”) and Loree Schwartz (“Schwartz” and together with Downing, “Green Tree Parties”), pursuant to which the Company and the Green Tree Parties agreed to transfer and assign to new entities controlled by the Green Tree Parties, cannabis licenses and related assets owned by (i) GT Retail relating to a cultivation facility and a retail dispensary located in Berthoud, Colorado; (ii) GT MIP relating to a ‘marijuana infused product’ dispensary located in Boulder County, Colorado; and (iii) certain intellectual property in respect thereof. The Company retained accounts payable and certain cannabis inventory in respect of the transferred assets. Closing of the transaction is subject to approval of the license transfers by the Colorado Marijuana Enforcement Division as well as local regulatory authorities. In November 2023, the transfer was approved. As the transfer represented a non-reciprocal transfer between the Company and certain of its shareholders in connection with the settlement of a prior business combination, we recognized the difference between the carrying values of the assets transferred, equity redeemed, and debt exchanged as a capital contribution to the Company. See Note 14 for additional information. In exchange for the transfer to the Green Tree Parties of the transferred assets, the Company and the Green Tree Parties agreed that upon closing, the Green Tree Parties shall transfer and assign to the Company, and the Company shall redeem, 9,917,574 shares of the Company’s Common Stock owned by the Green Tree Parties and originally issued to the Green Tree Parties in the acquisition consummated in December 2022 pursuant to that certain Asset Purchase Agreement dated September 13, 2022, as amended, by and among the Company, Downing, Schwartz and various other parties thereto (the “APA”). The asset transfers disclosed herein did not qualify for reporting as discontinued operations, as each of these transactions did not represent a strategic shift that had a major effect on the Company’s operations and financial results. F- 19 NOTE 7. INVENTORIES Our inventories consist of the following: December 31 December 31, 2023 2022 Raw materials $ 351,241 $ 8,883 Work-in-progress and finished goods 509,677 2,057,779 Inventories $ 860,918 $ 2,066,662 NOTE 8. PREPAIDS AND OTHER CURRENT ASSETS Our prepaids and other current assets consist of the following: December 31, 2023 2022 Security deposits $ 107,921 $ 140,628 Prepaid insurance 106,124 86,071 ERC Receivable 176,657 — Other current assets 21,209 32,899 Total prepaids and other current assets $ 411,911 $ 259,598 NOTE 9. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following: December 31, 2023 2022 Furniture, fixtures and equipment $ 1,647,010 $ 1,484,432 Finance lease ROU -building 316,902 766,623 Software 103,817 103,817 Biological assets 13,000 13,000 Total 2,080,729 2,367,872 Less: Accumulated depreciation ( 685,625 ) ( 419,903 ) Total property and equipment, net $ 1,395,104 $ 1,947,969 Depreciation expense was $ 221,940 and $ 182,838 , respectively, for the years ended December 31, 2023 and 2022. F- 20 NOTE 10. INTANGIBLE ASSETS AND GOODWILL Intangible assets, net During the years ended December 31, 2023 and 2022, the Company acquired tradename intangible assets through several acquisitions. See Note 2 for further details of these acquisitions. The amount of tradename intangible assets acquired in each transaction is shown in the table below. Useful life Transaction Acquisition Date Amount (in years) Green Man Acquisition December 2022 150,000 1 Green Tree Acquisition December 2022 950,000 2 Trees MLK Acquisition (1) January 2022 88,000 10 Trees Portland Acquisition December 2021 292,000 10 Trees Waterfront Acquisition (1) December 2021 217,000 10 Trees Englewood Acquisition September 2021 1,399,000 10 (1) The trade name intangible asset for these acquisitions was fully impaired in 2022. See discussion of impairment charges below in this footnote. The following table summarizes the change in the Company’s tradename intangible assets from December 31, 2022 to December 31, 2023: Gross Intangible Assets Accumulated Amortization Net Intangible Assets Balance as of December 31, 2021 $ 6,323,780 $ ( 323,967 ) $ 5,999,813 Purchase price allocation adjustments (see Note 2) ( 3,942,000 ) — ( 3,942,000 ) Tradename intangibles acquired 1,188,000 — 1,188,000 Amortization — ( 148,538 ) ( 148,538 ) Impairment ( 553,377 ) — ( 553,377 ) Balance as of December 31, 2022 3,016,403 ( 472,505 ) 2,543,898 Purchase price allocation adjustments (see Note 2) ( 150,000 ) — ( 150,000 ) Station 2 license intangibles acquired 590,536 ( 31,987 ) 558,549 Transfer of Station 2 license ( 558,549 ) — ( 558,549 ) Transfer of Green Tree assets ( 135,922 ) — ( 135,922 ) Amortization — ( 620,485 ) ( 620,485 ) Balance as of December 31, 2023 $ 2,762,468 $ ( 1,124,977 ) $ 1,637,491 F- 21 Estimated amortization expense for the next five years is as follows: Year Ended December 31, Amount 2024 $ 500,425 2025 169,100 2026 169,100 2027 169,100 2028 169,100 Thereafter 460,666 Total $ 1,637,491 Amortization expense was $ 652,472 and $ 148,538 for the years ended December 31, 2023 and 2022, respectively. Goodwill The following represents a summary of changes in the carrying amount of goodwill for the years ended December 31, 2023 and 2022 on a consolidated basis and by segment: Consolidated Gross Goodwill Accumulated Impairment Net Goodwill Balance as of December 31, 2021 $ 11,283,857 $ ( 2,484,200 ) $ 8,799,657 Goodwill acquired 8,094,258 — 8,094,258 Purchase price allocation adjustment 3,942,000 — 3,942,000 Impairment — ( 2,450,941 ) ( 2,450,941 ) Balance as of December 31, 2022 23,320,115 ( 4,935,141 ) 18,384,974 Transfer of Green Tree assets ( 1,757,381 ) ( 1,757,381 ) Purchase price allocation adjustment 768,504 — 768,504 Impairment — ( 1,516,000 ) ( 1,516,000 ) Balance as of December 31, 2023 $ 22,331,238 $ ( 6,451,141 ) $ 15,880,097 F- 22 Retail Segment Gross Goodwill Accumulated Impairment Net Goodwill Balance as of December 31, 2021 $ 8,799,657 $ — $ 8,799,657 Goodwill acquired 8,094,258 — 8,094,258 Purchase price allocation adjustment 3,942,000 — 3,942,000 Impairment — ( 2,450,941 ) ( 2,450,941 ) Balance as of December 31, 2022 20,835,915 ( 2,450,941 ) 18,384,974 Transfer of Green Tree assets ( 1,757,381 ) — ( 1,757,381 ) Purchase price allocation adjustment 768,504 — 768,504 Impairment — ( 1,516,000 ) ( 1,516,000 ) Balance as of December 31, 2023 $ 19,847,038 $ ( 3,966,941 ) $ 15,880,097 Cultivation Segment Gross Goodwill Accumulated Impairment Net Goodwill Balance as of December 31, 2021 2,484,200 $ ( 2,484,200 ) $ — Goodwill acquired — — — Impairment — — — Balance as of December 31, 2022 2,484,200 ( 2,484,200 ) — Goodwill acquired — — — Balance as of December 31, 2023 $ 2,484,200 $ ( 2,484,200 ) $ — Cultivation Segment Impairments As of December 31, 2022, due to the continued declines in the wholesale price of marijuana flower in Colorado, the Company determined that the remaining intangible asset balance in the Cultivation segment was not recoverable based on current cash flow projections and that there was no longer value in the tradename given the economic conditions in the cultivation sector. Therefore, an impairment of the remaining balance of $ 278,878 was recorded during the year ended December 31, 2022. Retail Segment Impairments As of annual testing date on December 31, 2022, the Company utilized a third-party valuation firm to estimate the fair value of the intangible assets with finite lives and, subsequently, the fair value of each reporting unit within the Retail segment using a combination of a discounted cash flow approach and market multiple approach. The resulting fair value estimates indicated that the fair value of the tradename intangible was less than the carrying value for the Trees MLK and Trees Waterfront dispensaries in Oregon. Therefore, the Company recognized an impairment of $ 274,500 during the year ended December 31, 2022. For goodwill, each dispensary location is considered a separate reporting unit. As a result, the Company determined that the fair value of each of the dispensary locations in Oregon was less than its carrying value. Therefore, the Company recognized goodwill impairments in the Retail segment in the amount of $ 2,450,941 during the year ended December 31, 2022. As of annual testing date on December 31, 2023, the Company utilized a third-party valuation firm to estimate the fair value of each reporting unit within the Retail segment using a combination of a discounted cash flow approach and market multiple approach. Each dispensary location is considered a separate reporting unit. As a result, the Company determined that the fair value of each of the dispensary locations in Oregon was less than its carrying value. Therefore, the Company recognized goodwill impairments in the Retail segment in the amount of $ 1,516,000 during the year ended December 31, 2023. F- 23 NOTE 11. LEASES The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities. All but one of the Company’s leases are classified as operating leases. The lease for the retail dispensary acquired in the Green Man transaction is classified as a finance lease. The current and non-current portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance sheets. The finance lease ROU asset is included in property and equipment, net (see Note 9) and the operating lease ROU asset is disclosed separately on the accompanying consolidated balance sheets. As the rate implicit in the Company’s leases is not readily determinable, we used an estimated incremental borrowing rate of 20 % in determining the present value of lease payments. The operating lease expense for the years ended December 31, 2023 and December 31, 2022 is as follows: December 31, For the year ended December 31, 2023 2022 Straight-line operating lease expense $ 1,265,837 $ 743,156 Variable lease cost 445,982 133,689 Total operating lease expense $ 1,711,819 $ 876,845 The finance lease expense for the year ended December 31, 2023 and December 31, 2022, was approximately $ 167,293 and $ 5,846 , respectively. Related party lease s As of December 31, 2023, one of the Company’s operating leases, a cultivation facility lease, is a related party lease as the landlord is a principal shareholder and former board member of the Company. A retail dispensary lease and a lease that included both cultivation and retail were with related parties until November 2023, when these leases were transferred to the Green Tree parties (see Note 6). Prior to the transfer of these leases to the Green Tree Parties, the Green Tree Parties had consisted of a board member and executive level employee of the Company. During the year ended December 31, 2022, the related party operating leases consisted of one retail dispensary lease, one cultivation facility lease, and one lease that included both cultivation and retail. Another retail dispensary lease was with a related party through May 2022 when the building was sold to an unaffiliated third-party. As of December 31, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases are $ 142,080 , $ 120,000 , and $ 26,683 , respectively. For the years ended December 31, 2023 and December 31, 2022, the total lease expense for related party leases was $ 390,884 and $ 434,437 , respectively. F- 24 Lease Maturities Future remaining minimum lease payments on our operating leases and finance lease are as follows: Year Ended December 31, Operating leases Finance lease 2024 $ 846,201 $ 205,400 2025 708,439 171,043 2026 452,948 136,940 2027 302,095 143,102 Thereafter 914,910 818,100 Total 3,296,593 1,474,585 Less: Present value adjustment ( 1,232,000 ) ( 767,937 ) Lease liability 2,064,593 706,648 Less: Lease liability, current ( 846,201 ) ( 205,400 ) Lease liability, non-current $ 1,218,392 $ 501,248 The total remaining lease payments in the table above include $ 772,051 related to renewal option periods that management is reasonably certain will be exercised. The majority of this amount relates to the flagship Trees location in Englewood, Colorado and the retail and certain cultivation facilities that were acquired in the Green Tree Acquisition and are eligible for renewal in 2023. As of December 31, 2023, the weighted average remaining term of the Company’s operating leases is 4.98 years and the remaining term on the finance lease is 9 years. None of the Company’s leases contain residual value guarantees or restrictive covenants. Supplemental cash flow information December 31, For the Year Ended December 31, 2023 2023 2022 Supplemental cash flow information Cash paid for amounts included in operating lease liability $ 1,098,544 $ 685,214 Cash paid for amounts included in finance lease liability $ 167,293 $ 4,194 Supplemental lease disclosures of non-cash transactions: ROU assets obtained in exchange for operating lease liabilities $ 219,438 $ 2,235,798 ROU assets obtained in exchange for finance lease liabilities $ — $ 766,623 Reduction of operating lease ROU asset and operating lease liabilities from remeasurement (1) $ — $ ( 1,097,651 ) (1) In April 2022, the lease for Seven-Five Farm, a cultivation facility, was amended and the remaining lease payments were reduced. Upon modification, management reassessed the lease term and concluded that it was not reasonably certain that any of the renewal option periods in the lease would be exercised. This conclusion was different than the conclusion reached at the initial commencement of the lease in 2020. The significant drop in the wholesale cost of marijuana flower and the current economic environment in the cannabis industry, particularly in the cultivation sector, is the primary driver of this change. As a result, the measurement of the ROU asset and operating lease liability no longer includes the payments associated with the renewal option periods. F- 25 NOTE 12. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Our accounts payable and accrued expenses consist of the following: December 31, 2023 2022 Accounts payable $ 1,562,225 $ 1,108,956 Accrued payroll, taxes, and vacation 942,233 683,134 Other 113,078 107,360 Total accounts payable and accrued expenses $ 2,617,536 $ 1,899,450 NOTE 13. ACCRUED STOCK PAYABLE The following tables summarize the changes in accrued Common Stock payable: Number of Amount Shares Balance as of December 31, 2021 $ 444,894 1,769,537 Stock issued ( 383,994 ) ( 1,669,537 ) Balance as of December 31, 2022 $ 60,900 100,000 Stock issued — — Balance as of December 31, 2023 $ 60,900 100,000 In December 2021, we completed the acquisition of Trees Waterfront. As part of the transaction, we granted 1,669,537 shares of our Common Stock. The stock was subsequently issued on January 6, 2022. The outstanding balance of accrued stock payable as of December 31, 2023 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services. Based on a stock price of $ 0.61 on the date of grant, the consultant will receive $ 60,900 worth of our Common Stock. As of December 31, 2023, none of the stock had been issued. NOTE 14. NOTES PAYABLE Our notes payable consisted of the following: December 31, 2023 December 31, 2022 Third-party Related-party Total Third-party Related-party Total 2022 12% Notes $ 13,167,796 $ 332,204 $ 13,500,000 $ 13,167,796 $ 332,204 $ 13,500,000 Trees Transaction Notes — 326,811 326,811 — 1,191,865 1,191,865 Green Tree Acquisition Notes — 562,000 562,000 774,750 2,725,250 3,500,000 Green Man Acquisition Notes 1,555,000 — 1,555,000 1,500,000 — 1,500,000 Working Capital Note 500,000 — 500,000 — — — Unamortized debt discount ( 1,312,427 ) ( 25,141 ) ( 1,337,568 ) ( 1,527,346 ) ( 361,587 ) ( 1,888,933 ) Total debt 13,910,369 1,195,874 15,106,243 13,915,200 3,887,732 17,802,932 Less: Current portion ( 605,000 ) ( 487,382 ) ( 1,092,382 ) ( 179,827 ) ( 1,723,517 ) ( 1,903,344 ) Long-term portion $ 13,305,369 $ 708,492 $ 14,013,861 $ 13,735,373 $ 2,164,215 $ 15,899,588 F- 26 Aggregate Maturities As of December 31, 2023, aggregate future contractual maturities of long-term debt (excluding issue discounts) are as follows: Year ended December 31, 2023 Amount 2024 $ 1,092,382 2025 970,571 2026 14,380,858 $ 16,443,811 Trees Transaction Notes In January 2022, with the completion of the Trees MLK acquisition, we are obligated to pay the Seller cash equal to $ 384,873 in equal month installments over a period of 24 months. The payments began on June 15, 2022 and the payment is equal to $ 16,036 per month. As of December 31, 2023 and 2022, the debt balance of this note was $ 200,495 and $ 272,618 , respectively. In December 2021, with the completion of the TREES Portland and TREES Waterfront acquisitions, we are obligated to pay the Seller cash equal to $ 497,371 . This note calls for monthly payments of $ 20,724 , which began on February 15, 2022. As of December 31, 2023 and 2022, the debt balance of this note was $ 126,316 and $ 269,409 , respectively. In September 2021, with the completion of the Englewood acquisition, we are obligated to pay the Seller cash equal to $ 1,732,884 . This note calls for monthly payments of $ 72,204 , which began on October 15, 2021. There is no interest associated with this note. As of December 31, 2022, the debt balance of this note was $ 649,838 . During the year, the Englewood Seller forgave the remaining principal balance $ 256,582 owed from the Englewood acquisition. As the debt holder is also a shareholder of the Company, the effect of this debt forgiveness was accounted for as a capital contribution in paid-in capital. Green Man Acquisition Notes In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $ 1,500,000 in equal month installments over a period of 18 months. The payments begin in December 2023 and the payment is equal to $ 83,333 per month. The relative fair value of this obligation resulted in a debt discount of $ 275,154 . We recorded amortization of debt discount expense from this obligation of $ 133,970 and nil for the years ended December 31, 2023 and 2022, respectively. In December 2023, as part of the remeasurement of the Green Man acquisition, the fair value of the installment payments were remeasured (see Note 2), resulting in a decrease of the fair value of the debt of $ 104,198 . Green Tree Acquisition Notes In December 2022, with the completion of the Green Tree Acquisition, we were obligated to pay the Sellers cash equal to $ 3,500,000 in equal month installments over a period of 15 months. Payments of $ 233,333 were due monthly and were set to begin in September 2023, however, this debt was restructured as part of the settlement with the Green Tree entities (see Note 6 for the transfer and below for details of the restructuring). The relative fair value of the original obligation resulted in a debt discount of $ 482,490 . We recorded amortization of debt discount from this obligation of $ 345,354 and nil for the years ended December 31, 2023 and 2022, respectively. In December 2023, as part of the final determination of purchase accounting for the Green Tree acquisition, the fair value of the installment payments were remeasured (see Note 2), resulting in a decrease of the fair value of the debt of $ 136,502 . Green Tree Acquisition Notes Restructuring Upon the transfer of the Green Tree assets to the Green Tree entities (see Note 6), we signed a settlement agreement with the Sellers to eliminate the amounts due and payable under the Green Tree Acquisition Notes, with the exception certain amounts due to one of the Sellers. As part of this settlement, we signed a letter amendment with this seller, who is a shareholder of the Company, to modify the terms of the monthly installments due to this seller. Pursuant to the amended terms, we shall make (i) thirty-three (33) equal monthly installments (“Installment Payments”), totaling $ 441,571 , commencing within five (5) business days of January 4, 2024 and continuing on or before the 15th day of each successive month thereafter; plus (ii) a single balloon payment equal to $ 120,429 (“Balloon Payment”) on or before September 15, 2026 (“Balloon Payment Date”), for a total of $ 562,000 . The Balloon Payment may be paid in cash or, at the sole option of the Company, common stock of the Company, the per share of which to be determined utilizing the “volume weighted average price” of the common stock for the five-trading day period immediately preceding the Balloon Payment Date. F- 27 Upon agreement of these amended terms, we and the Sellers acknowledged that we lacked the financial means to make the remain ing installment payments previously due, forecasting that we would default on the installment payments due to the Sellers . Additionally, we determined the effective interest rate for the amounts due under the amended installment payments was lower than the effective interest rate of the previous installment payments, evidencing that the Sellers have granted a concession related to this amendment. These factors resulted in the amendment of the debt being considered a troubled debt restructuring under ASC 470. Further, as the parties to the amendment were shareholders of the Company, this transaction is considered a non-reciprocal transfer with owners and is accounted for within equity (with no gain or loss recognized related to the restructuring). Accordingly, a capital contribution of $ 1,974,384 was recognized in paid-in capital as of December 31, 2023, calculated as 1) the forgiveness of amounts due under the original Green Tree Acquisition Notes totaling $ 3,244,467 and 2) the redemption of the Seller’s equity consideration by the Company of $1,636,400, offset by 3) the derecognition of Green Tree fixed assets, tradename intangible assets, goodwill, and inventory assets transferred from the Company to the Sellers totaling $2,344,483 and 4) assumption of new amounts due under the amended terms discussed above of $562,000 . 12% Notes - 2022 Modification On September 15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “ 12 % Investors”), pursuant to which we agreed to issue and sell senior secured convertible notes (the “ 12 % Notes”) with an aggregate principal amount of $ 13,500,000 to such 12 % Investors, in exchange for payment by certain 12 % Investors of an aggregate amount of $ 10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $ 2,912,750 represented by the 10 % Notes discussed below. On December 15, 2023, the 12 % Notes were restructured, as discussed below. In connection with the 12 % Notes, the 12 % Investors received warrants (the “ 12 % Warrants”) to purchase shares of our Common Stock equal to 20 % coverage of the aggregate principal amount with an exercise price of $ 0.70 per share, which equals an aggregate of warrants to purchase 3,857,150 shares of Common Stock. The Lead 12 % Investor received an additional 10 % warrant coverage on the aggregate principal amount of 12 % Notes for total additional warrants to purchase 1,928,571 shares of our Common Stock. The Lead 12 % Investor also received a five percent fee on the aggregate principal amount of the 12 % Notes. This total fee in the amount of $ 675,000 was recorded as a debt discount and will be amortized over the life of the loan. The 12 % Notes bear interest at an annual rate of 12 % and will mature on September 16, 2026 . The 12 % Investors have the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 12 % Notes into Common Stock at a fixed conversion price equal to $ 1.00 per share. the 12 % Notes are treated as conventional debt. The fair value of the 12 % Warrants was recorded as a debt discount and additional paid-in capital of $ 569,223 was recorded in 2022. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 103,577 in 2022. For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 12 % Warrants as of September 15, 2022, were: Current stock price $ 0.20 Exercise price $ 0.70 Risk-free interest rate 3.66 % Expected dividend yield — Expected term (in years) 5.0 Expected volatility 107 % On December 15, 2023, the 12% Warrants were modified to reduce the exercise price of the 12 % Warrants to $ 0.40 per share, as discussed below. 12% Notes - 2023 Modification On December 15, 2023, the Company entered into Amended and Restated Senior Secured Convertible Notes (“Amended Notes”) with certain accredited investors (“Investors”) to modify the original terms of the 12 % Notes. The material terms of the Amended Notes include no changes to the aggregate principal amount, the maturity date, or the interest rate. Material changes to the Amended Notes are discussed in the following sections: Mandatory Conversion Feature In accordance with the Amended Notes, up to $ 3,375,000 (the “Convertible Amount”) of the principal balance will be mandatorily convertible at a price per share equal to $ 0.50 . Additionally, the Convertible Amount contains different terms than the remaining principal balance, as discussed below. The principal balance of the Convertible Amount is mandatorily convertible at any time during term upon occurrence of a trigger event. F- 28 Additionally, in the event a trigger event occurs, interest on the Convertible Amount is subject to optional conversion by the Company. The first 50% of the Convertible Amount, or $1,687,500, shall convert to common stock upon the occurrence of the 1) our common stock having a closing price equal to or greater than $0.50 per share for five (5) consecutive trading days as reported on the OTCQB Market; and 2) the aggregate dollar amount of the common tock traded, starting on the first day of the five (5) day span referred above and for up to ninety day thereafter (“Trading Value”) is equal to or greater than $1,687,500. The remaining 50% of the Convertible Amount, or $1,687,500, shall convert to common stock upon the occurrence of 1) our common stock having a closing price equal to or greater than $0.50 per share for five (5) consecutive trading days as reported on the OTCQB Market, 2) the aggregate Trading Value is equal to or greater than $1,687,000, and 3) the Common Stock converted upon the occurrence of the First Trigger Event has been registered with the SEC, by filing a registration statement on Form S-1 or otherwise. Optional Conversion Feature In accordance with the Amended Notes, an additional $ 3,375,000 of the principal balance plus unpaid accrued interest on this principal will be convertible at Investors’ option at a price per share equal to $ 0.50 . Deferral of Interest Payments Current interest payments on the entire principal balance are deferred until March 2024. Further, the Company shall make ‘catch-up’ interest payments beginning in December 2024 for deferred interest. Amendments to Warrants The exercise price of previously granted warrants issued in connection with the 12 % note offerings was reduced to $ 0.40 per share and the warrant expiration date was extended to September 15, 2029 . We also recognized an increase to the debt discount of $ 128,447 related to the increase in fair value of the 12 % Warrants resulting from the reduction in exercise price and the extension of the exercise period. For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the amended 12 % Warrants as of December 15, 2023 were: Current stock price $ 0.09 Exercise price $ 0.40 Risk-free interest rate 3.91 % Expected dividend yield — Expected term (in years) 5.8 Expected volatility 109 % Working Capital Note In addition to the Amended Notes, the Lead Investor agreed to provide an additional $ 250,000 in a separate note (the “Working Capital Note”) which includes a liquidation preference to recover 1.25x the original investment in the event that the Company commences any dissolution, liquidation, or winding up. At our option, the Lead Investor shall provide up to an additional $ 250,000 , and, in such event, the Working Capital Note shall have a liquidation preference of 1.5x the original investment, applicable to the full $ 500,000 , in the event that the Company commences any dissolution, liquidation, or winding up. The Working Capital Note bears interest at 12 % per annum and is due and payable on September 15, 2026 . As of December 31, 2023, the balance of the Working Capital Note was $ 500,000 , as the Company requested and received the additional $ 250,000 optional amount. F- 29 The restructuring was deemed to be a debt modification under ASC 470, as the change in the present value of the cash flows related to the 12 % Notes before and after the restructuring was less than 10 %. Therefore, we will record debt obligations using the new effective interest rate as of the date of the modification. We recorded amortization of debt discount expense from the 12 % Notes of $ 310,201 and nil for the years ended December 31, 2023 and 2022, respectively. 10% Notes In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “ 10 % Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “ 10 % Notes”) with an aggregate principal amount of $ 2,940,000 in exchange for payment to us by certain 10 % Investors of an aggregate amount of $ 1,940,000 in cash, as well as cancellation of outstanding indebtedness of the 15 % Notes (defined below) in the aggregate amount of $ 1,000,000 . In connection with the issuance of the 10 % Notes, the holders of the 10 % notes received warrants (the “ 10 % Warrants”) to purchase shares of our Common Stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share. In the aggregate, this equals 1,050,011 shares of our Common Stock. The 10 % Notes will bear interest at an annual rate of 10 % and matured on December 23, 2023. The 10 % Investors have the option at any time to convert up to 50 % of the outstanding unpaid principal and accrued interest of the Notes into Common Stock at a variable price of 80 % of the market price but no less than $ 0.65 per share and no more than $ 1.00 per share. The 10 % Warrants are exercisable at an exercise price of $ 0.56 per 10 % Warrant. The fair value of the 10 % Warrants issued in 2022 was recorded as a debt discount and additional paid-in capital of $ 254,400 . The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 131,000 . For the years ended December 31, 2023 and 2022, amortization of debt discount expense was nil and $ 84,375 , respectively, from the 10 % Notes. The 10 % Notes are treated as conventional debt. For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10 % Warrants as of December 31, 2020, were: Current stock price 0.53 Exercise price 0.56 Risk-free interest rate 0.38 % Expected dividend yield — Expected term (in years) 5.0 Expected volatility 115 % On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited 10 % Investor, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 1,660,000 to such 10 % Investor. The 10 % Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above. In connection with the issuance of the 10 % Notes, the holder received warrants to purchase shares of our Common Stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share. In the aggregate, this equals 592,858 shares of our Common Stock. The 10 % Notes bear interest at an annual rate of 10 % and will mature on February 8, 2024 . The 10 % Investor has the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 10 % Notes into Common Stock at a variable price of 80 % of the market price but no less than $ 0.65 per share and no more than $ 1.00 per share. The 10 % Warrants are exercisable at an exercise price of $ 0.56 per warrant. The relative fair value of the new funding on the 10 % Warrants was recorded as a debt discount and additional paid-in capital of $ 429,300 . We determined that this 10 % Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $ 0.66 at the date of the note issuance and the fair value of the Common Stock into which the debt is convertible at the commitment date, per share being $ 0.90 , multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. For the years ended December 31, 2023 and 2022 , amortization of debt discount expense was nil and $ 594,721 , respectively. The 10 % Notes are treated as conventional debt. F- 30 For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10 % Warrants as of February 8, 2021, were: Current stock price 1.12 Exercise price 0.56 Risk-free interest rate 0.48 % Expected dividend yield — Expected term (in years) 5.0 Expected volatility 118 % On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10 % Investors, pursuant to which we issued and sold 10 % Notes with an aggregate principal amount of $ 2,300,000 to such 10 % Investors. The 10 % Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $ 4,600,000 consummated on December 23, 2020 and February 8, 2021. In connection with the issuance of the 10 % Notes, each holder received warrants to purchase shares of our Common Stock equal to 20 % coverage of the aggregate principal amount at $ 0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5 % of the aggregate principal amount invested. The 10 % Notes bear interest at an annual rate of 10 % and will mature on April 20, 2024 . The 10 % Investors have the option to convert up to 50 % of the outstanding unpaid principal and accrued interest of the 10 % Notes into Common Stock at a variable price of 80 % of the market price but no less than $ 0.65 per share and no more than $ 1.00 per share. The 10% Warrants are exercisable at an exercise price of $ 0.56 per warrant. On December 15, 2023, the 10 % Warrants were modified to reduce the exercise price of the 12 % Warrants to $ 0.40 per share, as previously discussed. The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $ 810,000 . We determined that these 10% Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $ 0.49 at the date of the note issuance and the fair value of the Common Stock into which the debt is convertible at the commitment date, per share being $ 0.83 , multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $ 692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations. For the years ended December 31, 2023 and 2022, amortization of debt discount expense was nil and $ 1,024,442 , respectively. The 10% Notes are treated as conventional debt. For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10% Warrants as of April 20, 2021, were: Current stock price 0.83 Exercise price 0.56 Risk-free interest rate 0.81 % Expected dividend yield — Expected term (in years) 5.0 Expected volatility 115 % In September 2022, $ 2,912,750 of the 10% Notes were exchanged for the 12% Notes (see above) and the remaining $ 3,987,250 was paid in full. Of the remaining debt discount, $ 207,045 was expensed to extinguishment of debt and $ 1,125,844 was expensed to amortization of debt discount. 2023 Amendments to Warrant On December 15, 2023, the exercise price of some of the previously granted warrants issued in connection with the 10 % note offerings was reduced to $ 0.40 per share and the warrant expiration date was extended to September 15, 2029. We also recognized an increase to the debt discount of $ 49,544 related to the increase in fair value of the 10 % Warrants resulting from the reduction in exercise price and the extension of the exercise period. F- 31 For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the amended 10 % Warrants as of December 15, 2023 were: Current stock price $ 0.09 Exercise price $ 0.40 Risk-free interest rate 3.91 % Expected dividend yield — Expected term (in years) 5.8 Expected volatility 109 % See Note 19 for a summary of the outstanding warrants issued in conjunction with our debt. NOTE 15. WARRANT DERIVATIVE LIABILITY On May 31, 2019, we received gross proceeds of $ 3,000,000 by issuing three million shares of our Common Stock and three million warrants (“2019 Warrants”) to purchase shares of our Common Stock (“2019 Units”) in a registered direct offering for $ 1.00 per 2019 Unit (collectively defined as the “2019 Capital Raise”). The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, that are considered outside of the control of management, such as a change of control. The original exercise price of the 2019 Warrants was $ 1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $ 0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $ 0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $ 0.3983 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock. During the years ended December 31, 2023 and 2022, we recognized a $ 792 gain and a $ 22,809 gain on the change in fair value of the derivative liability, respectively. As of December 31, 2023, there were 322,807 of the 2019 Warrants outstanding. The following are the key assumptions that were used to determine the fair value of the 2019 Warrants: December 31, December 31, 2023 2022 Number of shares underlying the warrants 322,807 322,807 Fair market value of stock 0.16 0.15 Exercise price 0.40 0.40 Volatility 96.23 % 78 % Risk-free interest rate 5.34 % 3.99 % Warrant life (years) 0.41 1.41 The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis: December 31, 2023 2022 Beginning balance $ 5,508 28,317 Change in fair value of warrants derivative liability ( 792 ) ( 22,809 ) Ending balance $ 4,716 5,508 F- 32 NOTE 16. OTHER INCOME Under the provisions of the Coronavirus Aid Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria. The Company applied for the ERC for the last three quarters’ wages paid in calendar year 2020 and the first three quarters’ wages paid in calendar year 2021. The Company recognized an ERC benefit of $ 1,085,939 , net of third-party specialist fees of $ 217,188 , which is included in Other Income on the accompanying Consolidated Statement of Operations for the year ended December 31, 2023. As of December 31, 2023, the Company received $ 909,282 in ERC payments reducing the receivable within Other Current Assets on the Consolidated Balance Sheet to $ 176,657 . NOTE 17. COMMITMENTS AND CONTINGENCIES Legal From time to time, we may be involved in various claims and legal actions in the ordinary course of business. We are not currently subject to any material legal proceedings outside the ordinary course of our business. NOTE 18. DEFERRED TAXES Income tax expense was $ 187,848 and $ 204,917 for the years ended December 31, 2023 and 2022, respectively. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2023 and 2022 are shown below. A valuation allowance has been established as realization of such net deferred tax assets has not met the more likely-than-not threshold requirement. If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense. As of December 31, 2023 and 2022, the Company had federal operating loss carryforwards of approximately $ 25.6 million and $ 32.1 million, respectively, and $ 42.1 and $ 41.1 million of state net operating loss carryforwards, respectively. Of the current net operating loss carryforwards, $ 25.8 million expire starting in 2034 through 2043, and $ 41.9 million do not expire. The Company has evaluated ownership changes pursuant to IRC Sections 382 and 383. The annual Section 382 base limit is approximately $ 461 thousand. The additional deemed RBIG pursuant to Notice 2003-65 is approximately $ 2 million per year for a 5-year recognition period through December 31, 2026. The components of net deferred tax assets and liabilities are as follows: December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 6,847,158 $ 8,563,430 Equity-based instruments 295,746 366,007 Long-lived assets and other 17,202 ( 46,324 ) Capital loss carryforward — 97,868 Total deferred tax assets 7,160,106 8,980,981 Deferred tax liabilities: Intangible assets ( 338,428 ) ( 566,853 ) Total deferred tax liabilities ( 338,428 ) ( 566,853 ) Valuation allowance $ ( 6,821,678 ) $ ( 8,414,128 ) Net deferred tax asset — — F- 33 A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows: December 31, 2023 2022 Income tax benefit at statutory rate $ ( 1,488,439 ) $ ( 1,946,731 ) State income tax benefit, net of Federal benefit 360,526 — 280E Disallowance 1,751,278 1,834,141 Equity-based instruments — 14,180 Fair market value adjustment/loss on extinguishment – derivative liabilities ( 166 ) 65,231 Amortization of debt discount 170,462 376,895 Goodwill and intangible impairment 248,010 573,262 Non-taxable cancellation of debt income 617,200 — Other 121,427 107,608 Valuation allowance ( 1,592,450 ) ( 819,669 ) $ 187,848 $ 204,917 NOTE 19. STOCKHOLDERS’ EQUITY 2021 Preferred stock offering On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our Common Stock. The total number of Units sold was 1,180 . Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants. The purchase price of each Unit was $ 1,000 , for an aggregate amount sold of $ 1,180,000 . Each share of Series A Preferred is convertible into 1,000 shares of Common Stock upon the consummation of a capital raise of not less than $ 5,000,000 . The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021. The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value per share, and sets forth the rights, restrictions, preferences, and privileges of the Series A Preferred, summarized as follows: ● Authorized Number of Shares – 5,000 ● Voting Rights – None ● Dividends – 6 % per annum, ‘paid in kind’ in shares of Series A Preferred ● Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of Common Stock upon a minimum capital raise of $ 5,000,000 ; sale, merger, or business combination of the Company; or the Company listing on an exchange ● Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption The Preferred Warrants have a five -year term and an exercise price per Preferred Warrant share of $ 1.05 . The warrants contain an anti-dilution provision pursuant to which upon a future capital raise at less than $ 1.00 per share, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis. The proceeds received in the sale of the Series A Preferred totaled $ 1,180,000 , for the issuance of 1,180 Series A Preferred, plus 354,000 warrants. The warrants were valued using a Black Scholes model, at $ 117,131 and per the relative fair value allocation, $ 1,073,446 was allocated to the Series A proceeds. As of December 31, 2023 we have recorded accrued dividends of $ 106,200 . As of December 31, 2022 we have recorded accrued dividends of $ 88,500 . F- 34 In addition to the Preferred Warrants, the Company has outstanding warrants related to prior equity offerings. The table below summarizes the warrants issued in conjunction with our equity offerings: Weighted- Weighted- average average Remaining Number of Exercise Price Contractual Aggregate Shares per Share Term (in years) Intrinsic Value Outstanding as of December 31, 2021 7,956,814 $ 0.56 4.4 $ — Granted — — Outstanding as of December 31, 2022 7,956,814 0.56 4.4 — Granted — — Outstanding and exercisable as of December 31, 2023 7,956,814 $ 0.56 3.4 $ — Warrants with Debt The Company has also issued warrants in conjunction with debt issuances, as discussed in Note 14. The following summarizes warrants issued in conjunction with our debt issuances: Weighted- Weighted- average average Remaining Number of Exercise Price Contractual Aggregate Shares per Share Term (in years) Intrinsic Value Outstanding as of December 31, 2021 8,085,529 $ 0.58 2.8 $ — Granted 5,785,721 0.70 Exercised — Expired ( 1,756,000 ) 0.40 Outstanding as of December 31, 2022 12,115,250 0.66 3.5 — Granted — — Expired ( 1,800,000 ) 0.40 Outstanding as of December 31, 2023 10,315,250 $ 0.49 3.9 $ — Stock-based Compensation Stock-based Awards As of December 31, 2023, the Company has two active plans, the 2020 Omnibus Incentive Plan approved by the Board in November 2020 (“2020 Plan”) and the 2014 Equity Incentive Plan approved by the Board in October 2014 (“2014 Plan” and collectively with the 2020 Plan the “Stock Incentive Plans”) that allow the Board of Directors to grant stock-based awards to eligible employees, non-employee directors, and consultants of the Company and its subsidiaries. Under the Stock Incentive Plans, the Board may grant non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the Stock Incentive Plans is 25 million shares. As of December 31, 2023, stock-based awards for approximately 17.5 million shares are available to be issued under the Stock Incentive Plans. F- 35 Stock Options The following summarizes Employee Awards activity for the years ended December 31, 2023 and 2022: Weighted- Weighted- average average Remaining Number of Exercise Price Contractual Aggregate Shares per Share Term (in years) Intrinsic Value Outstanding as of December 31, 2022 4,936,825 $ 1.08 4.4 $ 22,000 Forfeited ( 140,000 ) 0.72 Outstanding as of December 31, 2023 4,796,825 $ 1.05 2.3 $ 22,000 Exercisable as of December 31, 2023 4,796,825 $ 1.05 2.3 $ 22,000 The Company recognized $ 69,071 and $ 188,330 of expense related to stock-based awards during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was no unrecognized compensation expense related to unvested employee awards. Restricted Stock Awards On April 1, 2022 the Company entered into a Restricted Stock Unit Agreement with four participants. The Restricted Stock Units (“2022 RSUs”) were granted pursuant to the Company’s 2020 Omnibus Incentive Plan. Four executives were each granted 300,000 units, for a total grant of 1,200,000 2022 RSUs. The 2022 RSUs were divided into three equal tranches. Each tranche will vest as the market price of the Company’s common stock reaches $ 1.00 , $ 2.00 and $ 3.00 , respectively, as reported on the OTCQB market. Upon the 2022 RSUs vesting, each participant will be promptly issued shares of the Company’s common stock. If there is a change in control, all unvested 2022 RSUs granted under this agreement will fully vest and be paid out or settled. The fair value of these instruments is $ 535,976 and was calculated using the Monte Carlo model. The fair value of the 2022 RSUs is recognized over the requisite service period. As the 2022 RSUs do not have a service period, the Company used the requisite service period derived from the valuation of 10 years. During 2023, the Company granted 1,040,462 Restricted Stock Units pursuant to the 2020 Omnibus Incentive Plan to directors and an employee (“2023 RSUs”). The 2023 RSUs vest seven years from the grant date, or earlier upon certain triggering events as defined in the agreement, and upon vesting convert into one share of the Company’s common stock. The fair value of the 2023 RSUs is determined based on the closing price of the Company’s common stock on the grant date. The Company recorded $ 55,074 and $ 40,506 in compensation expense during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023 none of the RSU’s have vested. A summary of the Company’s grants of restricted stock units under the 2020 Omnibus Incentive Plan is presented below: Weighted- Average Number of Grant Date Shares Fair Value Outstanding as of December 31, 2022 1,200,000 $ 0.04 Granted 1,040,462 0.01 Vested — — Forfeited or expired — — Outstanding as of December 31, 2023 2,240,462 $ 0.04 F- 36 NOTE 20. NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised. Outstanding stock options and Common Stock warrants are considered anti-dilutive because we are in a net loss position. Accordingly, the number of weighted average shares outstanding for basic and fully diluted net loss per share are the same. The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share: December 31, 2023 2022 Stock options 4,796,825 4,936,825 Restricted stock awards 2,240,462 1,200,000 Warrants 18,272,064 20,072,064 Accrued stock payable 100,000 100,000 Convertible notes 6,750,000 6,750,000 Preferred stock 1,180,000 1,180,000 33,339,351 34,238,889 NOTE 21. RELATED PARTY TRANSACTIONS On September 16, 2022, the Company entered into a new consulting agreement with Adam Hershey, its Interim Chief Executive Officer, pursuant to which Mr. Hershey will continue to serve as the Company’s Interim Chief Executive Officer with compensation equal to $ 200,000 per annum, payable by the Company, monthly. The term of the consulting agreement is for a period of one year, with automatic six-month renewals thereafter unless terminated by either party. As part of the new consulting agreement, the Company has also agreed to extend warrants to purchase 7,280,007 shares of Common Stock, held by an affiliate of Mr. Hershey, for an additional two years until, May 29, 2027. The exercise price and all other terms and conditions of such warrants remain unchanged. We paid $ 200,000 and $ 125,000 under this consulting a for the years ended December 31, 2023 and 2022, respectively. In February 2023, the Company completed the acquisition of Station 2, LLC’s assets. Station 2, LLC is owned by a board member, who is also a shareholder and executive level employee of the Company. See Note 3 for additional information regarding the Station 2 asset acquisition and Note 6 for the license transfer. On July 7, 2023, the Company entered into a Transaction Services Agreement with Allyson Feiler Downing and Loree Schwartz as a result of the Settlement Agreement entered into with the Green Tree Parties as described in Note 3. Ms. Downing was a former officer of the Company and member of the Board of Directors, however, she had continued to serve on the Board under the Transaction Services Agreement. Under this Agreement, Ms. Downing and Ms. Schwartz provided certain administrative and management services related to the transferred assets in exchange for all revenue generated by the transferred assets. The Transaction Services Agreement was effective until the transferred assets were officially transferred to the Green Tree Parties, which took place in November 2023 (see Note 6 ) . On August 3, 2023, Ms. Downing resigned from the Company’s Board of Directors. The Company currently has a lease agreement with Dalton Adventures, LLC in which the Company leases 17,000 square feet of greenhouse space in Boulder, Colorado for $ 29,691 a month, of which $ 27,000 is base rent and $ 2,691 is property taxes. The base rent decreased to $ 10,000 per month starting in May 2023. The owner of Dalton Adventures, LLC is a principal shareholder and former board member of the Company. We have incurred $ 181,132 and $ 362,000 in related party lease expense for the years ended December 31, 2023 and 2022, respectively. See Note 11 for further discussion of the Company’s obligations associated with related party leases. The Company had a lease agreement with JLA Enterprises, LLC in which the Company leased a retail dispensary in Longmont, Colorado. A former board member and a former executive level employee of the Company are owners of JLA Enterprises, LLC. The Company also had a lease agreement with ALJ 1090, LLC in which the Company leased a building that has a retail dispensary and cultivation facility in Berthoud, Colorado. The same former board member is an owner of ALJ 1090, LLC. These leases were assumed as part of the Green Tree Acquisition on December 12, 2022. In November 2023, these leases were transferred back to the former board member and former executive level employee and these individuals ceased employment with the Company, ending the related party relationship with the Company. We have incurred $ 209,752 and nil for the years ended December 31, 2023 and 2022, respectively. See Note 11 for further discussion of the Company’s obligations associated with related party leases. F- 37 The Company had a lease agreement with Bellewood Holdings, LLC in which the Company leased retail space for the Trees Englewood retail store in Englewood, Colorado for $ 11,287 per month, of which $ 10,000 is base rent and $ 1,287 is property taxes. The owner of Green Tree Holdings, LLC is a principal shareholder and board member of the Company. In June 2022, the building was sold to an unrelated party. We incurred nil and $ 66,000 of related party lease expense for the for the years ended December 31, 2023 and 2022, respectively. See Note 11 for further discussion of the Company’s obligations associated with related-party leases. NOTE 22. SEGMENT INFORMATION Our operations are organized into two segments: Retail and Cultivation. All revenue originates, and all assets are located in the United States. Segment information is presented in accordance with ASC 280, “Segments Reporting.” This standard is based on a management approach that requires segmentation based upon our internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. Our financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP. Year ended December 31, 2023 Retail Cultivation Eliminations Total Total revenues $ 17,722,565 $ 2,531,399 $ ( 2,117,084 ) $ 18,136,880 Costs and expenses ( 17,568,330 ) ( 4,468,658 ) 2,117,084 ( 19,919,904 ) Segment operating income (loss) $ 154,235 $ ( 1,937,259 ) $ — ( 1,783,024 ) Corporate expenses ( 6,008,066 ) ERC Credits 896,680 Net loss from continuing operations before income taxes $ ( 6,894,410 ) 2022 Retail Cultivation Eliminations Total Total revenues $ 12,934,904 $ 1,783,309 $ ( 1,273,671 ) $ 13,444,542 Costs and expenses ( 13,117,039 ) ( 3,346,975 ) 1,273,671 ( 15,190,343 ) Segment operating income (loss) $ ( 182,135 ) $ ( 1,563,666 ) $ — ( 1,745,801 ) Corporate expenses ( 7,529,827 ) Net loss from continuing operations before income taxes $ ( 9,275,628 ) December 31, December 31, Total assets 2023 2022 Retail $ 20,491,961 $ 25,212,245 Cultivation 1,736,685 4,628,452 Corporate 1,018,247 1,985,455 Total assets - segments 23,246,893 31,826,152 Intercompany eliminations — ( 131,439 ) Total assets - consolidated $ 23,246,893 $ 31,694,713 NOTE 23. SUBSEQUENT EVENTS The Company evaluated the impact of subsequent events through the date that the accompanying financial statements were issued. Subsequent to December 31, 2023 and prior to the issuance of these financial statements, there were no subsequent events that have occurred that would require recognition or disclosure in the financial statements. F- 38 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.