What changed in this filing

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Item 1. Financial Statements

2024-05-14 compared with 2023-11-14 · 286 added, 539 removed, 215 unchanged (79% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2023

December 31, 2022

Current assets

7 unchanged sentences

Intangible assets, net

Liabilities and Stockholders' Equity

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities

9 unchanged sentences

Notes payable - current

Contingent Earnout Liability

Total current liabilities

4 unchanged sentences

Commitments and contingencies (Note 12)

Stockholders’ equity

Stockholders’ equity (deficit)

Preferred stock, no par value;

5,000,000 shares authorized;

1,180 issued and outstanding

5,000,000 and 5,000,000 shares authorized;

1,180 and 1,180 issued and outstanding, respectively

Common stock, $ 0.001 par value;

200,000,000 shares authorized;

118,664,094 shares issued and outstanding

200,000,000 and 200,000,000 shares authorized;

108,746,520 and 108,746,520 shares issued and outstanding, respectively

Additional paid-in capital

2 unchanged sentences

( 100,484,340 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

See Notes to unaudited condensed consolidated financial statements.

Total stockholders’ equity (deficit)

( 1,244,335 )

Total liabilities and stockholders’ equity (deficit)

See Notes to unaudited condensed consolidated

financial statements.

TREES CORPORATION

1 unchanged sentence

Three months ended

Nine months ended

September 30,

Cultivation sales

Total revenue

8 unchanged sentences

( 1,171,117 )

Other expenses (income)

Other income (expenses)

Amortization of debt discount

Interest expense

Loss on extinguishment of debt

Loss (gain) on derivative liability

Loss (gain) on sale of assets

Other income and expense, net

Total other expenses, net

Net loss from continuing operations before income taxes

( 2,450,679 )

Gain on derivative liability

Loss on contingent earnout

Total other income (expenses)

Net loss before income taxes

( 1,252,779 )

1 unchanged sentence

Provision for income taxes

Loss from continuing operations

$ ( 1,389,762 )

( 1,886,534 )

( 3,753,966 )

Income from discontinued operations, net of tax

( 2,704,484 )

( 4,737,812 )

( 3,748,488 )

Accrued preferred stock dividend

2 unchanged sentences

( 1,904,234 )

( 3,819,288 )

Per share data - basic and diluted

Net loss from continuing operations per share

Net loss from discontinued operations per share

Net loss attributable to common stockholders per share

Weighted average number of common shares outstanding

See Notes to unaudited condensed consolidated financial statements.

See Notes to unaudited condensed consolidated

financial statements.

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30,

Three months ended March 31,

Cash flows from operating activities

4 unchanged sentences

Depreciation and amortization

Loss on extinguishment of debt

Non-cash lease expense

Bad debt recovery

Loss (gain) on disposal of property and equipment

Gain on derivative liability

Loss (gain) on contingent earnout

Loss (gain) on derivative liability

Stock-based compensation

5 unchanged sentences

Net cash used in operating activities

( 1,147,432 )

Cash flows from investing activities

1 unchanged sentence

Acquisition of Station 2 assets

Proceeds for sale of equipment

Proceeds on notes receivable

Acquisition of Trees MLK

Net cash used in investing activities

Cash flows from financing activities

Proceeds from notes payable

Payments on notes payable and finance lease

( 4,867,012 )

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net cash (used in) financing activities

Net (decrease) in cash and cash equivalents

( 1,123,671 )

5 unchanged sentences

Non-cash investing & financing activities

Operating lease right-of-use asset obtained in exchange for new operating lease liabilities

Issuance of accrued stock

Non-cash debt issuance for acquisition of Station 2 assets

Non-cash extinguishment of debt for the surrender of Station 2 assets

Accrued dividends on preferred stock

12 % Warrants recorded as a debt discount and additional paid-in capital

12 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

See Notes to unaudited condensed consolidated financial statements.

Issuance of accrued stock

See Notes to unaudited condensed consolidated

financial statements.

TREES CORPORATION

1 unchanged sentence

IN STOCKHOLDERS’ EQUITY

For the three months ended September 30, 2023

For the three months ended March 31, 2024

Preferred Stock

Paid-in Capital

January 1, 2024

$ ( 100,484,340 )

Share-based compensation

September 30, 2023

( 98,139,894 )

For the three months ended September 30, 2022

Preferred Stock

Paid-in Capital

Dividend on Preferred Stock

( 1,389,762 )

Warrants issued with 12 % Notes

Share-based compensation

Dividends on preferred stock

( 1,389,762 )

March 31, 2024

$ ( 101,891,802 )

September 30, 2022

$ ( 1,244,335 )

For the nine months ended September 30, 2023

For the three months ended March 31, 2023

Preferred Stock

Paid-in Capital

January 1, 2023

1 unchanged sentence

Share-based compensation

Dividends on preferred stock

( 4,737,812 )

September 30, 2023

( 98,139,894 )

For the nine months ended September 30, 2022

Preferred Stock

Paid-in Capital

January 1, 2022

Dividend on Preferred Stock

( 1,886,534 )

Common stock issued for acquisition of Trees Waterfront LLC

Common stock issued for acquisition of Trees MLK LLC

Warrants issued with 12 % Notes

Share-based compensation

Dividends on preferred stock

( 1,886,534 )

March 31, 2023

$ ( 95,288,616 )

September 30, 2022

$ ( 4,529,651 )

See Notes to unaudited condensed consolidated financial statements.

See Notes to unaudited condensed consolidated

financial statements.

TREES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NATURE OF OPERATIONS, HISTORY,

AND PRESENTATION

Nature of Operations

TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) is a cannabis retailer and cultivator in the States of Colorado and Oregon.

We presently operate six (6) cannabis dispensaries as follows:

TREES Corporation, a Colorado Corporation (the

“Company,” “we,” “us,” or “our,”) is a cannabis retailer and cultivator in the States

of Colorado and Oregon.

We presently operate six (6) cannabis dispensaries

● Englewood, Colorado

Federal Boulevard – Recreational license only

o 5005 S Federal Boulevard – Recreational license only

● Denver, Colorado

East Hampden Avenue (formerly Green Man) – Recreational license only

o East Hampden Avenue (formerly Green Man) – Recreational license only

● Longmont, Colorado

107 th Street (formerly Green Tree/Ancient Alternatives) – Medical and Recreational licenses

107 th Street (formerly Green Tree/Ancient Alternatives) – Medical and Recreational

● Three (3) in Oregon

SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

NE 102 nd Avenue, Portland, OR – Medical and Recreational licenses

7050 NE MLK, Portland, OR – Medical and Recreational licenses

We also operate two (2) cultivation facilities in Colorado as follows:

o SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

o NE 102 nd Avenue, Portland, OR – Medical and Recreational licenses

o 7050 NE MLK, Portland, OR – Medical and Recreational licenses

We also operate

two (2) cultivation facilities in Colorado as follows:

SevenFive Farm – 3705 N.

1 unchanged sentence

Foothills Highway E-100 (formerly Green Tree/Hillside Enterprises) – Retail cultivation license only

Our principal business model is to acquire, integrate and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network.

Discontinued Operations - Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“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.

Our principal business model is to acquire, integrate

and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic

operations of our vertically integrated network.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries.

All inter-company accounts and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting.

As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S.

GAAP") can be condensed or omitted.

The condensed consolidated balance sheet for the year ended December 31, 2022, was derived from audited financial statements but does not include all disclosures required by U.S.

The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2022, which were included in the annual report on Form 10-K filed by the Company on April 17, 2023.

In the opinion of management, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results.

The results for the three and nine months ended September 30, 2023, are not necessarily indicative of the operating results for the year ending December 31, 2023, or any other interim or future periods.

Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation.

These reclassifications had no effect on the reported results of operations.

The accompanying unaudited condensed consolidated

financial statements include all accounts of the Company and its wholly owned subsidiaries.

All inter-company accounts and transactions

have been eliminated in consolidation.

These unaudited condensed consolidated financial statements have been prepared following the requirements

of the Securities and Exchange Commission for interim reporting.

As permitted under those rules, certain footnotes and other financial

information that are normally required by accounting principles generally accepted in the United States of America (“U.S.

can be condensed or omitted.

The condensed consolidated balance sheet for the year ended December 31, 2023, was derived from audited financial

statements but does not include all disclosures required by U.S.

The information included in this quarterly report on Form 10-Q

should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December

31, 2023, which were included in the annual report on Form 10-K filed by the Company on April 10, 2024.

In the opinion of management, these unaudited

condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes

thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair

presentation of the Company’s financial position and operating results.

The results for the three months ended March 31, 2024, are

not necessarily indicative of the operating results for the year ending December 31, 2024, or any other interim or future periods.

the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and

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.

The preparation of our unaudited condensed consolidated

financial statements in conformity with U.S.

GAAP requires management 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.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consisted primarily of cash and accounts receivable.

Customer and Revenue Concentrations – Cultivation Segment

During the three months ended September 30, 2023 and 2022, 89 % of SevenFive’s revenue was with five customers and 79 % was with one customer, respectively.

During the nine months ended September 30, 2023 and 2022, 50 % of SevenFive’s revenue was with one customer and 66 % was with one customer, respectively.

Two of the customers with sales in the three months ended September 30, 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

During the three months ended September 30, 2023, 84 % of Green Tree’s revenue was with four customers.

During the nine months ended September 30, 2023, 78 % of Green Tree’s revenue was with three customers.

Financial instruments that potentially subject

us to significant concentrations of credit risk consisted primarily of cash and accounts receivable.

Customer and Revenue Concentrations –

Cultivation Segment

During the three months ended March 31,2024 and

2023, 100 % of SevenFive’s revenue was with three customers and 88 % of SevenFive’s revenue was with three customers, respectively.

Three of the customers with sales in the three months ended March 31, 2024 are related party dispensaries and the revenues associated

with these customers are eliminated in consolidation.

During the three months ended March 31, 2024 and

2023, 100 % of Green Tree’s revenue was with three customers, and 88 % of Green Tree’s revenue was with three customers, respectively.

The customers in 2024 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Going Concern

We incurred net losses of $ 815,123 and $ 4,737,812 during the three and nine months ended September 30, 2023, respectively and $ 2,704,484 and $ 3,748,488 for the three and nine months ended September 30, 2022, respectively, and had an accumulated deficit of $ 98,139,894 as of September 30, 2023.

We had cash and cash equivalents of $ 251,691 and $ 2,583,833 as of September 30, 2023, and December 31, 2022, respectively.

The accompanying unaudited condensed 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.

Our unaudited condensed 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.

We incurred net losses of $ 1,389,762 during

the three months ended March 31, 2024 and $ 1,886,534 during the three months ended March 31, 2023 and had an accumulated deficit of

$ 101,891,802 as of March 31, 2024.

We had cash and cash equivalents of $ 414,225 and $ 969,676 as of March 31, 2024 and December 31,

2023, respectively.

The accompanying unaudited condensed 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.

our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy.

result, we have concluded that there is substantial doubt about our ability to continue as a going concern.

Our unaudited condensed

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.

Summary of Significant Accounting Policies

See our Annual Report on Form 10-K for the year ended December 31, 2022, for discussion of the Company's significant accounting policies.

See our Annual Report on Form 10-K for the year

ended December 31, 2023, as amended, for discussion of the Company’s significant accounting policies.

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.

Accounting Standards Updates (“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, 2023, 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 financial statements.

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, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (“ASU 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 financial statements.

BUSINESS ACQUISITION

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 assumed certain operating obligations at closing, including certain manufacturing agreements between GT Creations and affiliates of the Green Tree Entities.

Allyson Feiler, a principal owner of the Green Tree Entities, was also elected to our Board of Directors effective the date of acquisition.

We paid cash in the amount of $ 500,000 and stock consideration of 17,977,528 shares of our Common Stock.

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 will be paid to the sellers in fifteen (15) equal monthly payments commencing on the 9-month anniversary of the closing.

Based on a discount rate of 12 %, the fair value of these additional monthly payments is approximately $ 3,017,510 .

This liability is included in Notes payable- current and Notes payable- non-current in the accompanying consolidated balance sheets.

The table below reflects the Company’s preliminary estimates of the acquisition date fair values of the assets acquired.

We have not completed the allocation of the purchase price for the Green Tree Acquisition.

As of September 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill.

Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

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:

Three months ended

Nine months ended

September 30,

Total revenues

Net income (loss) attributable to Common Stockholders

( 3,273,476 )

( 3,798,897 )

Net income (loss) per common share

Weighted average number of basic and diluted common shares outstanding

The unaudited pro-forma results of operations are presented for information purposes 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 5).

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 monthly 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.

The table below reflects the Company’s preliminary estimates of the acquisition date fair values of the assets acquired:

We have not completed the allocation of the purchase price for the Green Man Acquisition.

As of September 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill.

Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

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:

Three months ended

Nine months ended

September 30,

Total revenues

Net income (loss) attributable to Common Stockholders

( 2,706,386 )

( 3,294,030 )

Net income (loss) per common share

Weighted average number of basic and diluted common shares outstanding

The unaudited pro-forma results of operations are presented for information purposes only.

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 .

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.

As of September 30, 2023, the balance of the license was nil , which is recorded within Intangible assets, net in our condensed consolidated balance sheets as a result of the transfer of the license (see Note 5).

DISCONTINUED OPERATIONS

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all of 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.

A summary of the discontinued operations for the Operations Segment is presented as follows:

Three months ended

Nine months ended

September 30,

Product revenues

Service revenues

Total revenues

Cost of sales

Selling, general and administrative

Professional fees

Depreciation and amortization

Total costs and expenses

Income from discontinued operations

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 (collectively, the “Transferred Assets”).

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.

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 condensed 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

Accumulated amortization - License

Consideration:

Extinguishment of 468 debt

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 (collectively, the “Transferred Assets”).

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 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”).

As of September 30, 2023, the license has not yet been transferred and therefore, the Company still holds these assets as of the balance sheet date.

The Company has implemented all new accounting

pronouncements that are in effect and that may impact its consolidated financial statements.

The Company does not believe that there are

any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position

or results of operations.

INVENTORIES, NET

Our inventories consisted of the following:

September 30,

Raw materials

Work-in-progress and finished goods

Inventory reserves

Inventories, net

The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities.

The Company’s leases consist primarily of

real estate leases for retail and cultivation 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 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 three and nine months ended September 30, 2023, and September 30, 2022, is as follows:

For the three months ended September 30,

For the nine months ended September 30,

The current and non-current

portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance

The finance lease ROU asset is included in property and equipment, net 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.

lease expense is as follows:

For the three months ended March 31,

Straight-line operating lease expense

1 unchanged sentence

Total operating lease expense

The finance lease expense for the three months ended September 30, 2023, and September 30, 2022, was approximately $ 41,823 and nil , respectively.

The finance lease expense for the nine months ended September 30, 2023, and September 30, 2022, was approximately $ 125,470 and nil , respectively.

The finance lease expense for the three

months ended March 31, 2024, and March 31, 2023, was approximately $ 41,823 and $ 50,000 , respectively.

Related party lease s

During the three months and nine months ended September 30, 2023, three of the Company’s operating leases, one retail dispensary lease, one cultivation facility lease, and one lease that includes both cultivation and retail, are related party leases as the landlords are current, and former, board members, principal shareholders, or employees.

During the three months and nine months ended September 30, 2022, the related party operating leases consisted of one dispensary and one cultivation facility.

The retail dispensary lease was with a related party through May 2022, when the building was sold to an unaffiliated third-party.

As of September 30, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $ 845,234 , $ 535,143 , and $ 368,715 , respectively.

For the three months ended September 30, 2023 and 2022, the total lease expense for related party leases was $ 127,790 and $ 75,849 , respectively.

For the nine months ended September 30, 2023 and 2022, the total lease expense for related party leases was $ 383,371 and $ 151,698 , respectively.

During the three months ended March 31,

2024, 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.

During the three months ended March 31, 2024, the related party

operating leases consisted of one cultivation facility lease.

As of March 31, 2024, the ROU asset, operating lease liability,

current, and operating lease liability, non-current for the related party leases were $ 119,034 , $ 120,000 and $ 3,637 , respectively.

Lease expense for related party leases was $ 30,000 and $ 127,790 for the three months ended March 31, 2024 and 2023,

respectively.

As of March 31, 2024, the weighted average remaining

term of the Company’s operating leases is 4.85 years, and the remaining term on the finance lease is 8.75 years.

None of the Company’s leases contain residual

value guarantees or restrictive covenants.

Lease Maturities

Future remaining minimum lease payments were as follows:

Future remaining minimum lease payments on our

operating leases and finance lease are as follows:

Year ending December 31,

1 unchanged sentence

Finance lease

2023 (remaining three months)

2024 (remaining nine months)

Present value adjustment

2 unchanged sentences

Lease liability, current

( 1,245,724 )

Lease liability, non-current

The total remaining lease payments in the table above include $ 1,219,188 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.

As of September 30, 2023, the weighted average remaining term of the Company’s operating leases is 4.54 years, and the remaining term on the finance lease is 9.25 years.

None of the Company’s leases contain residual value guarantees or restrictive covenants.

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.

As of March 31, 2024, the weighted average remaining term of the Company’s

operating leases is 4.84 years and the remaining term on the finance lease is 8.75 years.

None of the Company’s leases contain residual

value guarantees or restrictive covenants.

Supplemental cash flow information

For the nine months ended September 30,

For the three months ended March 31,

Supplemental cash flow information

4 unchanged sentences

ACCRUED STOCK PAYABLE

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

The following tables summarize the changes in

accrued common stock payable:

Balance as of December 31, 2022

( 1,669,537 )

Balance as of December 31, 2023

Balance as of September 30, 2023

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 issued on January 6, 2022.

The outstanding balance of accrued stock payable as of September 30, 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 September 30, 2023, none of the stock has been issued.

Balance as of March 31, 2024

The outstanding balance of accrued stock payable

as of March 31, 2024 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 March 31, 2024, none of the stock

had been issued.

NOTES PAYABLE

Our notes payable consisted of the following:

September 30, 2023

March 31, 2024

December 31, 2023

5 unchanged sentences

Green Man Acquisition Notes

Working Capital Note

Unamortized debt discount

5 unchanged sentences

( 1,092,382 )

( 2,857,724 )

( 4,414,157 )

( 1,723,517 )

( 1,903,344 )

Long-term portion

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.

In December 2022, with the completion of the Green Tree Acquisition, we are obligated to pay the Seller cash equal to $ 3,500,000 in equal month installments over a period of 15 months .

Payments of $ 233,333 are due monthly beginning in September 2023.

The relative fair value of this obligation resulted in a debt discount of $ 512,367 .

We recorded amortization of debt discount expense from this obligation of $ 251,520 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $ 96,672 and nil for the three months ended September, 2023 and September 30, 2022, respectively.

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 .

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 monthly installments over a period of 24 months.

of March 31, 2024 and 2023, the debt balance of this note was $ 264,639 and $ 224,508.96 , respectively.

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 monthly 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 $ 115,171 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $ 39,545 and nil for the three months ended September 30, 2023 and September 30, 2022, respectively.

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.

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 Common Stock.

The lead 12 % Investor also will receive 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 relative fair value of the new funding on the 12 % Warrants was recorded as a debt discount and additional paid-in capital of $ 569,223 .

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 .

We recorded amortization of debt discount expense from the 12 % Notes of $ 232,651 and $ 11,931 for the nine months ended September 30, 2023 and 2022, respectively, and $ 78,404 and $ 11,931 for the three months ended September 30, 2023 and September 30, 2022, respectively.

We determined there was no beneficial conversion feature on the 12 % Notes issued.

The 12 % Notes are treated as conventional debt.

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

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

In connection with the acquisition of Station 2, LLC in February 2023, we agreed to issue and sell an additional 12 % Note with an aggregate principal amount of $ 384,873 .

The relative fair value of this 12 % Note resulted in a debt discount of $ 50,918 .

We recorded amortization of debt discount expense from this Note of $ 22,197 for the nine months ended September 30, 2023, and $ 5,164 for the three months ended September 30, 2023.

This 12 % Note is treated as conventional debt and was relieved as part of the Station 2 license transfer (see Note 5).

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 previously issued 15 % notes 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 bear interest at an annual rate of 10 % and will mature 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 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 $ 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 .

We recorded amortization of debt discount expense from the 10 % Notes of nil and $ 84,375 for the nine months ended September 30, 2023 and 2022, and nil and $ 41,352 for the three months ended September 30, 2023 and September 30, 2022, respectively.

We determined there was no beneficial conversion feature on the 10 % Notes issued in December 2020.

The 10 % Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10 % Warrants as of December 23, 2020, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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 with a par value $ 0.001 per share.

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.

We recorded $ 417,539 as additional paid in capital and a debt discount and included in our consolidated statement of operations.

We recorded amortization of debt discount expense from the February 2021 10 % Notes of nil and $ 594,721 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $ 454,741 for the three months ended September 30, 2023 and September 30, 2022, respectively.

The 10 % Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10 % Warrants as of February 8, 2021, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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.

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.

We recorded amortization of debt discount expense from the April 2021 10 % Notes of nil and $ 1,023,577 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $ 775,638 for the three months ended September 30, 2023 and 2022, respectively.

The 10 % Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10 % Warrants as of April 20, 2021, were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

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.

WARRANT DERIVATIVE LIABILITY

On May 31, 2019, we received gross proceeds of $ 3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (“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, which 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 first quarter of 2021 the warrant holders exercised 1,323,000 warrants into 747,208 shares of our common stock through cashless exercise.

We recorded an adjustment to the derivative liability of $ 1,523,117 as a result.

During the nine months ended September 30, 2023, and 2022, we recognized a $ 2,359 gain and $ 14,959 gain on the change in fair value of the derivative liability, respectively.

During the three months ended September 30, 2023, and 2022, we recognized a $ 2,860 loss and $ 16,364 gain on the change in fair value of the derivative liability, respectively.

As of September 30, 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:

September 30,

Number of shares underlying the warrants

Fair market value of stock

Exercise price

Risk-free interest rate

Warrant life (years)

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:

Three months ended September 30,

Nine months ended September 30,

Beginning balance

Warrant exercise

Change in fair value of warrants derivative liability

Ending balance

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 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 Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2023.

As of September 30, 2023, the Company received $ 909,282 in ERC payments reducing the receivable within Other current assets on the Condensed Consolidated Balance Sheet to $ 176,657 .

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 $ 31,146 and $ 37,250 for the

three months ended March 31, 2024 and 2023, respectively.

12% Notes – 2023 Modification

On December 15, 2023, the Company entered into

Amended and Restated Senior Secured Convertible Notes with certain accredited investors to modify the original terms of the 12 % Notes.

We recorded amortization of debt discount expense from the 12 % Notes of $ 89,184 and $ 76,699 for the years ended March 31, 2024 and 2023,

respectively.

COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various litigation matters incidental to the conduct of its business.

The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows, except as set forth below.

In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”).

We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020.

Monthly lease payments were to be $ 12,867 .

In 2020, we made initial payments (first month’s rent and security deposit) of $ 39,633 ;

but subsequently did not take possession of the premises and have made no further payments in respect thereof, as a direct result of the COVID-19 pandemic.

The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’ We took the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

In June 2023, via mediation conducted through the Judicial Arbiter Group and a duly executed settlement agreement, we settled this litigation.

As part of the settlement, Plaintiff agreed to waive and release the Company et.

al from all claims relating to the litigation;

and in exchange, the Company has agreed to pay to Plaintiff an aggregate amount of $ 150,000 , payable as follows:

(i) one initial installment payment of $ 30,000 payable on August 1, 2023;

and (ii) twenty (20) subsequent monthly payments of $ 6,000 each.

In the event of default under the settlement agreement, the non-defaulting party must provide written notice and the defaulting party has a 7-day right of cure.

The settlement agreement also provides for a ‘paper judgment’ in the event of an uncured default by the Company;

in which event the full amount of $ 345,000 becomes due and payable.

The parties will file a stipulated motion to administratively close the case and request that the court retain jurisdiction until completion of the settlement payments.

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.

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 with a par value of $ 0.001 per share.

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 pers share, and sets forth the rights, restrictions, preferences and privileges of the Series A Preferred, summarized as follows:

2021 Preferred stock dividends

The Company’s Series A Preferred is convertible

into 300 shares of common stock per share of Series A Preferred Stock upon the consummation of a capital raise of not less than $ 5,000,000 .

Series A Preferred Stock has no par value per share and has the following rights, restrictions, preferences and privileges summarized

● Authorized Number of Shares – 5,000

1 unchanged sentence

● 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 ;

● Conversion – Each share of Series A Preferred is mandatorily

convertible into 300 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

or the Company listing on a national securities 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 September 30, 2023 we have recorded accrued dividends of $ 106,200 .

As of December 31, 2022 we have recorded accrued dividends of $ 88,500 .

As of March 31, 2024 and December 31, 2023, we

have recorded accrued dividends of $ 123,900 and $ 106,200 , respectively.

Dividends were $ 17,700 and $ 17,700 for the three months ended

March 31, 2024 and 2023, respectively.

Stock-based compensation

We use the fair value method to account for stock-based compensation on the grant date.

This expense also includes stock-based compensation expense related to Restricted Stock Units (“RSU”).

On April 1, 2022 we entered into a Restricted Stock Unit Agreement with four participants.

The RSU’s were granted pursuant to our 2020 Omnibus Incentive Plan.

Four separate executives were each granted 300,000 RSU’s, for a total grant of 1,200,000 RSU’s.

The 300,000 RSU’s are divided into three equal tranches of 100,000 RSU’s.

Each tranche of RSU will vest immediately if and upon the market price reaching a certain minimum market price of our common stock as reported on the OTCQB market.

Each tranche will vest as the market price reaches $ 1.00 , $ 2.00 and $ 3.00 .

Upon the RSU’s vesting, the participant will be promptly issued shares of our common stock.

If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the vested RSU’s will 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 RSU’s is recognized over the requisite service period.

As these RSU’s do not have a service period, we used the requisite service period derived from the valuation of 10 years .

As of September 30, 2023, none of the RSU’s have vested.

During the year ended December 31, 2022, we granted options to purchase 250,000 common shares to directors.

The options expire five years from the date of grant and vest over a period of one year .

Fair value of the awards at the date of grants totaled $ 56,348 .

Stock-based Awards

As of March 31, 2024, 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 March 31, 2024, stock-based awards for approximately 17.5 million shares are available to

be issued under the Stock Incentive Plans.

Stock Options

The following summarizes Employee Awards activity:

4 unchanged sentences

Forfeited or expired

Outstanding as of September 30, 2023

Exercisable as of September 30, 2023

As of September 30, 2023, there was no unrecognized compensation expense related to unvested employee awards.

We recorded $ 8,745 and $ 38,460 in compensation expense for the three months ended September 30, 2023 and 2022, respectively and $ 54,195 and $ 156,961 for the nine months ended September 30, 2023 and 2022, respectively.

This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period.

Forfeited options result in a reversal in the period forfeited.

The fair value of these instruments was calculated using the Black-Scholes option pricing method.

Outstanding as of March 31, 2024

Exercisable as of March 31, 2024

As of March 31, 2024, there was no unrecognized

compensation expense related to unvested employee awards.

We recorded nil in compensation expense for the

three months ended March 31, 2024 and 2023, respectively.

Restricted Stock Awards

During the three months ended March 31, 2024,

the Company granted 429,630 Restricted Stock Units pursuant to the 2020 Omnibus Incentive Plan to directors and an employee (“2024

The 2024 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 2024 RSUs is determined based on the

closing price of the Company’s common stock on the grant date.

The Company recorded $ 14,968 and $ 13,894 in compensation

expense during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 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:

Outstanding as of December 31, 2023

Forfeited or expired

Outstanding as of March 31, 2024

Contingent Earnout Liability

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

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 .

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.

In November 2023, the Company

transferred a majority of the Green Tree Entities back to the original owners.

Subsequent to this transfer, the aforementioned debt was

This liability is included in Notes payable- current and Notes payable- non-current in the accompanying consolidated balance

The fair value of the contingent earnout liability

was $ 469,907 and $ 367,056 at March 31, 2024 and December, 31 2023, respectively.

The change in fair value in the three months ended March

31, 2024 resulted in a loss on change in fair value of $ 102,851 .

The contingent earnout liability remained after the Green Tree

Acquisition was partially reversed in Q3 2023.

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.

The Company has also agreed to extend warrants to purchase 7,280,007 shares of Common Stock, held by an affiliate of Mr.

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

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 $ 50,000 and $ 24,999 for the three months ended September 30, 2023 and 2022, respectively, and $ 150,000 and $ 74,997 for the nine months ended September 30, 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 5 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.

Downing was a former officer of the Company and member of the Board of Directors, however, she continues to serve on the Board under the Transaction Services Agreement.

Under this Agreement, Ms.

Downing and Ms.

Schwartz provide certain administrative and management services related to the Transferred Assets in exchange for all revenue generated by the Transferred Assets.

The Transaction Services Agreement is effective until the Transferred Assets are officially transferred to the Green Tree Parties.

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 increased to $ 27,405 per month starting in January 2023.

The owner of Dalton Adventures, LLC is a principal shareholder and former board member of the Company.

We have incurred $ 75,849 and $ 75,849 in related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and $ 227,547 and $ 151,698 for the

nine months ended September 30, 2023 and 2022, respectively.

See Note 7 for further discussion of the Company’s obligations associated with related party leases.

The Company currently has a lease agreement with JLA Enterprises, LLC in which the Company leases a retail dispensary in Longmont, Colorado.

A board member and an executive level employee of the Company are owners of JLA Enterprises, LLC.

The Company also has a lease agreement with ALJ 1090, LLC in which the Company leases a building that has a retail dispensary and cultivation facility in Berthoud, Colorado.

The same board member is an owner of ALJ 1090, LLC.

These leases were assumed as part of the Green Tree Acquisition on December 12, 2022.

We have incurred $ 51,942 and nil in related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and $ 155,826 and nil for the nine months ended September 30, 2023 and 2022, respectively.

See Note 7 for further discussion of the Company’s obligations associated with related party leases.

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 Bellewood 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 of related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and nil and $ 52,287 for the nine months ended September 30, 2023 and 2022, respectively.

See Note 7 for further discussion of the Company’s obligations associated with related-party leases.

The exercise price and all other terms and

conditions of such warrants remain unchanged.

We paid $ 50,000 and $ 50,000 for the three months ended March 31, 2024 and 2023, 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 an executive-level employee

of the Company.

This acquisition was subsequently reversed in Q3 of 2023.

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.

of Dalton Adventures, LLC is a principal shareholder and former board member of the Company.

We have incurred $ 30,000 and $ 75,848

in related party lease expense for the three months ended March 31, 2024 and 2023, respectively.

See Note 3 for further discussion of

the Company’s obligations associated with related party leases.

SEGMENT INFORMATION

2 unchanged sentences

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.

Three months ended September 30,

Costs and expenses

( 3,403,102 )

( 1,272,117 )

( 4,332,820 )

Segment operating loss

Corporate expenses

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.

Three months ended March 31,

$ ( 248,642 )

Net loss from continuing operations before income taxes

Costs and expenses

1 unchanged sentence

( 3,475,904 )

Segment operating income (loss)

Segment operating income

$ ( 359,644 )

Corporate expenses

2 unchanged sentences

$ ( 1,252,779 )

Nine months ended September 30,

Total revenues

$ ( 684,017 )

3 unchanged sentences

( 4,991,124 )

Segment operating income (loss)

( 1,413,154 )

Corporate expenses

( 5,163,601 )

Net loss from continuing operations before income taxes

( 4,737,812 )

Total revenues

Costs and expenses

( 7,169,103 )

( 1,971,550 )

Segment operating income

$ ( 455,556 )

Segment operating income (loss)

Corporate expenses

2 unchanged sentences

$ ( 1,800,798 )

September 30,

Total assets – segments

1 unchanged sentence

Total assets – consolidated

SUBSEQUENT EVENTS

The Company evaluated the impact of subsequent events through the date that the accompanying financial statements were issued.

Subsequent to September 30, 2023 and prior to the issuance of these financial statements, the Company completed the transfer of the Transferred Assets to the Green Tree Parties in November 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements