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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 240 added, 131 removed, 41 unchanged (90% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year.

This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2022.

The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions.

All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect.

If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.

When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to TREES Corporation (formerly, “General Cannabis Corp”).

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis

(“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing

on changes in certain key measures from year to year.

This discussion should be read in conjunction with the Condensed Consolidated

Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related

notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2023.

of operations for an interim period may not give a true indication of results for future interim periods or for the year.

Cautionary Statement Regarding Forward Looking

This Quarterly Report on Form 10-Q, including

the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations

and projections regarding future developments, operations and financial conditions.

All forward-looking statements are based on management’s

existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect.

If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or

We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in

expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.

When this report uses the words “we,”

“us,” or “our,” and the “Company,” they refer to TREES Corporation (formerly, “General Cannabis

Our Products, Services, and Customers

TREES Corporation is a cannabis retailer and cultivator in the States of Colorado and Oregon.

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

TREES Corporation is a cannabis retailer and

cultivator in the States of Colorado and Oregon.

We presently operate six (6) cannabis dispensaries

Englewood, Colorado

1 unchanged sentence

Denver, Colorado

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

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

Longmont, Colorado

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

● Berthoud, Colorado

2 nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical and Recreational licenses

Three (3) in Oregon

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:

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:

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.

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.

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.

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.

Results of Operations

The following tables set forth, for the periods indicated, statements of operations data.

The tables and the discussion below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto in this report.

Three months ended September 30,

Costs and expenses

Other expense

Net loss from continuing operations before income taxes

Loss from discontinued operations

Loss from operations before income taxes

Nine months ended September 30,

The following tables set forth, for the periods

indicated, statements of operations data.

The tables and the discussion below should be read in conjunction with the accompanying unaudited

condensed consolidated financial statements and the notes thereto in this report.

Three months ended

$ (1,424,738 )

Costs and expenses

Other expense

Net loss from continuing operations before income taxes

Gain (loss) from discontinued operations

Loss from operations before income taxes

The activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the increase in revenues for the three months ended September 30, 2023 compared to September 30, 2022, and for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Net Loss before income taxes

$ (1,252,779 )

$ (1,800,798 )

The reversal of the acquisition of a portion of

the Green Tree assets, which were returned in Q3 2023, contributed to the decrease in revenues and expenses for the three months ended

March 31, 2024 compared to March 31, 2023.

Costs and expenses

Three months ended September 30,

Cost of sales

Selling, general and administrative

Stock-based compensation

Professional fees

Depreciation and amortization

Nine months ended September 30,

Three months ended

Cost of sales

3 unchanged sentences

Depreciation and amortization

Cost of sales increased for three and nine months ended September 30, 2023, as compared to September 30, 2022 due to the additional sales driven from the Green Tree and Green Man acquisitions.

Selling, general and administrative expense increased for the three and nine months ended September 30, 2023, as compared to September 30, 2022, due to the increased expenses resulting from the acquisition of three dispensaries in the

fourth quarter of 2022 and one additional dispensary license in the first quarter of 2023.

This resulted in an increase in employees and an increase in rent expense.

Professional fees consist primarily of accounting and legal expenses.

Professional fees increased for the three and nine months ended September 30, 2023 as compared to September 30, 2022 due to the acquisition activity in the first quarter of 2023, as well as the accrued legal expenses for the settlement reached in the second quarter of 2023.

$ (2,118,507 )

Cost of sales decreased for three months ended

March 31, 2024, as compared to March 31, 2023 due to the reversal of the acquisition of a portion of the Green Tree assets.

Selling, general and administrative expense decreased

for the three months ended March 31, 2024, as compared to March 31, 2023 due to the decreased expenses resulting from the reversal of

the acquisition of one dispensary and one cultivation facility in the third quarter of 2023 and one additional dispensary license in the

first quarter of 2023, resulting in a decrease in employees and rent expense.

Stock-based compensation included the following:

Three months ended September 30,

Employee awards

Nine months ended September 30,

Employee awards

Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020, and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015.

Expense varies primarily due to the number of stock options granted and the share price on the date of grant.

The decrease in expense for the three and nine months ended September 30, 2023, as compared to 2022, is due to not issuing options in the third quarter of 2023.

Three months ended

Restricted Stock Awards

Employee awards are issued under our 2020 Omnibus

Incentive Plan, which was approved by shareholders on November 23, 2020.

Expense varies primarily due to the number of stock options and

restricted stock awards granted and the share price on the date of grant.

The increase in expense for the three months ended March 31,

2024, as compared to 2023, is due to issuing more restricted stock awards at a higher per unit grant date value in the first quarter of

Professional fees consist primarily of accounting

and legal expenses.

Professional fees decreased for the three months ended March 31, 2024 as compared to March 31, 2023 due to the

lack of unusual accounting activity in the first quarter of 2024 as compared to the 2023 period.

Depreciation and amortization decreased due to

the reversal of the acquisition of a portion of the Green Tree assets and a revaluation of the Green Tree and Green Man acquisitions as

of the year ended December 31, 2023.

Other Expense

Three months ended September 30,

Three months ended

Amortization of debt discount

Interest expense

Loss on extinguishment of debt

(Gain) loss on derivative liability

Loss on transfer of assets

Nine months ended September 30,

Amortization of debt discount

Interest expense

Loss on extinguishment of debt

Gain on derivative liability

Gain on sale of assets

Amortization of debt discount decreased during the three and nine months ended September 30, 2023, as compared to September 30, 2022 due to the rollover and repayment of the 10% Notes.

Interest expense increased during the three and nine months ended September 30, 2023, as compared to September 30, 2022, due to the addition of the 12% Notes with an interest rate of 12% in Q3 2022.

Loss on extinguishment of debt decreased during the three and nine months ended September 30, 2023, as compared to September 30, 2022 due to loss on extinguishment of debt from the rollover of the 10% Notes to 12% Notes being higher than the loss on extinguishment of debt resulting from the transfer of the Station 2 license (see Note 5).

The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.

Gain on sale of assets decreased during the nine months ended September 30, 2023, as compared to September 30, 2022 as no assets were sold during the nine months ended September 30, 2023.

Other Income increased during the three months

and nine months ended September 30, 2023, as compared to September 30, 2022 due to the Company applying for employee retention credits through the CARES Act.

Three months ended September 30,

Costs and expenses

Segment operating (loss) income

Nine months ended September 30,

(Gain) loss on contingent earnout

Amortization of debt discount decreased during

the three months ended March 31, 2024, as compared to March 31, 2023 due to the change in outstanding debt related to the Green Tree acquisition

Interest expense increased during the three months ended March 31, 2024, as compared to March 31, 2023, due to the addition

of the 12% Notes with an interest rate of 12% in Q3 2022.

The gain on warrant derivative liability reflects the change in the fair value

of the 2019 Warrants.

The loss on contingent earnout reflects the change in the fair value of the Green Tree Contingent Earnout liability.

Three months ended

$ (1,424,738 )

Costs and expenses

Segment operating income

With the acquisition of Green Tree on December 12, 2022, and the acquisition of Green Man on December 19, 2022, as well as the acquisition of the dispensary license for 468 Federal Street, retail revenue increased for the three and nine months ended September 30, 2023, compared to September 30, 2022.

Costs and expenses also increased as a result of the acquisitions.

Three months ended September 30,

With the partial reversal of the acquisition of

Green Tree in Q3 2023, retail revenue decreased for the three months ended March 31, 2024, compared to March 31, 2023.

Costs and expenses

Segment operating loss

Nine months ended September 30,

also decreased as a result of the partial acquisition reversal.

Three months ended

Costs and expenses

Segment operating loss

The decrease in revenues for the three months ended September 30, 2023 compared to September 30, 2022, is due to Green Tree revenues being recognized by the original owners as a result of the license transfer in July 2023.

The increase in revenues for the nine months ended September 30, 2023 compared to September 30, 2022 is attributed to the increase in sales made to our dispensaries which are eliminated in consolidation.

The increase in cost and expenses for the three and nine months ended September 30, 2023 compared to September 30, 2022 is attributed to the acquisitions of Green Tree and Green Man that occurred during December of 2022, as well as the increase in sales made to our dispensaries.

The costs and expense incurred between our dispensaries and cultivation locations are eliminated in consolidation.

decrease in revenues for the three months ended March 31, 2024 compared to March 31, 2023, is due to the closure of three cultivations

during Q2 2023 and a reduction in grow operations at one of the remaining cultivations facilities in Q1 2023.

The decrease in cost and

expenses for the three months ended March 31, 2024 compared to March 31, 2023 is attributed is due to the closure of three cultivations

during Q2 2023 and a reduction in grow operations at one of the remaining cultivations facilities in Q1 2023.

The costs and expense

incurred between our dispensaries and cultivation locations are eliminated in consolidation.

Sources of liquidity

Our sources of liquidity historically have included the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments.

We anticipate our significant uses of resources will include funding operations.

In September 2022, we received $10,587,250 in cash in a private placement with certain accredited investors pursuant to the 12% Notes to be used for acquisition of dispensaries and operating capital.

Our sources of liquidity historically have included

the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments.

We anticipate

our significant uses of resources will include funding operations.

Sources and uses of cash

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

We had cash of $414,225and $969,676 as of March

31, 2024 and December 31, 2023, respectively.

Our cash flows from operating, investing and financing activities were as follows:

Nine months ended September 30,

Three months ended

Net cash used in operating activities

1 unchanged sentence

Net cash (used in) provided by financing activities

Net cash used in operating activities increased in 2023 due to the increased net loss driven from the expenses described above.

Net cash used in investing activities for the nine months ended September 30, 2023 was comparable to the nine months ended September 30, 2022, as a result of the acquisition of Station 2 in 2023 and the acquisition of Trees in 2022.

Net cash used in financing activities for the three and nine months ended September 30, 2023 increased from September 30, 2022 due to an increase in payments on notes payable and finance leases, and no debt raise.

Net cash used in operating activities decreased

in 2024 due to the reversal of the acquisition of a portion of the Green Tree assets.

Net cash used in investing activities for the

three months ended March 31, 2024 from March 31, 2023 decreased as a result of a lack of acquisition activity in 2024.

Net cash used in financing activities for the

three months ended March 31, 2024 decreased from March 31, 2023 due to the partial reversal of the acquisition of a portion of the Green

Capital Resources

We had no material commitments for capital expenditures as of September 30, 2023.

We had no material commitments for capital expenditures as of March

Part of our growth strategy, however, is to acquire operating businesses.

We expect to fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.

We expect to fund such activity through cash

on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP financial measure.

We define Adjusted EBITDA as net income (loss) attributable to common stockholders calculated in accordance with GAAP, adjusted for the impact of stock-based compensation expense, acquisition or disposal-related transaction costs , non-recurring professional fees in relation to litigation and other non-recurring expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest expense, income taxes and certain other non-cash items.

Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure, which is net loss per share.

We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results.

We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business.

We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations.

We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis.

This supplemental financial information should be considered in addition to, not in lieu of, our unaudited condensed consolidated financial statements.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.

Three months ended September 30,

Nine months ended September 30,

Net loss from continuing operations

Adjustment for loss from discontinued operations

Stock-based compensation

Depreciation and amortization

Amortization of debt discount

Loss on extinguishment of debt

Interest expense

Gain on sale of assets

(Gain) loss on derivative liability

Acquisition related expenses

Provision for income taxes

Other expense (income)

Total adjustments

Adjusted EBITDA

Off-balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

We define Adjusted EBITDA as net loss calculated in accordance with GAAP, adjusted for discontinued operations, the impact of stock-based

compensation expense, acquisition related expenses, non-recurring professional fees in relation to litigation and other non-recurring

expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest

expense, income taxes and certain other non-cash items.

Below we have provided a reconciliation of Adjusted EBITDA to the most directly

comparable GAAP measure, which is net loss.

We believe that the disclosure of Adjusted EBITDA

provides investors with a better comparison of our period-to-period operating results.

We exclude the effects of certain items when we

evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business.

also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations.

believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period

to period on a basis that may not be otherwise apparent on a GAAP basis.

This supplemental financial information should be considered

in addition to, not in lieu of, our consolidated financial statements.

The following table reconciles Adjusted EBITDA

to the most directly comparable GAAP measure, which is net loss.

Critical Accounting Policies

Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S.

The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses.

We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements.

The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances.

Actual amounts and results could differ from these estimates made by management.

Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

The preparation of financial statements in conformity

with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that

affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues

and expenses.

Critical accounting policies are those that require the application of management’s most difficult, subjective, or

complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may

change in subsequent periods.

In applying these critical accounting policies, our management uses its judgment to determine the appropriate

assumptions to be used in making certain estimates.

Actual results may differ from these estimates.

We define critical accounting policies as those

that are reflective of significant judgments and uncertainties, and which may potentially result in materially different results under

different assumptions and conditions.

In applying these critical accounting policies, our management uses its judgment to determine the

appropriate assumptions to be used in making certain estimates.

These estimates are subject to an inherent degree of uncertainty.

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

We allocate any excess purchase price over the fair value of the net assets and liabilities acquired to goodwill.

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 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 judgment, 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 annually in December, unless an event occurs that would cause

us to believe the value is impaired at an interim date.

See our Annual Report on Form 10-K for the year ended December 31, 2023, for discussion

of the Company’s significant accounting policies.

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.

Impairment of Long-lived Assets

We periodically evaluate whether the carrying

value of property and equipment has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.

The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual

disposition of the asset.

If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s

carrying value over its fair value.

Our impairment analyses require management to

apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing

the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows.

If the carrying

value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one

method, including, but not limited to, recent third-party comparable sales and undiscounted cash flow models.

If actual results are not

consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an

impairment charge in the future.

Debt with Equity-linked Features

We may issue debt that has separate warrants, conversion features,

or other 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.

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.

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.

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.

Modification of Debt - When we change the

terms of existing notes payable, we evaluate the amendments under ASC 470-50, Debt Modification and Extinguishment to determine

whether the change should be treated as a modification or as a debt extinguishment.

This evaluation includes analyzing whether there are

significant and consequential changes to the economic substance of the note.

If the change is deemed insignificant then the change is

considered a debt modification, whereas if the change is substantial the change is reflected as a debt extinguishment.

Equity-based Payments

We estimate the fair value of equity-based instruments

issued to employees or to third parties for services or goods using Black-Scholes or the Binomial Model, which requires us to estimate

the volatility of our stock and forfeiture rate.

Revenue Recognition

ASC Topic 606, “Revenue from Contracts with

Customers” (“ASC 606”) requires that an entity recognize revenue to depict the transfer of promised goods or services

to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

ASC 606 defines a five-step process to achieve this core principle and, in doing so, judgment and estimates may be required within the

revenue recognition process including identifying performance obligations in the contract, estimating the amount of variable consideration

to include in the transaction price and allocating the transaction price to each separate performance obligation.

The following five steps are applied to achieve

that core principle:

Identify the contract with the customer;

Identify the performance obligations in the contract;

Determine the transaction price;

Allocate the transaction price to the performance obligations in the contract;

Recognize revenue when the company satisfies a performance obligation.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as

defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

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 2. Management’s Discussion and Analysis