What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-12 · 227 added, 128 removed, 526 unchanged (40% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2022

September 30, 2022

December 31, 2021

1 unchanged sentence

Cash and cash equivalents

Restricted cash

Accounts receivable, net of allowance of $ 38,000 and $ 61,000 , respectively

10 unchanged sentences

Interest payable

Income tax payable

Operating lease liability, current

Accrued stock payable

Accrued dividends

Warrant derivative liability

19 unchanged sentences

Total liabilities and stockholders’ equity

See Notes to condensed consolidated financial statements.

See Notes to unaudited condensed consolidated financial statements.

TREES CORPORATION

1 unchanged sentence

Three months ended

Six months ended

Nine months ended

September 30,

Cultivation sales

7 unchanged sentences

Total costs and expenses

Operating income (loss)

Operating loss

( 2,625,897 )

Other expenses (income)

Amortization of debt discount and equity issuance costs

Amortization of debt discount

Interest expense

Loss on extinguishment of debt

(Gain) loss on derivative liability

(Gain) loss on sale of assets

Gain on sale of assets

Total other expenses, net

3 unchanged sentences

( 3,499,966 )

( 4,685,782 )

Provision for income taxes

3 unchanged sentences

( 3,753,966 )

( 4,685,782 )

Income (loss) from discontinued operations, net of tax

2 unchanged sentences

( 3,748,488 )

( 5,062,916 )

Accrued preferred stock dividend

Net loss attributable to common stockholders

( 2,775,284 )

( 1,327,595 )

( 3,819,288 )

( 5,062,916 )

Per share data - basic and diluted

3 unchanged sentences

Weighted average number of common shares outstanding

See Notes to condensed consolidated financial statements.

See Notes to unaudited condensed consolidated financial statements.

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities

4 unchanged sentences

Depreciation and amortization

Loss on extinguishment of debt

Non-cash lease expense

Bad debt expense

Bad debt recovery

(Gain) loss on disposal of property and equipment

12 unchanged sentences

Proceeds on notes receivable

Acquisition of TDM, LLC

( 1,122,015 )

Acquisition of TREES MLK

Proceeds from sale of investment

Net cash provided by (used in) investing activities

Net proceeds from sale of Next Big Crop

Net cash used in investing activities

Cash flows from financing activities

Proceeds from exercise of stock options

Proceeds from preferred stock offering

Proceeds from notes payable

Payments on notes payable

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

( 4,867,012 )

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

5 unchanged sentences

Issuance of accrued 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

Accrued dividends on preferred stock

Cashless warrant exercise

2 unchanged sentences

Issuance of common stock to a consultant

See Notes to condensed consolidated financial statements.

See Notes to unaudited condensed consolidated financial statements.

TREES CORPORATION

1 unchanged sentence

IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the three months ended June 30, 2022

For the three months ended September 30, 2022

Preferred Stock

Paid-in Capital

April 1, 2022

( 84,864,819 )

Warrants issued with 12 % Notes

Share-based compensation

June 30, 2022

Dividends on preferred stock

( 2,704,484 )

For the three months ended June 30, 2021

( 2,704,484 )

September 30, 2022

( 87,640,103 )

For the three months ended September 30, 2021

Preferred Stock

Paid-in Capital

April 1, 2021

( 78,686,757 )

Common stock issued upon exercise of stock options

Warrants issued with 10 % Notes

Beneficial conversion feature

Common stock issued to a consultant

Common stock issued for acquisition of TDM, LLC

Preferred shares issued

Warrants issued with preferred stock

Modification of Warrants

Modification of Options

Stock-based compensation

1 unchanged sentence

( 1,327,595 )

June 30, 2021

September 30, 2021

( 80,014,352 )

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

Preferred Stock

4 unchanged sentences

Common stock issued for acquisition of Trees MLK LLC

Warrants issued with 12 % Notes

Share-based compensation

Dividends on preferred stock

( 3,748,488 )

June 30, 2022

September 30, 2022

( 87,640,103 )

For the six months ended June 30, 2021

For the nine months ended September 30, 2021

Preferred Stock

4 unchanged sentences

Common stock issued upon exercise of stock options

Common stock issued for acquisition of TDM, LLC

Warrants issued with 10 % Notes

2 unchanged sentences

Stock-based compensation

Preferred shares issued

Warrants issued with preferred stock

Modification of Warrants

Modification of Options

( 5,062,916 )

June 30, 2021

September 30, 2021

( 80,014,352 )

See Notes to condensed consolidated financial statements.

See Notes to unaudited condensed consolidated financial statements.

TREES CORPORATION

5 unchanged sentences

The amendment to our Amended and Restated Articles of Incorporation was filed with the Secretary of State of the State of Colorado on June 8, 2022 and formally changed the name of the Company to TREES Corporation.

We currently trade on the OTCQB® Market under the trading symbol CANN.

The trading symbol did not change with the name change.

As of June 30, 2022, our operations are segregated into the following segments:

As of September 30, 2022, our operations are segregated into the following segments:

Retail (“Retail Segment”)

2 unchanged sentences

Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a 17,000 square foot licensed light deprivation greenhouse cultivation facility.

During the three months ended June 30, 2022 and 2021, 78 % and 11 % of SevenFive’s revenue was with one customer, respectively.

During the six months ended June 30, 2022 and 2021, 59 % and 11 % was with one customer, respectively.

The customer is a related party dispensary and the revenues associated with this customer is eliminated in consolidation.

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

7 unchanged sentences

Basis of Presentation

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

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

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.

1 unchanged sentence

The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto of the Company for the year ended December 31, 2021, which were included in the annual report on Form 10-K filed by the Company on March 25, 2022.

In the opinion of management, these 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 six months ended June 30, 2022, are not necessarily indicative of the operating results for the year ending December 31, 2022, or any other interim or future periods.

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, 2022, are not necessarily indicative of the operating results for the year ending December 31, 2022, 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.

3 unchanged sentences

Use of Estimates

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

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.

4 unchanged sentences

These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Concentrations of Credit Risk

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

Customer and Revenue Concentrations

During the three months ended September 30, 2022 and 2021, 79 % and 24 % of SevenFive’s revenue was with one and two customers, respectively.

During the nine months ended September 30, 2022 and 2021, 66 % and 12 % was with one customer, respectively.

The customer in 2022 is a related party dispensary and the revenues associated with this customer is eliminated in consolidation.

Discontinued Operations

3 unchanged sentences

On January 1, 2021, we discontinued our investments segment.

As this is not a materially significant segment, we have not shown the effects of the discontinued segment in the financial statements.

As this is not a materially significant segment, we have not shown the effects of the discontinued segment separately in the financial statements.

The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.

Going Concern

We incurred net losses of $ 182,948 and $ 1,044,004 during the three and six months ended June 30, 2022, respectively, and $ 1,376,253 and $ 3,735,321 for the three and six months ended June 30, 2021, respectively, and had an accumulated deficit of $ 84,864,819 as of June 30, 2022.

We had cash and cash equivalents of $ 1,072,896 and $ 2,054,050 as of June 30, 2022, and December 31, 2021, respectively.

The accompanying 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 incurred net losses of $ 2,704,484 and $ 3,748,488 during the three and nine months ended September 30, 2022, respectively, and $ 1,327,595 and $ 5,062,916 for the three and nine months ended September 30, 2021, respectively, and had an accumulated deficit of $ 87,640,103 as of September 30, 2022.

We had cash and cash equivalents of $ 1,964,660 and $ 2,054,050 as of September 30, 2022, and December 31, 2021, 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 convertible debt.

1 unchanged sentence

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

Our independent registered public accounting firm, in its report on our consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about our ability to continue as a going concern.

Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 support our planned investing activities.

7 unchanged sentences

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.

This ASU did not have a material effect on our condensed consolidated financial statements.

The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.

FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes.

7 unchanged sentences

Further, cash equal to $ 1,732,884 will be paid to the seller in equal monthly installments over a period of 24 months from the Englewood Closing.

As of June 30, 2022, we have completed the preliminary allocation of the purchase price.

Based on the preliminary purchase price, there was an adjustment from the tradename to goodwill in the amount of $ 3,601,000 .

As of June 30, 2022, the purchase price allocation is being reviewed and is not yet completed.

Management anticipates completing the final review of the purchase price allocation as soon as possible.

As of June 30, 2022, the condensed consolidated balance sheet includes an allocation of cash, fixed assets, inventory, intangible assets and goodwill.

As of September 30, 2022, we have completed the allocation of the purchase price.

Based on the completed purchase price, there was an adjustment from the tradename to goodwill in the amount of

$ 3,601,000 .

As of September 30, 2022, the unaudited condensed consolidated balance sheet includes an allocation of cash, fixed assets, inventory, intangible assets and goodwill.

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

The accompanying condensed consolidated financial statements include the results of Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021.

The accompanying unaudited condensed consolidated financial statements include the results of Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021.

The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

8 unchanged sentences

Further, cash equal to $ 497,371 will be paid to the sellers in equal monthly installments over a period of 24 months from the Oregon Closing.

As of June 30, 2022, we have completed the preliminary allocation of the purchase price.

Based on the preliminary purchase price, there was an adjustment from the tradename to goodwill in the amount of $ 341,000 .

As of June 30, 2022, the purchase price allocation is being reviewed and is not yet completed.

Management anticipates completing the final review of the purchase price allocation as soon as possible.

As of June 30, 2022, the condensed consolidated balance sheet includes an allocation of cash, fixed assets, inventory, intangible assets and goodwill.

As of September 30, 2022, we have completed the allocation of the purchase price.

Based on the purchase price, there was an adjustment from the tradename to goodwill in the amount of $ 341,000 .

As of September 30, 2022, the condensed consolidated balance sheet includes an allocation of cash, fixed assets, inventory, intangible assets and goodwill.

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

The accompanying consolidated financial statements include the results of Trees Oregon from the date of acquisition for financial reporting purposes, December 30, 2021.

The accompanying unaudited condensed consolidated financial statements include the results of Trees Oregon from the date of acquisition for financial reporting purposes, December 30, 2021.

The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

11 unchanged sentences

We opened the dispensary in the second quarter of 2022.

As of June 30, 2022, we have completed the preliminary allocation of the purchase price.

Based on the preliminary purchase price, there was an adjustment from the tradename to goodwill in the amount of $ 912,000 .

As of June 30, 2022, the purchase price allocation is being reviewed and is not yet completed.

Management anticipates completing the final review of the purchase price allocation as soon as possible.

As of June 30, 2022, the condensed consolidated balance sheet includes an allocation of fixed assets, intangible assets and goodwill.

As of September 30, 2022, we have completed the allocation of the purchase price.

Based on the purchase price, there was an adjustment from the tradename to goodwill in the amount of $ 912,000 .

As of September 30, 2022, the unaudited condensed consolidated balance sheet includes an allocation of fixed assets, intangible assets and goodwill.

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

The accompanying consolidated financial statements include the results of Trees MLK from the date of acquisition for financial reporting purposes, January 5, 2022.

The accompanying unaudited condensed consolidated financial statements include the results of Trees MLK from the date of acquisition for financial reporting purposes, January 5, 2022.

The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2021, are as follows:

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

8 unchanged sentences

Pursuant to amendment, the buyer paid the additional $ 75,000 in March 2022, and the 10 % profit share described above was eliminated.

Assets and liabilities of discontinued operations for the Operations Segment included the following:

Accounts receivable, net

Prepaid expenses and other current assets

Current assets discontinued operations

Property and equipment, net

Noncurrent assets discontinued operations

Accounts payable and accrued expenses

Customer deposits

Current liabilities discontinued operations

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

Three months ended

Six months ended

Nine months ended

September 30,

Product revenues

8 unchanged sentences

The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.

The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the six months ended June 30, 2022 and 2021.

Six months ended

The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the nine months ended September 30, 2022 and 2021.

Nine months ended

September 30,

Accounts receivables

6 unchanged sentences

Our inventories consisted of the following:

September 30,

Raw materials

9 unchanged sentences

We determined the present value of the future lease payments using a discount rate of 20 % over a 9.25 remaining year term, resulting in a right-of-use asset and lease liability of $ 576,335 which are being applied ratably over the remaining term of the lease.

As of June 30, 2022, the balance of the right-of-use asset and lease liability was $ 564,568 and $ 566,335 , respectively.

As of September 30, 2022, the balance of the right-of-use asset and lease liability was $ 557,556 and $ 564,624 , respectively.

Through the acquisition of Trees Englewood, we entered into a commercial real estate lease for office space in Denver, CO.

4 unchanged sentences

We determined the present value of the future lease payments using a discount rate of 20 % over a 15-month term, resulting in a right-of-use asset and lease liability of $ 98,211 which are being applied ratably over the term of the lease.

As of June 30, 2022, the balance of the right-of-use asset and lease liability was $ 34,903 and $ 35,046 , respectively.

As of September 30, 2022, the balance of the right-of-use asset and lease liability was $ 14,311 and $ 14,367 , respectively.

Through the acquisition of Trees Portland, we entered into a commercial real estate lease in Portland, OR.

3 unchanged sentences

We determined the present value of the future lease payments using a discount of 20 % over a 5.5 -year term, resulting in a right-of-use asset and lease liability of $ 229,501 .

As of June 30, 2022 , the balance of the right-of-use asset and lease liability was $ 212,596 and $ 216,706 , respectively.

As of September 30, 2022 , the balance of the right-of-use asset and lease liability was $ 205,660 and $ 211,313 , respectively.

Through the acquisition of Trees Waterfront, we entered into a commercial real estate lease in Portland, OR.

4 unchanged sentences

We determined the present value of the future lease payments using a discount rate of 20 % over a 10-year term, resulting in a right-of-use asset and lease liability of $ 381,272 .

As of June 30, 2022 , the balance of the right-of-use asset and lease liability was $ 365,959 and $ 371,705 , respectively.

As of September 30, 2022 , the balance of the right-of-use asset and lease liability was $ 361,287 and $ 369,604 , respectively.

Through the acquisition of Trees MLK, we entered into a commercial real estate lease in Portland, OR.

4 unchanged sentences

We determined the present value of the future lease payments using a discount rate of 20 % over a 10-year term, resulting in a right-of-use asset and lease liability of $ 172,053 .

As of March 31, 2022 , the balance of the right-of-use asset and lease liability was $ 163,310 and $ 167,170 , respectively.

As of September 30, 2022 , the balance of the right-of-use asset and lease liability was $ 160,267 and $ 165,744 , respectively.

In April 2022, we entered into an Amendment to Lease with Dalton Farms, LLC, the landlord of our grow facility.

Pursuant to the Lease Amendment, commencing April 1, 2022, base rent decreases to $ 27,000 per month for the

remainder of 2022.

Pursuant to the Lease Amendment, commencing April 1, 2022, base rent decreases to $ 27,000 per month for the remainder of 2022.

Increases in base rent become effective January 1, 2023 and are as otherwise provided for in the original lease.

1 unchanged sentence

We determined the present value of the future lease payments using a discount rate of 20 % over a 13 remaining year term, resulting in a right-of-use asset and lease liability of $ 1,703,707 which are being applied ratably over the remaining term of the lease.

As of June 30, 2022, the balance of the right-of-use asset and lease liability was $ 1,664,144 and $ 1,678,613 , respectively.

As of September 30, 2022, the balance of the right-of-use asset and lease liability was $ 1,652,655 and $ 1,681,593 , respectively.

Future remaining minimum lease payments were as follows:

Year ending December 31,

2022 (remaining six months)

2022 (remaining three months)

Present value adjustment

( 4,563,804 )

Operating lease liability

Current portion

Long-term operating lease liability

ACCRUED STOCK PAYABLE

4 unchanged sentences

( 1,669,537 )

Balance as of June 30, 2022

Balance as of September 30, 2022

In December 2021, we completed the acquisition of Trees Waterfront.

3 unchanged sentences

Our notes payable consisted of the following:

September 30,

2022 12% Notes

2020 10% Notes

Related party note payable

7 unchanged sentences

Long-term portion

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.

Of the $ 10,587,250 , $ 4,037,500 is held in restricted cash.

These amounts are to be used for the acquisitions discussed in Note 13, subsequent events.

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 $ 11,931 and nil for the three and nine months ended September 30, 2022 and 2021, 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 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 .

6 unchanged sentences

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 $ 21,630 for the three months ended June 30, 2022 and 2021 and $ 43,023 during the six months ended June 30, 2022 and 2021.

We recorded amortization of debt discount expense from the 10 % Notes of $ 41,352 and $ 21,868 for the three months ended September 30, 2022 and 2021, respectively and $ 84,375 and $ 64,891 during the nine months ended September 30, 2022 and 2021, 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 binomial lattice model to determine the fair value of the 10 % Warrants as of December 23, 2020, were:

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

15 unchanged sentences

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 10 % Notes issued in February 2021 of $ 70,377 for the three months ended June 30, 2022 and 2021 and $ 139,980 and $ 109,818 during the six months ended June 30, 2022 and 2021, respectively.

We recorded amortization of debt discount expense from the 10 % Notes issued in February 2021 of $ 454,741 and $ 71,150 for the three months ended September 30, 2022 and 2021, respectively and $ 594,721 and $ 180,968 during the nine months ended September 30, 2022 and 2021, respectively.

The 10 % Notes are treated as conventional debt.

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

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

14 unchanged sentences

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 10 % Notes issued in April 2021 of $ 124,654 and $ 100,949 for the three months ended June 30, 2022 and 2021, respectively and $ 247,939 and $ 100,949 for the six months ended June 30, 2022 and 2021, respectively.

We recorded amortization of debt discount expense from the 10 % Notes issued in April 2021 of $ 775,638 and $ 126,025 for the three months ended September 30, 2022 and 2021, respectively and $ 1,023,577 and $ 224,446 for the nine months ended September 30, 2022 and 2021, respectively.

The 10 % Notes are treated as conventional debt.

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

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

4 unchanged sentences

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

4 unchanged sentences

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.

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.

2 unchanged sentences

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

As of June 30, 2022, there were 322,807 of the 2019 Warrants outstanding.

As of September 30, 2022, 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

4 unchanged sentences

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 June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Beginning balance

11 unchanged sentences

We have taken the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

We intend to vigorously defend this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

Both parties have filed motions for summary judgment, and the parties are currently awaiting the decision of the court in respect thereof.

In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason"

We are vigorously defending this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

We filed a motion to dismiss;

both parties also filed motions for summary judgment.

In October 2022, the court denied our motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses.

The court did not rule on either motion for summary judgment.

On November 14, 2022, we timely filed a formal answer to the complaint, denying each of Plaintiff’s substantive claims.

We also asserted appropriate affirmative defenses, including the force majeure clause of the lease, which provides that we are not liable under the lease in the event of a variety of events outside our control, including “pandemics.” In addition, we have asserted a counterclaim against the Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs.

In June 2020, our former Executive Chairman resigned, claiming the resignation was for "Good Reason"

under the terms of his employment agreement.

If it is ultimately determined that his resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason", it could enable certain potential claims for benefits under his employment agreement, including potential claims for severance, for the vesting of his unvested options and/or for the extension of the term within which he can exercise his options in the future.

We do not believe that Mr.

Feinsod's resignation was for "Good Reason."

Accordingly, we believe that Mr.

Feinsod's resignation was voluntary, and that any such potential claims, if asserted, would be without substantial merit.

Although the outcome of legal proceedings is

subject to uncertainty, the Company will vigorously defend any future claims made by Mr.

Feinsod alleging a "Good Reason"

An ultimate determination that such resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason,"

could enable certain potential claims for benefits under his employment agreement, including for severance, vesting of unvested options and/or for the extension of the term within which options could be exercised in the future.

We do not believe that the resignation was for "Good Reason"

but rather voluntary, and consequently, that any such potential claims, if asserted, would be without substantial merit.

Although the outcome of legal proceedings is subject to uncertainty, the Company will vigorously defend any future claims relating to this matter.

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

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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.

On September 10, 2022 we recorded an accrued dividend of $ 70,800 .

Stock-based compensation

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

We recorded $ 28,886 and $( 41,648 ) in compensation expense for the three months ended June 30, 2022 and 2021, respectively and $ 105,001 and $ 62,284 for the six months ended June 30, 2022 and 2021, respectively.

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

We recorded $ 24,958 and $ 131,836 in compensation expense for the three months ended September 30, 2022 and 2021, respectively and $ 129,959 and $ 194,120 for the nine months ended September 30, 2022 and 2021, 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.

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As a result of the modification, we recognized an additional $ 21,525 in compensation expense during the third quarter of 2021.

During the six months ended June 30, 2022, we granted options to purchase 250,000 common shares to directors.

During the nine months ended September 30, 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 .

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Forfeited or expired

Outstanding as of June 30, 2022

Exercisable as of June 30, 2022

As of June 30, 2022, there was approximately $ 55,997 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of two months .

Outstanding as of September 30, 2022

Exercisable as of September 30, 2022

As of September 30, 2022, there was approximately $ 31,039 of total unrecognized compensation expense related to unvested employee awards, which is expected to be recognized over a weighted-average period of one month .

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

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

The expense recognized in relation to the RSU’s for the three and six months ended June 30, 2022 was $ 13,500 .

As of June 30, 2022, none of the RSU’s have vested.

We recorded $ 13,502 and nil in compensation expense for the three months ended September 30, 2022 and 2021, respectively and $ 27,004 and nil for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, none of the RSU’s have vested.

RELATED PARTY TRANSACTIONS

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Hershey is paid an initial monthly rate of $ 8,333 for the services, subject to certain adjustments.

We paid $ 24,999 for the three months ended June 30, 2022 and 2021 and $ 49,998 for the six months ended June 30, 2022 and 2021.

On September 16, 2022, we entered into a new consulting agreement with Adam Hershey, in which Mr.

Hershey will continue to serve as our Interim Chief Executive Officer with compensation equal to $ 200,000 per annum, payable monthly.

The term of the Consulting Agreement is for a period of one year , with automatic six-month renewals.

In addition to the Consulting Agreement, we agreed to extend Mr.

Hershey’s warrants to purchase 7,280,007 shares of Common Stock for an additional two years , with an expiration date of May 29, 2027.

The modification of warrants were recorded as equity and equity issuance costs in the amount of $ 367,445 .

We paid $ 24,999 for the three months ended September 30, 2022 and 2021 and $ 74,997 for the nine months ended September 30, 2022 and 2021.

On September 16, 2022, we entered into a consulting agreement with Ed Myers in which Mr.

Myers will serve as our Chief Operating Officer.

Myers will receive compensation expense equal to $ 200,000 per annum, payable monthly.

Payments are to start October 1, 2022.

We currently have a lease agreement with Dalton Adventures, LLC in which we rent 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 owner of Dalton Adventures, LLC is a principal shareholder and board member of the Company.

We have paid approximately $ 89,073 and $ 115,000 in rent for the three months ended June 30, 2022 and 2021, respectively and $ 192,627 and $ 230,000 in rent for the six months ended June 30, 2022 and 2021, respectively.

We have paid approximately $ 89,073 and $ 115,000 in rent for the three months ended September 30, 2022 and 2021, respectively and $ 267,219 and $ 344,000 in rent for the nine months ended September 30, 2022 and 2021, respectively.

We had a lease agreement with Bellewood Holdings, LLC in which we rented 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.

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In June 2022, the building was sold to an unrelated party.

We paid approximately $ 22,574 and nil of rent expense for the three months ended June 30, 2022 and 2021, respectively and $ 52,287 and nil for the six months ended June 30, 2022 and 2021, respectively.

We paid approximately nil of rent expense for the three months ended September 30, 2022 and 2021, respectively and $ 52,287 and nil for the nine months ended September 30, 2022 and 2021, respectively.

On December 23, 2020, four of our current board members purchased senior convertible promissory notes from the Company for an aggregate amount of $ 320,000 .

These notes are included in the 10 % Notes discussed in Note 7.

Accrued interest earned and owed to the board members was $ 37,344 as of June 30, 2022.

On September 15, 2022, all four of our current board members transferred a portion of their 10 % Note amounts and some accrued interest into the 12 % Notes discussed in Note 7.

The total amount rolled was $ 332,204 .

Accrued interest earned and owed to the board members was $ 1,292 as of September 30, 2022.

SEGMENT INFORMATION

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The following information is presented net of discontinued operations.

Three months ended June 30,

Three months ended September 30,

Costs and expenses

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Net loss from continuing operations before income taxes

( 2,704,679 )

Costs and expenses

( 1,747,568 )

Segment operating income

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( 1,286,990 )

Six months ended June 30,

Nine months ended September 30,

Total revenues

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( 4,685,782 )

September 30,

Total assets - segments

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SUBSEQUENT EVENTS

We performed an evaluation of subsequent events through the date of filing of these condensed consolidated financial statements with the SEC.

There were no material subsequent events which affected, or could affect, the amounts or disclosures in the condensed consolidated financial statements.

On September 13, 2022, we entered into an Asset Purchase Agreement (“APA”) with Ancient Alternatives LLC (“Ancient”), Natural Alternatives For Life, LLC, (“Natural”), Mountainside Industries, LLC (“Mountainside”), Hillside Enterprises, LLC (“Hillside”), and GT Creations, LLC (“GT Creations”), each a Colorado limited liability company (“Green Tree Entities”), pursuant to which we agreed to purchase substantially all of the assets of the Green Tree Entities (“Green Tree Acquisition”).

The purchase price in connection with the Green Tree Acquisition consists of cash equal to $ 500,000 payable at closing;

17,977,528 shares (“Buyer Shares”) of our common stock, par value $ 0.01 per share (“Common Stock”), deliverable at closing;

and an additional $ 3,500,000 in cash in fifteen (15) equal monthly payments commencing on the 9-month anniversary of the closing.

The number of Buyer Shares is subject to adjustment based upon a formula specified in the APA.

The APA provides that we will assume certain liabilities at closing, including certain manufacturing agreements between GT Creations and affiliates of the Green Tree Entities.

The Green Tree Acquisition is subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division.

As part of the Green Tree Acquisition, we have agreed, upon the closing, to enter into two-year employment agreements with each of Allyson Feiler and Loree Schwartz, equity principals of the Green Tree Entities (“Employment Agreements”).

Feiler will be employed by us as its Chief Marketing Officer at an annual base salary of $ 225,000 , with an agreed one-time bonus equal to $ 383,071.43 , payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations.

Schwartz will be employed by us as its Chief Compliance Officer at an annual base salary of $ 150,000 , also with an agreed one-time bonus equal to $ 383,071.43 , payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations.

Both Employment Agreements also provide for severance payouts up to the full initial two-year term in the event of a termination without ‘Cause’ or for ‘Good Reason’ (as such terms are defined therein) during the initial term.

In addition, we have agreed, upon the closing, to enter into consulting agreements (“Consulting Agreements”) with each of (i) CMD Consulting Services, Inc., pursuant to which consultant will be paid a one-time consulting fee equal to $ 47,619.05 within 30 days following the closing of each of Ancient, Natural and Hillside;

and (ii) Silverfox LLC pursuant to which consultant will be paid a one-time consulting fee equal to $ 186,238.09 within 30 days following the closing of each of Ancient and Natural.

On October 14, 2022, we entered into an Asset Purchase Agreement with Station 2 LLC (“Station 2”) and Timothy Brown (“Brown”), pursuant to which we agreed to purchase substantially all of the assets of Station 2 (“Station 2 Acquisition”).

The purchase price in connection with the Station 2 Acquisition consists of cash equal to $ 641,454.27 , payable as follows:

Cash at closing of $ 256,581.71 ;

and a cash amount equal to $ 16,036.36 per month for each of the twenty-four (24) months commencing on the first full calendar month following the closing, for an additional total of $ 384,872.56 .

The Station 2 Acquisition was originally disclosed as part of the ‘Trees Acquisition’ in the Company’s Form 8-K filed on April 21, 2021 (“April 2021 Form 8-K”).

The Station 2 Acquisition as disclosed herein constitutes a

material modification to the original terms disclosed in the April 2021 Form 8-K.

The Station 2 Acquisition is subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division.

On October 28, 2022, we entered into an Asset Purchase Agreement with GMC, LLC (“GMC”) and certain equity holders of GMC party thereto, pursuant to which we agreed to purchase substantially all of the assets of GMC, including two cannabis licenses held by GMC, certain inventory, contracts and other related assets (“GMC Acquisition”).

The purchase price in connection with the GMC Acquisition consists of cash equal to $ 1,200,000 payable at closing;

4,494,382 shares of our common stock, issuable to the GMC members upon closing;

and an amount equal to $ 83,333.33 per month, commencing on the 12-month anniversary of the closing, and continuing each month thereafter for a total of 18 months , for a total additional consideration of $ 1,500,000 .

The GMC Acquisition is subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division.

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