What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-04-17 compared with 2022-03-25 · 484 added, 571 removed, 646 unchanged (62% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

General Cannabis Corp.

Opinion on the Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations, the accompanying consolidated balance sheet of General Cannabis Corp.

(the “Company”) as of December 31, 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the 2020 financial statements, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations, present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting described in Note 3 – Discontinued Operations and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Haynie & Company.

The 2020 financial statements before the effects of the adjustments discussed in Note 3 are not presented herein.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Incremental Borrowing Rate (Leases)

Description of the Matter

As discussed in Note 10 to the consolidated financial statements, the Company’s reported right-of-use assets, current lease liabilities and long-term lease liabilities, utilize discount rates to calculate the estimated present value of future lease payments for all leases under ASC Topic 842 at the lease commencement date, and the lessee is required to remeasure its lease liability and adjust the related right-of-use asset upon any lease modifications not accounted for as a separate contract.

Since the Company’s lease does not provide an implicit rate, management utilized a third-party valuation specialist to assist in estimating the incremental borrowing rates used in its present value calculation, which required subjectivity.

The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company’s current operating lease had a lease commencement date in May 2020, and a lease modification in December 2020.

As of the lease commencement date on May 2020, the incremental borrowing rate used to determine the operating lease liability was 22.8%.

As of the lease modification date in December 2020, the incremental borrowing rate was 20.0%.

Auditing management’s assessment of its incremental borrowing rate is highly subjective and judgmental as the Company has no collateralized outstanding debt nor committed credit facilities, secured or otherwise, that would have comparable collateral or similar terms as their underlying lease.

Based on the level of management judgment, we have determined the incremental borrowing rate to be a critical audit matter.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s estimation of the incremental borrowing rate.

How we Addressed the Matter in Our Audit

With the assistance of our valuation specialists, our audit procedures included, amongst others:

● We obtained an understanding of management’s process in regards to the methodology used and the factors considered around the inputs, sources of data used and assumptions and estimates made in determining the Company’s incremental borrowing rates, including those over management’s review of its third-party specialist valuation report.

● We reviewed the contractual terms of the original lease agreement and the modified lease agreement to ensure the commencement date and modification date, any lease term extensions and/or early termination clauses were properly considered in determining the appropriate lease term for calculating the incremental borrowing rates.

● We evaluated the reasonableness of the valuation methods and assumptions used by management and the Company’s valuation specialist to estimate the incremental borrowing rates for borrowing amounts and terms comparable to their outstanding leases.

● We performed a sensitivity analysis on incremental borrowing rates used to determine the impact rate changes could have on the present value calculation of the Company’s operating lease right-of-use asset and operating lease liability.

Acquisition Date Fair Value of Trade Name Intangible Asset

Description of the Matter

As discussed in Note 2 to the consolidated financial statements, on May 13, 2020, the Company acquired Dalton Adventures, LLC in a business combination.

As part of the transaction, the Company acquired fixed assets, inventory, a cultivation license and the trade name of the business, SevenFive Farm.

Due to the complexity in determining fair value, management utilized a third-party valuation specialist to assist in calculating the acquisition date fair value of the trade name intangible asset.

The acquisition date fair value of $1.0 million, which was determined using the relief from royalty method, was allocated to the acquired trade name intangible asset.

Auditing management’s assessment of the acquisition date fair value of the trade name intangible asset is highly subjective and judgmental.

Based on the level of management judgment, we have determined the evaluation of the acquisition date fair value of the trade name intangible asset to be a critical audit matter.

Testing the assumptions regarding future revenue growth rates and discount rate, which were used to determine the fair value, involved a high degree of subjectivity, auditor judgment and an increased extent of effort, including the need to involve our valuation specialist, when performing audit procedures to evaluate the reasonableness of management’s estimation of the acquisition date fair value of the trade name intangible asset.

How we Addressed the Matter in Our Audit

With the assistance of our valuation specialists, our audit procedures included, amongst others:

● We obtained an understanding of management’s process with regards to the methodology used, and the factors considered around the inputs, sources of data used, assumptions and estimates used in the relief from royalty method to determine the acquisition date fair value of the trade name intangible asset, including those over management’s review of its third-party specialist valuation report.

● We tested the mathematical accuracy of the underlying schedules used in the valuation report to ensure the completeness and accuracy of the reports.

● We evaluated the Company’s future revenue growth rates by comparing them to historical results to ensure the reasonableness of these forecasts.

● We assessed the appropriateness of the overall approach and use of the relief from royalty method as the overall approach to determining the fair value of the trade name.

● We evaluated the reasonableness of the methodology and assumptions used by the specialist to determine the discount and royalty rates utilized to value the trade name intangible asset.

/s/ Marcum llp

We served as the Company’s auditor from 2019 to 2021.

April 1, 2021

(PCAOB ID 688 )

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of General Cannabis Corp.

To the Board of Directors and

Stockholders of TREES Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of General Cannabis Corp.

(the Company) as of December 31, 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for year ended December 31, 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

As part of our audit of the financial statements for the ended December 31, 2021, we have also audited the retrospective adjustments to the financial statements of the Company for the presentation of discontinued operations as of December 31, 2020.

In our opinion, the retrospective adjustments have been fairly applied to present discontinued operations.

As described in Note 3, the sale of the Company’s Operations segment closed on August 2, 2021.

As a result, the business revenues and expenses were classified as discontinued operations and the related assets and liabilities were classified as available for sale in the financial statements as of December 31, 2020, which are shown comparatively.

Except for the effects of the retrospective presentation for discontinued operations, we were not engaged to audit, review, or apply any procedures to the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, other than stated above and, accordingly, we do not express an opinion or any other form of assurance about whether such financial position have been fairly stated as of December 31, 2020.

Those balances were audited by Marcum LLP.

We have audited the accompanying consolidated balance sheets of TREES Corporation (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years ended December 31, 2022 and 2021, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years ended, in conformity with accounting principles generally accepted in the United States of America.

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

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has negative working capital that raise substantial doubt about its ability to continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a negative working capital that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

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Business Combination – Refer to Note 2 to the financial statements

As discussed in Note 2 to the financial statements, on September 2, 2021, the Company acquired TREES Englewood and on December 30, 2021, the Company acquired Trees Portland, LLC and Trees Waterfront, LLC in a business combination.

Management of the Company allocated the purchase price to cash, fixed assets, inventory, licenses, trade names, and goodwill.

The accounting for the purchase price allocation is complex due to the significant estimation uncertainty in determining the fair values of identified intangibles and the Company’s third-party valuation is yet to be completed.

We considered the purchase price allocation as a significant audit matter because of the significant estimates and assumptions made by management to estimate fair value of trade names and allocation to goodwill.

These estimates include impact of forecasted growth and the consideration of comparable transactions in their industry.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve the expertise of our in-house valuation professionals.

Addressing the matter involved obtaining the purchase agreements and interpreting the terms are in agreement with the estimate assumptions used by the Company.

As discussed in Note 2 to the consolidated financial statements, the Company acquired several entities as follows:

Trees Englewood on September 2, 2021, Trees Portland, LLC and Trees Waterfront, LLC on December 30, 2021, Trees MLK

on January 5, 2022, Green Tree entities on December 12, 2022, and Green Man Cannabis on December 19, 2022, in separate business combinations.

Management of the Company estimated the preliminary allocation of the purchase price to cash, fixed assets, inventory, trade names, and goodwill based on the industry experience and values until the formal third-party valuation is completed.

The accounting for the purchase price allocation is complex due to the significant estimation uncertainty in determining the fair values of identified intangibles.

The Company’s third-party valuation was completed for Trees Englewood, Trees Portland, LLC, Trees Waterfront, LLC, and Trees MLK Inc.

as of the year ended December 31, 2022.

The Company’s third-party valuation of the rest of the entities is yet to be completed.

We deem the purchase price allocation as a significant audit matter because of the significant estimates and assumptions made by management to estimate the fair value of trade names and allocation to goodwill.

These estimates include the impact of forecasted growth and the consideration of comparable transactions in their industry.

This required a high degree of auditor judgment and an increased extent of effort, including the use of valuation specialists.

Addressing the matter involved obtaining the purchase agreements and interpreting the terms are in agreement with the assumptions used by the Company.

We obtained the Company’s purchase price allocation and tested the inputs used in their calculation.

In evaluating the Company’s assumptions, we compared them to other similar transactions in their industry.

For valuations completed by the third-party specialist, we evaluated the expertise, qualifications, and independence of the management’s specialist engaged to complete the evaluation.

Finally, we used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology.

Goodwill — Refer to Note 9 to the consolidated financial statements

As discussed in Note 9 to the financial statements, the Company has recognized goodwill of $8,799,657 as of December 31, 2021, after recognizing impairment expense of $2,484,200 during the year then ended.

As discussed in Note 9 to the financial statements, the Company has goodwill of $18,384,974 on December 31, 2022, after recognizing impairment expense of $2,450,941 during the year then ended.

The Company evaluates its goodwill at least annually or more frequently when events or changes in circumstances indicate the carrying value may not be recoverable.

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These procedures included, among others, gaining an understanding of management's process for developing the fair value estimate.

We also evaluated the expertise, qualifications, and independence of management’s specialist engaged to complete the evaluation.

We also evaluated the expertise, qualifications, and independence of the management’s specialist engaged to complete the evaluation.

We used professionals inside our firm with specialized skills and knowledge to assess the Company’s methodology and assumptions used such as discount rate used.

In evaluating the Company’s assumptions, we compared them to historical results.

/s/ Haynie & Company

We have served as the Company’s auditor since 2021.

Haynie & Company

Salt Lake City, Utah

March 25, 2022

April 17, 2023

We have served as the Company’s auditor since 2021.

(PCAOB ID 457 )

GENERAL CANNABIS CORP

TREES CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31, 2022

December 31, 2021

Current assets

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Accounts receivable, net of allowance of $ 42,000 and $ 61,000 , respectively

Current portion of notes receivable, net of allowance of $ 43,108 and $ 125,000 , respectively

Inventories, net

Current portion of notes receivable, net of allowance of nil and $ 43,108 , respectively

Prepaid expenses and other current assets

Assets of discontinued operations - current portion

Total current assets

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Property and equipment, net

Investment, held for sale

Intangible assets, net

Assets of discontinued operations

Liabilities and Stockholders' Equity

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Interest payable

Income tax payable

Operating lease liability, current

Finance lease liability, current

Accrued stock payable

Accrued dividends

Warrant derivative liability

Notes payable - current

Liabilities of discontinued operations

Total current liabilities

Operating lease liability, non-current

Notes payable - long term (net of discount)

Related party long-term notes payable (net of discount)

Finance lease liability, non-current

Notes payable - non-current (net of unamortized discount)

Total liabilities

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5,000,000 shares authorized;

1,180 and nil issued and outstanding , respectively

1,180 issued and outstanding, respectively

Common stock, $ 0.001 par value;

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The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

TREES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended December 31,

Cultivation sales

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Other expenses (income)

Amortization of debt discount and equity issuance costs

Amortization of debt discount

Interest expense

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Other expense (income), net

Total other expenses (income), net

Total other expenses, net

Net loss from continuing operations before income taxes

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( 8,427,151 )

Loss from discontinued operations, net of tax

Income (loss) from discontinued operations, net of tax

( 9,475,067 )

( 8,869,379 )

Deemed dividend

Accrued preferred stock dividend

Net loss attributable to Common Stockholders

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The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

TREES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Depreciation and amortization

Amortization of loan origination fees

Loss on extinguishment of debt

Non-cash lease expense

Bad debt expense

Lease expense in excess of lease payments

Provision for bad debt

Impairment of assets

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Stock-based compensation

Loss on investment

Gain on sale of building

Gain on investment

Changes in operating assets and liabilities, net of acquisitions

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Accounts payable and accrued liabilities

Operating lease liabilities

Net cash used in operating activities:

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Purchase of property and equipment

Proceeds for sale of equipment

Lending on note receivable

Proceeds on notes receivable

Acquisition of TREES Englewood, net of cash acquired

Acquisition of TDM, LLC

( 1,122,015 )

Acquisition of Trees MLK

Acquisition of Trees Portland, net of cash acquired

Acquisition of Trees Waterfront, net of cash acquired

Acquisition of Green Tree Entities, net of cash acquired

Acquisition of Green Man Corp, net of cash acquired

( 1,216,406 )

Net proceeds from sale of Next Big Crop

Proceeds from sale of building

Proceeds from sale of investment

Net cash (used in) provided by investing activities

Net cash used in investing activities

( 1,945,586 )

Cash flows from financing activities

Proceeds from the sale of common stock and warrants - accrued stock payable

Proceeds from the exercise of warrants

Proceeds from exercise of stock options

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Proceeds from notes payable

Payments on notes payable

Payments on notes payable and finance lease

( 1,898,094 )

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Non-cash investing & financing activities

Operating lease right-of-use asset/Operating lease liability

10 % Warrants recorded as a debt discount and additional paid-in capital

Beneficial conversion feature

Cashless warrant and option exercises

Issuance of common stock to a consultant

Deemed dividend from warrant repricing

Non-cash settlement of notes payable netted against proceeds from new notes issuance

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

Beneficial conversion feature

10 % Warrants recorded as a loss on extinguishment of debt and additional paid-in capital

Modification of warrants associated with debt

Debt converted to equity

Issuance of common stock to an employee

Stock issued in connection with SevenFive Farm acquisition

Issuance of Common Stock to a consultant

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

TREES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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( 74,951,436 )

( 5,764,212 )

Sale of common stock, net of issuance costs

Common stock issued to employees

Common stock issued upon conversion of debt

Common stock issued for acquisition of SevenFive Farm

Stock options granted to employees and consultants

Beneficial conversion feature

Warrants exercised

Warrants issued with the 15 % Notes

Warrants issued with the 10 % Notes

Modification of warrants

Cashless exercise of warrants

( 7,679,692 )

December 31, 2020

( 74,951,436 )

Common Stock issued to consultants

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( 83,820,815 )

Common Stock issued for acquisition of Trees Waterfront LLC

Common Stock issued for acquisition of Trees MLK LLC

Common Stock issued for Green Tree Acquisition

Common Stock issued Green Man Acquisition

Warrants issued with 12 % Notes

Share-based compensation

Dividends on preferred stock

( 9,475,067 )

December 31, 2022

( 93,384,382 )

The accompanying notes are an integral part of these consolidated financial statements.

GENERAL CANNABIS CORP

TREES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Nature of Operations

General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “GCC”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry.

TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “TREES”) (formerly, General Cannabis Corp), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry.

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

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Retail (“Retail Segment”)

Through our acquisition of TREES Englewood in September 2021 and our acquisition of TREES Portland and TREES Waterfront in December 2021, we operate a retail dispensary store in Englewood, Colorado and two retail stores in Portland, Oregon.

Through a series of acquisitions in 2021 and 2022, we operated four retail dispensaries in Colorado and three retail dispensaries in Oregon as of December 31, 2022.

See Note 2 for details of the acquisitions.

We acquired the license for an additional dispensary in Colorado in February of 2023, and opened that location in April 2023.

Cultivation (“Cultivation Segment”)

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

During 2021 and 2020, 31 % and 28 %, respectively, of SevenFive Farm’s revenue was from two customers.

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.

We acquired additional cultivation facilities in December 2022 through the Green Tree acquisition.

During 2022, there was one customer that accounted for over 10% of our third-party cultivation revenue, and during 2021 there were two customers that each accounted for over 10% of , of third -party cultivation revenue.

Discontinued Operations

Through Next Big Crop, LLC (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.

NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities.

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Basis of Presentation

The accompanying consolidated financial statements include the results of GCC and its nine wholly-owned subsidiary companies:

Evans Owner LLC, a Colorado limited liability company formed in 2014;

(b) General Cannabis Capital Corporation, a Colorado corporation formed in 2015;

(d) Standard Cann, Inc., a Colorado corporation formed in 2019;

(e) SevenFive Farm LLC, a Colorado limited liability company formed in 2020;

(f) SevenFive Farm Cultivation LLC, a Colorado limited liability company formed in 2020;

(g) Trees Colorado LLC, a Colorado limited liability company formed in 2021;

(h) Trees Oregon LLC, a Colorado limited liability company formed in 2021;

(i) GC Corp., a Colorado corporation, originally formed in 2013 under the name ACS Corp.

In 2015, the name was changed to GC Corp.

The accompanying consolidated financial statements include the results of TREES and its nine wholly-owned (direct and indirect) subsidiary companies, each a Colorado corporation or limited liability company:

Evans Owner LLC

● GC Capital Corp, LLC

● GC Security LLC

● General Cannabis Capital Corporation

● Standard Cann, Inc.

● SevenFive Farms Cultivation, LLC

● SevenFive Farms, LLC

● Trees Colorado LLC

● Trees Oregon LLC

● Green Tree Colorado LLC

● GT Cultivation LLC

● GT Retail LLC

● Green Man Cannabis, LLC

Intercompany accounts and transactions have been eliminated.

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.

Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and

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.

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The consolidated financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future.

Our cash of $ 2,054,050 as of December 31, 2021 is not sufficient to absorb our operating losses and retire our debt of $ 8,913,644 and other obligations as they come due.

Our cash of $ 2,583,833 as of December 31, 2022 is not sufficient to absorb our operating losses and retire our debt and lease obligations of $ 22,540,136 and other obligations as they come due.

Our ability to continue as a going concern is dependent upon our generating profitable operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due.

Management believes that (a) we will be successful obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern.

Management believes that (a) we will be successful in obtaining additional capital and (b) actions presently being taken to further implement our business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern.

While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances to that effect.

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The Company incurred net losses of $ 9.5 million and $ 8.9 million in the years ended December 31, 2022 and 2021, respectively, and had an accumulated deficit of $ 93.4 million as of December 31, 2022.

The Company had cash, cash equivalents, and short-term and long-term investments of $ 2.1 million and $ 1.0 million as of December 31, 2021 and 2020, respectively.

The Company had cash and cash equivalents of $ 2.6 million and $ 2.1 million as of December 31, 2022 and 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.

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The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to execute its acquisition and growth strategy.

The Company believes that its cash and cash equivalents as of December 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K due to the receipt of an additional $ 2.3 million of cash in April 2021 from the issuance of a convertible note offering, the receipt of an additional $ 1.2 million of cash in September 2021 from the issuance of preferred stock and the acquisition of three dispensaries (See Note 2 for further information).

The Company believes that its cash and cash equivalents as of December 31, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Annual Report on Form 10-K.

The Company may need additional funding to support its planned investing activities.

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Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.

As of December 31, 2021 and 2020 there are nil and $ 5,551 of cash and cash equivalents included in assets of discontinued operations on the balance sheet.

Inventories consist of raw materials, supplies, growing and harvested plants (work-in-process), and finished goods, and are stated at the lower of cost or net realizable value.

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In making the determination of the appropriate allowance for doubtful accounts, management considers prior experience with customers, analysis of accounts receivable aging reports, changes in customer payment patterns, and historical write-offs.

Notes Receivable

Notes receivable consist primarily of amounts due to us related to the financing of different business ventures.

Direct loan origination costs we incur are netted with loan origination fees we receive and the net amount, loan origination fees, or costs, is included in notes receivable on the consolidated balance sheets.

The loan origination fees or costs are amortized over the term of the underlying note receivable and included in interest income in the consolidated statements of operations.

We report notes receivable at the principal balance outstanding less an allowance for losses.

We monitor the financial condition of the notes receivable and record provisions for estimated losses when we believe it is probable that the holders of the notes receivable will be unable to make their required payments.

We charge interest at a fixed rate and interest income is calculated by applying the effective rate to the outstanding principal balance.

Right-of-use Asset / Lease Liability

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Lease liabilities represent our obligation to make lease payments arising from the lease.

Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

We recognize ROU assets and lease liabilities on the balance sheet for leases with a lease term of greater than one year.

Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the ROU asset and lease liability calculations.

The Company elected to combine the lease and related non-lease components (common area maintenance and operating costs) and treat them as a single lease component.

ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of the fixed lease payments over the lease term.

The Company’s operating leases include options to extend or terminate the lease, which are not included in the determination of the ROU asset or lease liability unless reasonably certain to be exercised.

Payments that are not fixed at the commencement of the lease are considered variable and are excluded from the measurement of the ROU asset and lease liability and are expensed as incurred in the statement of operations.

Variable payments typically included payment for common area maintenance and reimbursement of the landlords operating costs as the amounts change from year to year based on actual costs incurred.

In the measurement of our ROU assets and lease liabilities, the fixed lease payments in the agreement are discounted using a secured incremental borrowing rate for a term similar to the duration of the lease, as our leases do not provide implicit rates.

Operating lease expense is recognized on a straight-line basis over the lease term.

For the Company’s finance lease, interest expense is recognized on the lease liability using the effective interest method and depreciation of the finance lease ROU asset is recognized on a straight-line basis over the lease term.

Property and Equipment, net

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We test goodwill and long-lived intangible assets annually in December, unless an event occurs that would cause us to believe the value is impaired at an interim date.

The price of flower has substantially decreased over the year ending December 31, 2021, as a result we tested for impairment of the Cultivation Segment’s goodwill on December 31, 2021.

We recognized a full impairment of goodwill in the amount of $ 2,484,200 .

No impairment was recognized as of December 31, 2020.

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.

As a result of the full impairment of goodwill above, we tested for impairment on intangibles with finite useful lives under our Cultivation Segment.

We recognized an impairment of $ 526,220 on December 31, 2021.

No impairment was recognized as of December 31, 2020.

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.

We issue debt that may have separate warrants, conversion features, or no equity-linked attributes.

Debt with warrants – When we issue debt with warrants, we treat the warrants as a debt discount, record as a contra-liability against the debt, and amortize the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated statements of operations.

The offset to the contra-liability is recorded as additional paid in

capital in our consolidated balance sheets.

The offset to the contra-liability is recorded as additional paid in capital in our consolidated balance sheets.

If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statement of operations.

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Convertible Debt - When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the estimated volatility of our stock.

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-

Scholes upon the date of issuance, using the stock price on the date of issuance, the risk-free interest rate associated with the life of the debt, and the estimated volatility of our stock.

If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”).

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Such instruments do not have fixed settlement provisions and have also been recorded as derivative liabilities.

Corresponding changes in the fair value of the derivative liabilities are recognized in earnings on the Company’s consolidated statements of operations in each subsequent period.

Corresponding changes in the fair

value of the derivative liabilities are recognized in earnings on the Company’s consolidated statements of operations in each subsequent period.

The Company’s derivative liabilities are carried at fair value and were classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs.

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We have two main revenue streams:

(i) product sales;

and (ii) cultivation sales.

(i) retail product sales;

and (ii) wholesale cultivation sales.

Product sales are recorded at the time that control of the product is transferred to customers.

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Identification of the contract, or contracts, with a customer

services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

A contract with a customer exists when (i) we enter into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to these goods or services, (ii) the contract has commercial substance, and (iii) we determine that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.

We apply judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit or financial information pertaining to the customer.

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Stock-based Payments

Employee and non-employee awards – We account for stock-based compensation in accordance with the fair value recognition provisions of ASC 718 , Compensation – Stock Compensation , and ASC 505 , Equity , which require all stock-based compensation to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values.

based compensation to employees and non-employees, including grants of employee stock options, to be recognized as an expense in the consolidated financial statements based on their fair values.

The fair value of stock options is estimated using the Black-Scholes option pricing formula that requires assumptions for expected volatility, expected dividends, the risk-free interest rate, and the expected term of the option.

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Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP.

This 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.

This Accounting Standards Update (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas.

The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted.

We are in the process of evaluating the impact of this new guidance on our consolidated financial statements.

SevenFive Farm

On May 13, 2020, we received approval of the transaction and transfer of the Dalton Adventures, LLC license from the Colorado Marijuana Enforcement Division.

On May 25, 2020, we finalized the acquisition, pursuant to which we acquired the assets of the seller that constitute the business of SevenFive Farm, a cultivation facility in Boulder, Colorado, whereby we acquired fixed assets, inventory, a cultivation license, and the tradename.

The purchase price paid by the Company to the seller was 8,859,117 shares of common stock.

The closing price of our common stock on May 13, 2020, the date of license transfer, was $ 0.38 per share, as such, fair value of consideration is $ 3,808,951 .

The purchase agreement had a provision whereby the Seller may require us to repurchase in cash 25 % of the shares issued to the owner of Dalton Adventures, LLC at a repurchase price equal to the same volume weighted average price used to determine the number of shares issued to the owner of Dalton Adventures, LLC at closing.

As a result, we recorded a liability using Black-Scholes in the amount of $ 442,487 and reduced additional paid-in capital.

In December 2020, the seller waived his right to this provision in the purchase agreement and no longer has the possibility of the buyback of the shares.

Therefore, no stock put liability is recorded as of December 31, 2020 and the liability was reversed into equity.

We completed the allocation of the purchase price in the first quarter of 2021.

The purchase price allocation is as follows:

The accompanying consolidated financial statements include the results of SevenFive Farm from the date of acquisition for financial reporting purposes, May 13, 2020.

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:

Total revenues

Net loss attributable to common stockholders

( 8,332,387 )

Net loss per common share:

Weighted average number of basic and diluted common shares outstanding

The unaudited proforma 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, 2020, or to project potential operating results as of any future date or for any future periods.

We adopted this ASU in the first quarter of 2022, and the adoption did not have a material effect on our financial statements.

On September 2, 2021, we completed the acquisition of substantially all of the assets of Trees Englewood, representing a portion of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021 by and among the Company, seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”).

We paid $ 1,155,256 in cash in connection with the Englewood Closing and stock consideration of 22,380,310 shares of our Common Stock.

The closing price of our common stock on September 2, 2021, the date of license transfer, was $ 0.47 per share, as such, fair value of consideration is $ 10,518,746 .

The closing price of our Common Stock on September 2, 2021, the date of license transfer, was $ 0.47 per share, as such, fair value of the equity consideration is $ 10,518,746 .

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.

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

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

Compared to the estimated purchase price allocation reported in our financial statements included in Item 8 of our Form 10-K for the year ended December 31, 2021 filed with the SEC on March 25, 2022, the final purchase price estimate resulted in a reduction of tradename intangible assets and a corresponding increase to goodwill of $ 3.6 million.

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

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( 8,110,671 )

( 7,218,878 )

Net income (loss) per common share

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On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC, representing a portion of the overall Trees Transaction, that consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”).

On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC (together “Trees Oregon”), representing a portion of the overall Trees Transaction, that consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”).

We paid cash in the amount of $ 331,581 in connection with the Oregon Closing and stock consideration of 6,423,575 shares of our Common Stock.

The closing price of our common stock on December 30, 2021, the date of license transfer, was $ 0.23 per share, as such, fair value of consideration is $ 1,477,422 .

The closing price of our Common Stock on December 30, 2021, the date of license transfer, was $ 0.23 per share, as such, the fair value of the equity consideration is $ 1,477,422 .

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.

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

The table below reflects the Company’s final 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.

3 unchanged sentences

( 8,664,841 )

( 8,666,967 )

Net income (loss) per common share

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We have not completed the allocation of the purchase price for the Trees acquisition.

On January 5, 2022, we completed the acquisition of substantially all of the assets of Trees MLK Inc.

(“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction.

We paid cash in the amount of $ 256,582 and stock consideration of 4,970,654 shares of our Common Stock.

The closing price of our Common Stock on January 5, 2022, the date of license transfer, was $ 0.27 per share, as such, fair value of the equity consideration is $ 1,346,076 .

Further, cash equal to $ 384,873 will be paid to the sellers in equal monthly installments over a period of 24 months beginning on June 15, 2022.

When we closed on MLK it was a non-operating dispensary.

We opened the dispensary in the second quarter of 2022.

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

As the MLK dispensary was not operating until the second quarter of 2022, the were no material results of operations prior to the acquisition date.

As such, there would be no material proforma impact on the Company’s operating results.

On December 12, 2022, we completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a Colorado limited liability company (collectively, the "Green Tree Entities”).

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

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.

See Note 13 for additional details.

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 December 31, 2022, 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 dates.

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, 2021, are as follows:

Total revenues

Net income (loss) attributable to Common Stockholders

( 9,558,189 )

( 8,957,542 )

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 purpose only.

The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2021, or to project potential operating results as of any future date or for any future periods.

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.

See Note 13 for additional details.

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 December 31, 2022, 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, 2021, are as follows:

Total revenues

Net income (loss) attributable to Common Stockholders

( 9,641,205 )

( 10,307,060 )

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 purpose only.

DISCONTINUED OPERATIONS

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of our Operations Segment 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 the Operations Segment was completed.

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of our 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 the NBC was completed.

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

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

A breakdown of the results of discontinued operations related to the sale of NBC are presented as follows:

Product revenues

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Total costs and expenses

Loss from discontinued operations

Income (loss) from discontinued operations

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 years ended December 31, 2021 and 2020.

The following table provides selected information on cash flows related to discontinued operations for the years ended December 31, 2022 and 2021.

Accounts receivables

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Customer deposits

Security Segment

On December 26, 2019, the board of directors and management made the strategic decision to investigate a possible buyer for the Security Segment and if no buyer could be found, cease operations of the Security Segment.

We transferred all our Colorado security contracts and employees to a company on January 16, 2020.

On February 6, 2020 we cancelled all our security contracts in California.

The assets and liabilities classified as discontinued operations for the Security Segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2021 and 2020 are presented as discontinued operations.

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

Cash and cash equivalents

Current assets discontinued operations

Accounts payable and accrued expenses

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Security Segment is presented as follows:

Service revenues

Total revenues

Cost of sales

Selling, general and administrative

Depreciation and amortization

Total costs and expenses

Loss from discontinued operations

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 Security Segment for the years ended December 31, 2021 and 2020.

Accounts receivables

Prepaid expenses and other current assets

Depreciation and amortization

Accounts payable and accrued expenses

Customer deposits

Consumer Goods Segment

On December 26, 2019, the board of directors and management made the strategic move to cease operations of Chiefton.

On December 26, 2019, the board of directors committed to a plan to cease operations of STOA Wellness.

We transferred all assets of STOA Wellness to an individual on January 10, 2020, in exchange for the release on the outstanding lease.

The assets and liabilities classified as discontinued operations for the Consumer Goods Segment are presented separately in the balance sheet and the operating results for the years ended December 31, 2021 and 2020 are presented as discontinued operations.

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

Accounts payable and accrued expenses

Current liabilities discontinued operations

A breakdown of the discontinued operations for the Consumer Goods Segment is presented as follows:

Product revenues

Total revenues

Selling, general and administrative

Total costs and expenses

Loss from discontinued operations

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 2021 and 2020.

Accounts receivables

Prepaid expenses and other current assets

Accounts payable and accrued expenses

ACCOUNTS RECEIVABLE

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We record bad debt expense when we conclude the credit risk of a customer indicates the amount due under the contract is not collectible.

We recorded bad debt expense of $ 53,386 , of which $ 43,000 was related to accounts receivable and the remaining recovery amount is in relation to our notes receivable, and $ 136,000 , of which $ 9,000 was related to accounts receivable, respectively, during the years ended December 31, 2021 and 2020.

We recorded bad debt expense of $ 6,280 and $ 53,386 during the years ended December 31, 2022 and 2021, respectively.

NOTES RECEIVABLE

Our notes receivable consisted of the following:

Total Principal

Allowance for doubtful accounts

Unamortized loan origination fee

Current portion

Long-term portion

On August 2, 2021, as part of the closing of the sale of NBC, we agreed to a note receivable of $ 75,000 due August 2, 2022.

There is no interest associated with this receivable per the agreement.

This note receivable was collected in full as of the issuance of these financial statements.

In March 2019, we agreed to loan an aggregate of up to $ 375,000 to Consolidated C.R., LLC (“CCR”) pursuant to the terms of a convertible promissory note (“CCR Note”), bearing interest at 12 % per annum, collateralized by substantially all the assets of CCR and subject to a maturity date of September 2020.

As of May 30, 2019, we had loaned the entire available amount of $ 375,000 to CCR pursuant to the CCR Note.

CCR is a vertically integrated medical cannabis company located in San Juan, Puerto Rico.

The CCR Note included a loan origination fee of $ 15,000 , which was being recognized as interest income over the term of the agreement and has been fully amortized.

This loan went into default in April 2020, which increased the interest rate to 18 % per annum.

As of December 31, 2021 we received the majority of the payment of the outstanding principal and interest of the note receivable.

On January 3, 2019, the Company authorized an unsecured loan of $ 100,000 to Beacher Brewing, LLC (“BB”) pursuant to the terms of a promissory note (“BB Note”), bearing interest at 11 % per annum and a maturity date of January 3, 2020.

Interest is due in advance at the beginning of each quarter.

On December 13, 2019, the Company agreed to extend the maturity date to January 3, 2021.

During 2021 we negotiated a payment amount of $ 60,000 and wrote off the remaining balance to allowance for doubtful accounts.

Payment was considered to be in full as of December 31, 2021.

This note receivable was collected in full in 2022.

INVENTORIES, NET

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Work-in-progress and finished goods

Inventory reserves

Inventories, net

PREPAIDS AND OTHER CURRENT ASSETS

Our prepaids and other current assets consist of the following:

Security deposits

Prepaid insurance

Total prepaids and other current assets

PROPERTY AND EQUIPMENT, NET

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Furniture, fixtures and equipment

Finance lease ROU -building

Biological assets

Accumulated depreciation

Total property and equipment, net

Depreciation expense was $ 182,838 and $ 192,232 , respectively, for the years ended December 31, 2022 and 2021.

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Intangible assets

Intangible assets as of December 31 consist of:

During the years ended December 31, 2022 and 2021, the Company acquired trade name intangible assets through several acquisitions.

See Note 2 for further details of these acquisitions.

The amount of trade name intangible assets acquired in each transaction is shown in the table below.

Acquisition Date

Green Man Acquisition (1)

December 2022

Green Tree Acquisition (1)

December 2022

Trees MLK Acquisition (2)

Trees Portland Acquisition

December 2021

Trees Waterfront Acquisition (2)

December 2021

Trees Englewood Acquisition

September 2021

(1) The purchase price allocation for this acquisition has not been finalized, therefore this amount could be subsequently adjusted.

Note that the useful life takes into account that management plans to re-brand the acquired stores under the TREES tradename.

(2) The trade name intangible asset for these acquisitions was fully impaired in 2022.

See discussion of impairment charges below in this footnote.

The following table summarizes the change in the Company’s tradename intangible assets from December 31, 2021 to December 31, 2022:

Accumulated Amortization

Balance as of December 31, 2021

Purchase price allocation adjustments (see Note 2)

( 3,942,000 )

Tradename intangibles acquired

Balance as of December 31, 2022

Estimated amortization expense for the next five years is as follows:

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Amortization expense was $ 148,538 and $ 308,342 for the years ended December 31, 2022 and 2021, respectively.

The following represents a summary of changes in the carry amount of goodwill for the years ended December 31, 2021 and 2020:

The following represents a summary of changes in the carry amount of goodwill for the years ended December 31, 2022 and 2021 on a consolidated basis and by segment:

Gross Goodwill

Accumulated Impairment

Balance as of December 31, 2020

Goodwill acquired

( 2,484,200 )

Balance as of December 31, 2021

( 2,484,200 )

Goodwill acquired

Purchase price allocation adjustment

( 2,450,941 )

Balance as of December 31, 2022

On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 19) for 17,000 square feet of greenhouse space in Boulder, CO, with an initial term of five years and, at our option, two additional terms of five years each.

Rent is $ 30,000 per month with 1.5 % annual escalations.

We also pay our portion of real estate taxes.

In December 2020, we amended the lease to include a 3 % rent escalation in 2021 and 2022 .

No other changes to the lease were made.

We accounted for the amendment as a lease modification and remeasured the lease with an incremental borrowing rate of 20 % which resulted in an increase of $ 246,250 to the right-of-use operating lease asset and lease liability from the initial lease valued on May 13, 2020 using an incremental borrowing rate of 22.8 %.

We determined the present value of the future lease payments using a discount rate of 20 % over a 15-year term, our incremental borrowing rate based on outstanding debt, resulting in a right-of-use asset and lease liability of $ 1,877,423 which are being applied ratably over the term of the lease.

As of December 31, 2021 and 2020, the balance of the right-of-use asset and lease liability was $ 1,796,983 and $ 1,873,607 , respectively.

On September 2, 2021, we entered into a commercial real estate lease with a related party (see Note 19) for retail space in Englewood, CO, with an initial term of five years and, at our option, two additional terms of three years each.

Rent is $ 10,000 per month with 3 % annual escalations during the initial term and 4 % annual escalations during the option term.

We also pay our portion of real estate taxes.

We determined the present value of the future lease payments using a discount rate of 20 % over a 11-year term, resulting in a right-of-use asset and lease liability of $ 602,140 which are being applied ratably over the term of the lease.

As of December 31, 2021, the balance of the right-of-use asset and lease liability was $ 584,258 and $ 591,741 , respectively.

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

This office space is our new principal business office.

The lease has 15 months remaining.

Rent is $ 7,150 per month with a 3 % escalation beginning in November 2021.

We also pay our portion of real estate taxes.

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 December 31, 2021, the balance of the right-of-use asset and lease liability was $ 73,138 and $ 73,451 , respectively.

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

The lease has 5.5 years remaining.

Rent is $ 5,124 per month with a 5 % annual escalation beginning in May 2022.

The rent includes payment of property taxes.

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 December 31, 2021, the balance of the right-of-use asset and lease liability was $ 229,501 .

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

The lease has an initial term of 5 years and, at our option an additional term of 5 years .

Rent is $ 6,683 per month with a 3 % annual escalation.

The rent includes payment of property taxes.

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 December 31, 2021, the balance of the right-of-use asset and l ease liability was $ 381,271 .

Future remaining minimum lease payments were as follows:

( 4,935,141 )

Retail Segment

Gross Goodwill

Accumulated Impairment

Balance as of December 31, 2020

Goodwill acquired

Balance as of December 31, 2021

Goodwill acquired

Purchase price allocation adjustment

( 2,450,941 )

Balance as of December 31, 2022

( 2,450,941 )

Cultivation Segment

Gross Goodwill

Accumulated Impairment

Balance as of December 31, 2020

Goodwill acquired

( 2,484,200 )

Balance as of December 31, 2021

( 2,484,200 )

Goodwill acquired

Balance as of December 31, 2022

( 2,484,200 )

Cultivation Segment Impairments

As of the annual testing date of December 31, 2021, the Company utilized a third-party valuation firm to estimate the fair value of our Cultivation segment, which consisted of a single reporting unit, using a combination of a discounted cash flow approach and market multiple approach.

As a result, the Company determined that the fair value of the Cultivation segment was less than the less than the carrying value and recognized a full impairment of goodwill in the Cultivation segment in the amount of $ 2,484,200 during the year ended December 31, 2021.

Due to the impairment of the goodwill and the price declines of marijuana flower in 2021, the Company also tested its intangible assets with finite lives for impairment using the same valuation methodology and assumptions that we used for the goodwill impairment test.

As a result, the Company recorded an impairment of $ 526,220 during the year ended December 31, 2021.

As of December 31, 2022, due to the continued declines in the wholesale price of marijuana flower in Colorado, the Company determined that the remaining intangible asset balance in the Cultivation segment was not recoverable based on current cash flow projections and that there was no longer value in the tradename value given the economic conditions in the cultivation sector.

Therefore, an impairment of the remaining balance of $ 278,878 was recorded during the year ended December 31, 2022.

Retail Segment Impairments

As of December 31, 2021, the goodwill balance and intangible assets balances in the Retail segment related to acquisitions completed in the third and fourth quarters of 2021.

The final purchase price allocations for these acquisitions had not been completed as of December 31, 2021.

Therefore, no impairment testing was required.

As of annual testing date on December 31, 2022, the Company utilized a third-party valuation firm to estimate the fair value of each reporting unit within the Retail segment using a combination of a discounted cash flow approach and market multiple approach.

Each dispensary location is considered a separate reporting unit.

As a result, the Company determined that the fair value of each of the dispensary locations in Oregon was less than the less than its carrying value.

Therefore, the Company recognized goodwill impairments in the Retail segment in the amount of $ 2,450,941 during the year ended December 31, 2022.

Due to the impairment of the goodwill in the Retail segment and sales levels that were below management’s expectations, the Company also tested its intangible assets with finite lives for impairment using

the same valuation methodology and assumptions that we used for the goodwill impairment test.

The resulting fair value estimates indicated that the fair value of the tradename intangible was less than the carrying value for the Trees MLK and Trees Waterfront dispensaries in Oregon.

Therefore, the Company recognized an impairment of $ 274,500 during the year ended December 31, 2022.

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

All but one of the Company’s leases are classified as operating leases.

The lease for the retail dispensary acquired in the Green Man Transaction is classified as a finance lease.

The current and non-current portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance sheets.

The finance lease ROU asset is included in property and equipment, net (see Note 8) and the operating lease ROU asset is disclosed separately on the accompanying consolidated balance sheets.

As the rate implicit in the Company’s leases is not readily determinable, we used an estimated incremental borrowing rate of 20 % in determining the present value of lease payments.

The operating lease expense for the years ended December 31, 2022 and December 31, 2021 is as follows:

For the year ended December 31,

Straight-line operating lease expense

Variable lease cost

Short-term lease cost

Total operating lease expense

The expense associated with the finance lease cost was not material for the year ended December 31, 2022 as the commencement date of the lease was December 19, 2022.

Related party lease s

As of December 31, 2022, 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 board members or employees.

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

During the year ended December 31, 2021, the related party operating leases consisted of one dispensary lease and one cultivation facility.

As of December 31, 2022, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases are $ 1,074,958 , $ 526,378 , and $ 618,617 , respectively.

For the years ended December 31, 2022 and December 31, 2021, the total lease expense for related party leases was $ 434,437 and $ 516,383 , respectively.

Lease Maturities

Future remaining minimum lease payments on our operating leases and finance lease are as follows:

Year ending December 31,

Operating leases

Finance lease

Present value adjustment

( 2,357,182 )

Operating lease liability

Rent expense was approximately $ 614,953 and $ 380,607 for the years ended December 31, 2021 and 2020, respectively.

Lease liability

Lease liability, current

( 1,433,184 )

Lease liability, non-current

The total remaining lease payments in the table above include $ 2,995,100 related to renewal option periods that management is reasonably certain will be exercised.

The majority of this amount relates to the flagship Trees location in Englewood, Colorado and the retail and certain cultivation facilities that were acquired in the Green Tree Acquisition and are eligible for renewal in 2023.

The total remaining minimum lease payments in the table above exclude $ 474,574 related to leases that are fully executed but have not yet commenced as of December 31, 2022.

As of December 31, 2022, the weighted average remaining term of the Company’s operating leases is 5 years and the remaining term on the finance lease is 10 years .

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

Supplemental cash flow information

For the year ended December 31,

Supplemental cash flow information

Cash paid for amounts included in operating lease liability

Cash paid for amounts included in finance lease liability

Supplemental lease disclosures of non-cash transactions:

ROU assets obtained in exchange for operating lease liabilities

ROU assets obtained in exchange for finance lease liabilities

Reduction of operating lease ROU asset and operating lease liabilities from remeasurement (1)

( 1,097,651 )

(1) In April 2022, the lease for Seven-Five Farm, a cultivation facility, was amended and the remaining lease payments were reduced.

Upon modification, management reassessed the lease term and concluded that it was not reasonably certain that any of the renewal option periods in the lease would be exercised.

This conclusion was different than the conclusion reached at the initial commencement of the lease in 2020.

The significant drop in the wholesale cost of marijuana flower and the current economic environment in the cannabis industry, particularly in the cultivation sector, is the primary driver of this change.

As a result, the measurement of the ROU asset and operating lease liability no longer includes the payments associated with the renewal option periods.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

2 unchanged sentences

Accrued payroll, taxes, and vacation

Total accounts payable and accrued expenses

ACCRUED STOCK PAYABLE

1 unchanged sentence

Balance as of December 31, 2020

Employee stock award accrual

Consultant stock award

Investor stock award accrual

Warrant cashless exercises

( 2,285,000 )

( 5,528,550 )

Balance as of December 31, 2020

Trees Waterfront acquisition stock accrual

Balance as of December 31, 2021

On February 18, 2020 we granted a consultant 100,000 fully vested shares for consulting services.

Based on a stock price of $ 0.61 on the date of grant, the consultant will receive $ 60,900 worth of our common stock.

As of December 31, 2021, none of the stock had been issued.

In December 2020, several warrant holders exercised their 2020 A warrants through cashless exercises, and we issued 282,213 shares of common stock.

259,415 of those shares issued had not been transferred to the warrant holders as of December 31, 2020 and are included in accrued stock payable.

See Note 13 for further details of the cashless exercises.

( 1,669,537 )

Balance as of December 31, 2022

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

2 unchanged sentences

The stock was subsequently issued on January 6, 2022.

The outstanding balance of accrued stock payable as of December 31, 2022 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services.

Based on a stock price of $ 0.61 on the date of grant, the consultant will receive $ 60,900 worth of our Common Stock.

As of December 31, 2022, none of the stock had been issued.

NOTES PAYABLE

Our notes payable consisted of the following:

December 31, 2022

December 31, 2021

Related-party

2022 12% Notes

2020 10% Notes

Related party note payable

Trees Acquisition Notes

Trees Transaction Notes

Green Tree Acquisition Notes

Green Man Acquisition Notes

Unamortized debt discount

( 1,527,346 )

( 1,888,933 )

( 1,911,447 )

Current portion

( 1,723,517 )

( 1,903,344 )

( 1,094,398 )

Long-term portion

2 unchanged sentences

Year ending December 31,

In September 2021, with the completion of the Englewood acquisition, we are to pay the Seller cash equal to $ 1,732,884 in equal monthly installments over a period of 24 months .

Trees Transaction Notes

In September 2021, with the completion of the Englewood acquisition, we are obligated to pay the Seller cash equal to $ 1,732,884 in equal monthly installments over a period of 24 months .

The monthly payments began on October 15, 2021, and the payment is equal to $ 72,204 per month.

There is no interest associated with this note.

In December 2021, with the completion of the TREES Portland and TREES Waterfront acquisitions, we are to pay the Seller cash equal to $ 497,371 in equal monthly installments over a period of 24 months .

In December 2021, with the completion of the Trees Portland and Trees Waterfront acquisitions, we are obligated to pay the Seller cash equal to $ 497,371 in equal monthly installments over a period of 24 months .

The payments began on February 15, 2022, and the payment is equal to $ 20,724 per month.

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 .

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 monthly installments over a period of 15 months .

The payments begin in September 2023, and the payment is equal to $ 233,333 per month.

In December 2022, with the completion of the Green Man Acquisition, we are 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.

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 our 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 $ 90,334 and nil for the year ended December 31, 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 the 15 % Notes (defined below) in the aggregate amount of $ 1,000,000 .

19 unchanged sentences

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.

In the aggregate, this equals 592,858 shares of our Common Stock.

The 10 % Notes bear interest at an annual rate of 10 % and will mature on February 8, 2024.

4 unchanged sentences

The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.

For the years ended December 31, 2021 and 2020, amortization of debt discount expense was $ 252,118 and nil , respectively.

For the years ended December 31, 2022 and 2021, amortization of debt discount expense was $ 594,721 and $ 252,118 , respectively.

The 10 % Notes are treated as conventional debt.

16 unchanged sentences

We recorded $ 692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations.

For the years ended December 31, 2021 and 2020, amortization of debt discount expense was $ 350,471 and nil , respectively.

For the years ended December 31, 2022 and 2021, amortization of debt discount expense was $ 1,024,442 and $ 350,471 , respectively.

The 10 % Notes are treated as conventional debt.

6 unchanged sentences

Expected volatility

On February 18, 2020, we entered into a promissory note exchange agreement with SBI pursuant to which the original SBI Note was exchanged for a new convertible promissory note (the “Convertible Note”).

The Convertible Note has a principal amount of $ 934,000 , an interest rate of 10 % per annum and a maturity date of February 18, 2021.

The Convertible Note may be converted at the option of SBI into shares of common stock at a conversion price equal to 80 % of the Market Price, provided that the conversion price shall in no event be less than $ 0.45 per share.

If at any time, the borrower issues or sells any shares of common stock for a consideration per share less than the conversion price in effect on the date of such issuance, the holder shall have the right to utilize the price per share of the dilutive issuance as the conversion price for such conversion.

On May 29, 2020, we issued shares at $ 0.40 per share, and as such, the conversion price was decreased to a floor of $ 0.40 per share.

The exchange of the SBI Note for the Convertible Note is treated as a debt extinguishment.

The additional $ 184,000 of principal was treated as a debt extinguishment and included in our consolidated statement of operations.

We determined that the Convertible Note should be accounted for in accordance with FASB ASC 470-20 which addresses “Accounting for Convertible Securities with Beneficial Conversion Features”.

The beneficial conversion feature 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 $ 0.61 , 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 $ 233,500 as additional paid in capital and as a debt extinguishment and included in our consolidated statement of operations.

As of December 31, 2020, SBI converted all of the $ 934,000 aggregate principal amount of the Convertible Note and approximately $ 23,000 of accrued interest into 2,215,892 shares of our common stock.

In December 2019, we completed a private placement with certain accredited investors pursuant to an unsecured promissory note (the “ 15 % Notes”) with an aggregate principal amount of $ 300,000 .

In February and March 2020, we completed private placements with certain accredited investors, including some holders of our 2019 12 % Notes (as defined below), of 15 % Notes with an aggregate principal amount of $ 2,031,000 in exchange for $ 525,000 of new funding and the cancellation of $ 1,506,000 aggregate principal amount of the 2019 12 % Notes.

The 15 % Notes have an annual interest rate of 15 % and mature on January 31, 2021.

$ 1.0 million of the 15 % Notes were exchanged for the 10 % Notes (see above), $ 2.1 million was paid in full in December 2020 and the remaining $ 200,000 was paid in full in the first quarter 2021.

The 15 % Notes provide that they shall be repaid in full out of the proceeds of any new debt or equity capital raise with net proceeds of more than $ 5,000,000 .

In connection with the issuance of the 15 % Notes, each holder of 15 % Notes received three warrants (i.e., a 2020 A Warrant, a 2020 B Warrant and a 2020 C Warrant) to acquire shares of common stock at an exercise price equal to $ 0.45 per share, with the number of shares subject to each warrant equal to one share for each $ 1.00 of principal amount of 15 % Notes issued to the noteholder.

The 2020 A Warrants have an expiration date of December 31, 2020, the 2020 B Warrants have an expiration date of December 31, 2021, and the 2020 C Warrants have an expiration date of December 31, 2022 (collectively, the “ 15 % Warrants”).

By way of example, if an investor was issued a 15 % Note with a principal amount of $ 250,000 , such noteholder would receive a 2020 A Warrant to purchase 250,000 shares of common stock, a 2020 B Warrant to purchase 250,000 shares of common stock and a 2020 C Warrant to purchase 250,000 shares of common stock.

Accordingly, as of March 31, 2020, the Company has issued 15 % Warrants to purchase a total of 6,993,000 shares of common stock to the holders of 15 % Notes.

As of December 31, 2021, the warrant holders exercised 1,131,000 of the 2020 A warrants into 282,813 shares of our common stock through cashless exercise.

We recorded $ 3,653 to additional paid in capital and $ 33,961 to accrued stock, as 259,415 shares needed to be issued as of December 31, 2020.

All shares were issued as of December 31, 2021.

We received $ 300,000 of cash in December 2019 and an additional $ 525,000 of cash January 2020 through March 2020 for issuing the 15 % Notes.

The relative fair value of the new funding on the 15 % Warrants was recorded as a debt discount and additional paid-in capital of $ 333,056 .

The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 668,335 .

For the year ended December 31, 2021 and 2020, amortization of debt discount expense was nil and $ 279,676 , respectively, from the 15 % Notes.

The 15 % Notes are otherwise 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 15 % Warrants as of March 2020, were:

Current stock price

Exercise price

Risk-free interest rate

0.68 - 1.62 %

Expected dividend yield

Expected term (in years)

Expected volatility

On September 17, 2021, we entered into warrant amendments with certain ‘A’ and ‘B’ warrant holders from the 15 % Notes.

Pursuant to the warrant amendment the expiration date was extended until December 31, 2024 and the exercise price thereof was increased to $ 1.00 per warrant share.

Warrant amendments were entered into with warrant holders representing an aggregate of 400,000 A warrants and 1,211,000 B warrants.

We recognized an additional expense of $ 233,374 in loss on extinguishment of debt as a result of the modification.

Loan on Building

On January 8, 2020 we entered into a $ 975,000 deed of trust (the “Mortgage Loan”) secured by a first mortgage lien on the property located in Denver, Colorado.

The Mortgage Loan matures on December 31, 2020 and accrues interest at a rate of equal to the greater of 5.25 % in excess of the Prime Rate or 10 % per annum, payable on a monthly basis.

This loan was paid in full on March 20, 2020 with the sale of our building.

2019 12 % Notes

In September 2019, we completed a private placement with certain accredited investors pursuant to (a) a senior unsecured promissory note, bearing interest at 12 % payable quarterly, with principal due October 31, 2020, with an option for us to extend the due date to October 31, 2021 (“2019 12 % Notes”) and (b) warrants with an exercise price of $ 1.30 per share and a life of 1.1 years;

however, if we prepay at any time the life extends to October 31, 2022 (“2019 12 % Warrants”) (combined the “2019 12 % Agreements”).

We may prepay the 2019 12 % Notes at any time, but in any event must pay at least one year of interest.

We issued an aggregate of $ 1,506,000 under the 2019 12 % Notes and warrants to purchase an aggregate of 1,506,000 shares of common stock.

We received $ 400,000 in cash and $ 1,106,000 from modifying the outstanding principal under previous notes.

The relative fair value of the 2019 12 % Warrants was recorded as a debt discount and additional paid-in capital of $ 93,500 .

For the years ended December 31, 2021 and 2020, amortization of debt discount includes nil and $ 12,635 .

The 2019 12 % Notes are otherwise treated as conventional debt.

In February 2020, we issued $ 1,506,000 aggregate principal amount of 15 % Notes to the holders of the outstanding 12 % Notes in exchange for the cancellation of the outstanding 12 % Notes.

The exchange was treated as an extinguishment of debt.

For purposes of determining the loss on extinguishment of debt and the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 2019 12 % Warrants were:

Current stock price

Exercise price

Risk-free interest rate

Expected dividend yield

Expected term (in years)

Expected volatility

See Note 17 for a summary of the outstanding warrants issued in conjunction with our debt.

WARRANT DERIVATIVE LIABILITY

10 unchanged sentences

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

During the year ended December 31, 2021 and 2020, we recognized a $ 990,066 loss on the fair value of derivative liability and a $ 735,796 gain on the fair value of derivative liability, respectively, in the consolidated statements of operations.

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

During the year ended December 31, 2022 and 2021, we recognized a $ 22,809 gain and a $ 990,066 loss on the change in fair value of the derivative liability, respectively.

As of December 31, 2022, there were 322,807 of the 2019 Warrants outstanding.

9 unchanged sentences

( 1,523,117 )

( 3,323,429 )

Change in fair value of warrants derivative liability

1 unchanged sentence

COMMITMENTS AND CONTINGENCIES

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

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

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 $ 12,866.66 .

In 2020, the Company made initial payments (first month’s rent and security deposit) of $ 39,633.32 ;

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

In 2020, we made initial payments (first month’s rent, last month’s rent, and security deposit) of $ 39,633.32 ;

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.’

The Company has taken the position that its failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

The Company intends to vigorously defend this action and believes 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"

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"

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.

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 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 or a motion for summary judgment in the alternative.

Plaintiff filed a response and cross-motion for summary judgment thereafter.

In October 2022, the court denied the motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses, but has not specifically made any rulings on either party’s 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 Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs.

The trial is currently scheduled for September 2023.

DEFERRED TAXES

The income tax was $ 0 as of December 31, 2021 and 2020.

Significant components of the Company’s deferred tax assets at December 31, 2021 and 2020 are shown below.

A valuation allowance has been established as realization of such deferred tax assets has not met the more likely-than-not threshold requirement.

The Company has determined it is not more likely than not that its deferred tax assets will be recovered.

Income tax expense was $ 204,917 and nil for the years ended December 31, 2022 and 2021, respectively.

Significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 are shown below.

A valuation allowance has been established as realization of such net deferred tax assets has not met the more likely-than-not threshold requirement.

The Company has determined it is not more likely than not that its net deferred tax assets will be recovered.

If the Company’s judgment changes and it is determined that the Company will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction to income tax expense.

As of December 31, 2021 and 2020, the Company had federal and state net operating loss carryforwards of approximately $ 36 million and $ 41 million, respectively.

Of the current net operating loss carryforwards, $ 27 million expire starting in 2033 through 2037 and $ 7 million will expire starting in 2041, and $ 43 million do not expire.

The Company is currently evaluating whether there have been one or more ownership changes pursuant to IRC Sections 382 and 383.

If the Company determines there were one or more ownership changes under these rules, the use of its U.S.

federal and state net operating loss carryforwards may be limited and/or otherwise expire unused.

The Company believes that any limitation as a result of IRC Section 382 and 383 would be immaterial to the financial statements due to the full valuation allowance on its deferred tax assets.

The components of net deferred tax assets are as follows:

As of December 31, 2022 and 2021, the Company had federal operating loss carryforwards of approximately $ 32.1 million and $ 36.0 million, respectively, and $ 41.1 and $ 41.4 million of state net operating loss carryforwards, respectively.

Of the current net operating loss carryforwards, $ 24.1 million expire starting in 2033 through 2037, $ 3.1 million will expire starting in 2041, $ 3.7 million will expire in 2042, and $ 42.3 million do not expire.

The Company has evaluated ownership changes pursuant to IRC Sections 382 and 383.

The annual Section 382 base limit is approximately $ 461 thousand.

The additional deemed RBIG pursuant to Notice 2003-65 is approximately $ 2 million per year for a 5-year recognition period through December 31, 2026.

The components of net deferred tax assets and liabilities are as follows:

Deferred tax assets:

Net operating loss carryforwards

2 unchanged sentences

Capital loss carryforward

Deferred tax asset valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Intangible assets

Total deferred tax liabilities

Valuation allowance

( 8,414,128 )

( 11,390,198 )

Net deferred tax asset

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

8 unchanged sentences

Amortization of debt discount

Goodwill and intangible impairment

Valuation allowance

1 unchanged sentence

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 .

15 unchanged sentences

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.

2020 Capital Raise

On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP with respect to the sale of shares of common stock and warrants to purchase common stock (collectively, the “securities”).

The sales of the securities to the Hershey Investor consists of a minimum of $ 2,185,000 of securities and a maximum of $ 3,000,000 of securities, as described further below.

The purchase price of the securities at each closing is as follows:

(i) the purchase price of each share of common stock is $ 0.3983 per share, and (ii) for each one dollar invested by the Hershey Investor, the Hershey Investor receives a warrant to purchase a number of shares of common stock equal to 75 % of the number of shares of common stock purchased by the Hershey Investor at an exercise price per share equal to $ 0.5565 .

The warrants have a term of five years .

During the year ended December 31, 2020, we sold $ 3,000,000 of securities to the Hershey Investor, representing 7,532,010 shares of common stock and warrants to purchase 5,649,007 shares of common stock at an exercise price of $ 0.5565 per share.

The warrants were recorded as equity and equity issuance costs in the amount of $ 2,173,074 .

Notwithstanding the foregoing, the Hershey Subscription Agreement provides that the Hershey Investor’s investment shall not exceed 20 % or more of the common stock (or securities convertible into or exercisable for common stock) or the voting power of the Company on a post-transaction basis.

The Hershey Subscription Agreement also provides the Hershey Investor with certain participation rights in future financings of the Company until the one-year anniversary of the second closing.

The Hershey Subscription Agreement further provides that the Company shall, during a negotiation period ending October 4, 2020, endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $ 2,331,000 as of June 1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022.

As of October 4, 2020, $ 600,000 of the $ 2,331,000 outstanding notes have extended the maturity date.

If, at the end of the negotiation period per the contract, all the existing notes have not been amended to extend the maturity dates thereof, then the Company shall issue to the Hershey Investor additional warrants to purchase shares of common stock.

Any such additional warrants will be for a number of shares of common stock based on the dollar amount of the outstanding balance of the existing notes that were not extended, with each one dollar of existing notes that were not extended representing one share subject to such additional warrant.

The exercise price of any such additional warrants will be equal to 100 % of the 30-day volume weighted average price of the Company’s common stock on the last day of the negotiation period, provided that such exercise price shall not be lower than $ 0.45 per share nor higher than $ 0.56 per share.

The Hershey Investor extended the negotiation period to December 11, 2020.

As of December 11, 2020, no existing holders had extended their promissory notes, therefore, we issued the Hershey Investor additional warrants in accordance with the agreement.

On December 14, 2020 we issued an additional 1,631,000 warrants to purchase common stock at an exercise price of $ 0.4917 to the Hershey Investor.

These warrants expire on December 11, 2025.

The warrants were recorded as a deemed dividend in the amount of $ 732,494 .

Stock-based compensation

Stock-based compensation expense consisted of the following:

Year ended December 31,

Employee Awards

Consulting Awards

Employee Stock Options

In November 2020, the Board authorized the adoption of and, on November 23, 2020, our stockholders ratified our 2020 Omnibus Incentive Plan (the “2020 Plan”).

The 2020 Plan became effective immediately and will expire on November 23, 2030, unless terminated earlier by the Board of Directors.

The 2020 Plan will permit the Board of Directors, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors, and consultants of the Company and its subsidiaries 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 2020 Plan is 10 million shares.

As of the date of this filing a Registration Statement on Form S-8 has not been filed.

As of December 31, 2021, there was 9,100,000 shares available to issue under the 2020 Plan.

On October 29, 2014, the Board authorized the adoption of and, on June 26, 2015, our stockholders ratified our 2014 Equity Incentive Plan for the issuance of 10 million shares of our common stock and, in April 2018, stockholders approved an increase of 5 million shares of common stock that may be granted (the “Incentive Plan”).

The Incentive Plan provides for the issuance of up to 15 million shares of our common stock and is designed to provide an additional incentive to executives, employees, directors, and key consultants, aligning our long-term interests with participants.

A Registration Statement on Form S-8 for the initial 10 million shares automatically became effective in May 2016, and a Registration Statement on Form S-8 for the additional 5 million shares and 900,000 shares under the Feinsod Agreement automatically became effective in June 2018 (collectively, the “Registration Statements”).

The Registration Statements relate to 15,000,000 shares of our common stock, which are issuable pursuant to or, upon exercise of, options that have been granted or may be granted under our Incentive Plan.

As of December 31, 2021, there were 6,600,271 shares available to issue under the Incentive Plan.

Stock-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested.

The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:

Year ended December 31,

Exercise price

Stock price on date of grant

Risk-free interest rate

Expected life (years)

Dividend yield

On September 3, 2021 we modified two employees stock options in conjunction with revised employment agreements.

As a result of the modification, we recognized $ 21,525 in compensation expense for the year ended December 31, 2021.

During the year ended December 31, 2021 we granted options to purchase 1,158,000 common shares to employees and 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 $ 628,496 .

The following summarizes Employee Awards activity:

In addition to the Preferred Warrants, the Company has outstanding warrants related to prior equity offerings.

The table below summarizes the warrants issued in conjunction with our equity offerings:

Exercise Price

2 unchanged sentences

Outstanding as of December 31, 2020

Forfeited or expired

( 3,126,205 )

Outstanding as of December 31, 2021

Exercisable as of December 31, 2021

As of December 31, 2021, there was approximately $ 132,816 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of two months .

Consulting Services

As needed, we may issue warrants and options to third parties in exchange for consulting services.

Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the contractual term.

The fair value of each warrant grant is estimated using Black-Scholes.

We use historical data to estimate the expected price volatility.

The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of valuation for the estimated life of the option.

The following summarizes the Black-Scholes assumptions to value the Consulting Awards granted:

Year ended December 31,

Exercise price

Stock price, date of valuation

Risk-free interest rate

Expected life (years)

Dividend yield

The following summarizes Consulting Awards activity:

Outstanding and exercisable as of December 31, 2022

Warrants with Debt

The Company has also issued warrants in conjunction with debt issuances.

The following summarizes warrants issued in conjunction with our debt issuances:

Exercise Price

2 unchanged sentences

Outstanding as of December 31, 2020

Forfeited or expired

( 1,204,000 )

Outstanding as of December 31, 2021

( 1,756,000 )

Outstanding and exercisable as of December 31, 2022

Feinsod Employment Agreement

On August 6, 2019, we entered into an agreement (the “Feinsod Agreement”) with Michael Feinsod for his permanent service as our Chief Executive Officer.

Pursuant to the agreement, Mr.

Feinsod received 1,000,000 stock options that vest when our stock price has a trading price of equal to or above $ 4.51 per share for five consecutive days.

The options have an exercise price of $ 0.83 per share and a ten-year life.

These options were issued under the Incentive Plan.

The options were valued using the Monte Carlo method.

For the year ended December 31, 2021 and 2020, we recognized approximately nil and $ 57,342 , respectively, of stock-based compensation expense related to these options.

These options were forfeited in July 2020, with Mr.

Feinsod’s resignation.

Warrants with Debt

The following summarizes warrants issued with debt activity:

Stock-based compensation

Stock-based Awards

As of December 31, 2022, the Company has two active plans, the 2020 Omnibus Incentive Plan approved by the Board in November 2020 (“2020 Plan”) and the 2014 Equity Incentive Plan approved by the Board in October 2014 (“2014

Plan” and collectively with the 2020 Plan the “Stock Incentive Plans”) that allow the Board of Directors to grant stock-based awards to eligible employees, non-employee directors, and consultants of the Company and its subsidiaries.

Under the Stock Incentive Plans, the Board may grant non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards.

Subject to adjustment, the maximum number of shares of our common stock to be authorized for issuance under the Stock Incentive Plans is 25 million shares.

As of December 31, 2022, stock-based awards for approximately 17.5 million shares are available to be issued under the Stock Incentive Plans.

Stock Options

The following summarizes stock option activity for the years ended December 31, 2022 and 2021:

Exercise Price

2 unchanged sentences

Outstanding as of December 31, 2020

( 1,131,000 )

Forfeited or expired

( 3,126,205 )

Outstanding as of December 31, 2021

( 1,204,000 )

Outstanding and exercisable as of December 31, 2021

In May 2020, we issued common stock at a price $ 0.3983 .

These triggered the “downround” feature on the 2019 Units and the 15 % Notes.

The difference in fair value of the effect of the down round feature for the 15 % Warrants is reflected in our consolidated financial statements as a deemed dividend and as a reduction to income available to common stockholders in the basic earnings per share calculation.

The difference in the fair value of the effect of the down round feature for the 2019 Warrants are reflected in the gain/loss on derivative instrument in our consolidated statement of operations.

Forfeited or expired

Outstanding as of December 31, 2022

Exercisable as of December 31, 2022

The options granted in 2022 and 2021 expire five years from the date of grant and vest over a period of one year.

The grant date fair value of the awards granted in 2022 and 2021, totaled $ 56,348 and $ 628,496 , respectively.

The following summarizes the Black-Scholes assumptions used to value the Employee Awards granted:

Year ended December 31,

Exercise price

Stock price on date of grant

Risk-free interest rate

Expected life (years)

Dividend yield

As of December 31, 2022, there was approximately $ 13,172 of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of four months .

Restricted Stock Awards

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

The Restricted Stock Unit’s (“RSU”) 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 grant date 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 December 31, 2022, none of the RSU’s have vested.

The Company recognized $ 188,330 and $ 307,963 of expense related to stock-based awards during the years ended December 31, 2022 and December 31, 2021, respectively.

NET LOSS PER SHARE

5 unchanged sentences

Stock options

Restricted stock awards

Accrued stock payable

3 unchanged sentences

On June 3, 2020, the Company entered into a consulting agreement with Adam Hershey, a board member and investor, pursuant to which he would act as a strategic consultant for the Company, including aiding with the sourcing and evaluation of merger and acquisition deals, strategic capital and strategic partnerships or joint ventures.

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

We paid $ 99.996 and $ 58,333 during the years ended December 31, 2021 and 2020, respectively.

In addition, the Hershey Subscription Agreement between the Company and Hershey Strategic Capital, LP and Shore Ventures III, LP provides that the Company will during a negotiation period endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $ 2,331,000 as of June 1, 2020 that are due on or about January 31, 2021, to extend the maturity date of such notes to a date that is not earlier than January 31, 2022.

All of the existing notes were not amended to extend the maturity dates thereof, resulting in the Company issuing to the Hershey Investor 1,631,000 additional warrants to purchase shares of common stock.

See Note 17, “2020 Capital Raise”.

We currently have a lease agreement with Dalton Adventures, LLC in which we rent 17,000 square foot of greenhouse space in Boulder, Colorado for $ 34,636 a month, of which $ 30,900 is base rent and $ 3,736 is property taxes.

Hershey $ 125,000 and $ 99,996 during the years ended December 31, 2022 and 2021, respectively.

We currently have a lease agreement with Dalton Adventures, LLC in which we rent a greenhouse cultivation facility in Boulder, Colorado.

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

We incurred approximately $ 458,000 and $ 286,000 of rent expense for the years ended December 31, 2021 and 2020, respectively.

We currently have a lease agreement with Bellewood Holdings, LLC in which we rent retail space for the TREES Englewood retail store in Englewood, Colorado, for $ 10,000 per month.

We incurred approximately $ 362,000 and $ 458,000 of rent expense related to this lease for the years ended December 31, 2022 and 2021, respectively.

See Note 10 for further discussion of the Company’s obligations associated with related-party leases.

We currently have a lease agreement with JLA Enterprises, LLC in which we rent a retail dispensary in Longmont, Colorado.

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

We also have a lease agreement with ALJ 1090, LLC in which we rent 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, and as such, the expense related to these leases was not

material for the year ended December 31, 2022.

See Note 10 for further discussion of the Company’s obligations associated with related-party leases.

We previously had a lease agreement with Bellewood Holdings, LLC in which we leased the retail space for the Trees Englewood dispensary in Englewood, Colorado.

The owner of Bellewood Holdings, LLC is a principal shareholder and board member of the Company.

We incurred approximately $ 47,482 of rent expense for the year ended December 31, 2021.

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 .

A board member who resigned in May 2021 purchased $ 30,000 of the senior convertible promissory notes from the Company.

This lease was assigned to a new landlord (unaffiliated with the Company or such principal shareholder and board member) when the building was sold in June 2022.

We incurred approximately $ 66,000 and $ 47,000 of related-party lease expense for this lease for the years ended December 31, 2022 and December 31, 2021, respectively.

See Note 10 for further discussion of the Company’s obligations associated with related-party leases.

As of December 31, 2022, four of our current board members hold senior convertible promissory notes from the Company for an aggregate amount of $ 320,000 .

These notes are included in the 12 % Notes discussed in Note 13.

Accrued interest earned and owed to the board members was $ 11,738 as of December 31, 2022.

One of the sellers in the Trees Transaction is a principal shareholder and board member of the Company and another seller is an executive level employee of the Company.

As of December 31, 2022, the Company has outstanding debt related to the Trees Transaction payable to these individuals.

See Note 13 for disclosure of the Trees Transaction Notes.

One former owner of the Green Tree Entities is a current board member and another former owner is currently an executive level employee of the Company.

As of December 31, 2022, the Company has outstanding debt related to the Green Tree Acquisition that is payable to these individuals.

See Note 13 for disclosure of the Green Tree Acquisition Notes.

In addition, the Company made one-item bonus payments of approximately $ 383,000 to each former owner as part of employment agreements to remain with the Company.

These payments are included in selling, general, and administrative expenses in the accompanying consolidated statements of operations.

SEGMENT INFORMATION

Our operations are organized into three segments:

and Investments.

All revenue originates, and all assets are located in the United States.

Our operations are organized into two segments:

Retail and Cultivation.

All revenue originates in, and all assets are located in the United States.

Segment information is presented in accordance with ASC 280, Segments Reporting.

4 unchanged sentences

Year ended December 31

( 1,273,671 )

Costs and expenses

12 unchanged sentences

( 6,273,162 )

( 9,060,664 )

Segment operating income

( 3,551,103 )

( 3,147,937 )

Corporate expenses

2 unchanged sentences

( 8,427,151 )

Discontinued operations

Total assets - segments

2 unchanged sentences

SUBSEQUENT EVENTS

On January 5, 2022, the Company completed the acquisition of substantially all the assets of Trees MLK Inc.

(“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction (“MLK Closing”).

The cash paid by the Company in connection with the MLK Closing consisted of $ 256,582 and stock consideration of 4,970,654 shares of the Company’s Common Stock.

Further, cash equal to $ 384,873 will be paid to Sellers in equal monthly installments over a period of 24 months from the MLK Closing.

In February 2023, we completed the acquisition of Station 2, LLC, the assets of which consist of a dispensary located in Denver, CO.

The consideration paid by the Company consists of cash at closing equal to $ 256,582 plus an additional $ 385,873 in twenty-four (24) equal monthly payments commencing May 2023.

Timothy Brown, one of our Board members, was the sole owner of Station 2 and has and will receive all consideration described above.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data