What changed in this filing

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Item 1. Financial Statements

2023-11-14 compared with 2023-08-14 · 193 added, 133 removed, 561 unchanged (37% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2023

September 30, 2023

December 31, 2022

1 unchanged sentence

Cash and cash equivalents

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

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

Inventories, net

14 unchanged sentences

Warrant derivative liability

Accrued legal fees - current

Accrued legal fees

Notes payable - current

2 unchanged sentences

Finance lease liability, non-current

Accrued legal fees, non-current

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

4 unchanged sentences

5,000,000 shares authorized;

1,180 issued and outstanding, respectively

1,180 issued and outstanding

Common stock, $ 0.001 par value;

200,000,000 shares authorized;

118,664,094 shares issued and outstanding, respectively

118,664,094 shares issued and outstanding

Additional paid-in capital

8 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Cultivation sales

7 unchanged sentences

Total costs and expenses

Operating (loss) income

( 1,470,733 )

Operating loss

( 3,249,058 )

2 unchanged sentences

Interest expense

(Gain) loss on derivative liability

Loss on extinguishment of debt

Loss (gain) on derivative liability

Loss (gain) on sale of assets

Other (income)

Other income and expense, net

Total other expenses, net

25 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30,

Nine months ended September 30,

Cash flows from operating activities

2 unchanged sentences

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Amortization of debt discount and equity issuance costs

Amortization of debt discount

Depreciation and amortization

Loss on extinguishment of debt

Non-cash lease expense

Bad debt expense

Bad debt recovery

Loss (gain) on disposal of property and equipment

(Gain) loss on derivative liability

Gain on derivative liability

Stock-based compensation

5 unchanged sentences

Net cash used in operating activities

( 1,147,432 )

Cash flows from investing activities

6 unchanged sentences

Cash flows from financing activities

Proceeds from notes payable

Payments on notes payable and finance lease

Net cash used in financing activities

Net decrease in cash and cash equivalents

( 4,867,012 )

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

( 2,332,142 )

Cash and cash equivalents, beginning of period

5 unchanged sentences

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

Issuance of accrued stock

Non-cash debt issuance for acquisition of Station 2 assets

Accrued dividends

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

Accrued dividends on preferred stock

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

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

See Notes to unaudited condensed consolidated financial statements.

2 unchanged sentences

IN STOCKHOLDERS’ EQUITY

For the three months ended June 30, 2023

For the three months ended September 30, 2023

Preferred Stock

Paid-in Capital

April 1, 2023

( 97,324,771 )

Share-based compensation

( 2,036,155 )

June 30, 2023

September 30, 2023

( 98,139,894 )

For the three months ended June 30, 2022

For the three months ended September 30, 2022

Preferred Stock

Paid-in Capital

April 1, 2022

( 84,864,819 )

Warrants issued with 12 % Notes

Share-based compensation

June 30, 2022

Dividends on preferred stock

( 2,704,484 )

For the six months ended June 30, 2023

( 2,704,484 )

September 30, 2022

( 87,640,103 )

For the nine months ended September 30, 2023

Preferred Stock

6 unchanged sentences

( 4,737,812 )

June 30, 2023

September 30, 2023

( 98,139,894 )

For the six months ended June 30, 2022

For the nine months ended September 30, 2022

Preferred Stock

4 unchanged sentences

Common stock issued for acquisition of Trees MLK LLC

Warrants issued with 12 % Notes

Share-based compensation

Dividends on preferred stock

( 3,748,488 )

June 30, 2022

September 30, 2022

( 87,640,103 )

5 unchanged sentences

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

We presently operate eight (8) cannabis dispensaries as follows:

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

Englewood, Colorado

Federal Boulevard – Recreational license only

Two (2) in Denver, Colorado

Federal Boulevard – Recreational license only

Denver, Colorado

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

1 unchanged sentence

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

Berthoud, Colorado

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

Three (3) in Oregon

2 unchanged sentences

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

We also operate three (3) cultivation facilities in Colorado as follows:

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

SevenFive Farm – 3705 N.

1 unchanged sentence

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

2 nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical cultivation license only

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

6 unchanged sentences

On August 2, 2021, the sale of NBC was completed.

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

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

Basis of Presentation

7 unchanged sentences

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

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

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

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

4 unchanged sentences

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

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

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

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

3 unchanged sentences

Customer and Revenue Concentrations – Cultivation Segment

During the three months ended June 30, 2023 and 2022, 81 % of SevenFive’s revenue was with two customers and 78 % was with one customer, respectively.

During the six months ended June 30, 2023 and 2022, 77 % of SevenFive’s revenue was with two customers and 59 % was with one customer, respectively.

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

During the three months ended June 30, 2023, 90 % of Green Tree’s revenue was with four customers.

During the six months ended June 30, 2023, 83 % of Green Tree’s revenue was with three customers.

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

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

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

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

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

The customers in 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Going Concern

We incurred net losses of $ 2,036,155 and $ 3,922,689 during the three and six months ended June 30, 2023, respectively and $ 182,948 and $ 1,044,004 for the three and six months ended June 30, 2022, respectively, and had an accumulated deficit of $ 97,324,771 as of June 30, 2023.

We had cash and cash equivalents of $ 643,968 and $ 2,583,833 as of June 30, 2023, and December 31, 2022, respectively.

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business.

We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our operations with proceeds from the issuance of debt.

We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our operations with proceeds from the issuance of debt and equity.

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

8 unchanged sentences

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

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

Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for

the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas.

The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted.

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

FASB ASU 2016-13 – “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments”- In June 2016, the FASB issued guidance that replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases.

ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities the Company does not intend to sell or believes that it is more likely than not they will be required to sell.

The ASU can be adopted no later than January 1, 2020 for SEC filers and January 1, 2023 for private companies and smaller reporting companies.

The adoption of the new standard did not have a material effect on our consolidated financial statements.

FASB ASU 2017-04 – “Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment” - In January 2017, the FASB issued ASU No.

2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Under ASU 2017-04, goodwill impairment will be tested by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2022, with early adoption permitted.

The adoption of the new standard did not have a material effect on our financial statements.

BUSINESS ACQUISITION

9 unchanged sentences

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

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

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

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

2 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

Net income (loss) attributable to Common Stockholders

( 3,273,476 )

( 3,798,897 )

Net income (loss) per common share

2 unchanged sentences

The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods.

In July 2023, the Company entered into an agreement to transfer the Green Tree Entities back to the original owners of these entities (see Note 5).

On December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of Green Man.

6 unchanged sentences

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

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

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

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

2 unchanged sentences

Three months ended

Six months ended

Nine months ended

September 30,

Total revenues

Net income (loss) attributable to Common Stockholders

( 2,706,386 )

( 3,294,030 )

Net income (loss) per common share

3 unchanged sentences

ASSET ACQUISITION

In February 2023, we completed the acquisition of the assets of Station 2, LLC.

In February 2023, we completed the acquisition of the assets of Station 2, LLC (“Station 2”).

The assets consist of a medical and retail cannabis license for a dispensary located in Denver, CO.

2 unchanged sentences

As the dispensary was not in operation and there was no assembled workforce at the time of acquisition, the acquisition was accounted for as an asset acquisition of a license.

As of June 30, 2023, the balance of the license was $ 565,931 , which is recorded within Intangible assets, net in our condensed consolidated balance sheets.

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

DISCONTINUED OPERATIONS

1 unchanged sentence

On August 2, 2021, the sale of NBC was completed.

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

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

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

Three months ended

Six months ended

Nine months ended

September 30,

Product revenues

7 unchanged sentences

Income from discontinued operations

LICENSE TRANSFER AGREEMENTS

In August 2023, we entered into an Assignment of Assets (“Assignment”), pursuant to which we agreed to transfer and assign to Station 2 and Timothy Brown (“Brown” and collectively with Station 2, “Assignees”), a board member,

shareholder, and executive level employee of the Company, a State of Colorado and corresponding City and County of Denver retail marijuana store cannabis license and related assets owned related to the licensed cannabis dispensary located at 468 S.

Federal Boulevard (collectively, the “Transferred Assets”).

In exchange for the transfer to Assignees of the Transferred Assets, the Assignees agreed to extinguishment and satisfaction of, and unconditional waiver by each of Station 2 and Brown of any claims in respect of, any and all debt or other obligations of the Company, Trees Colorado, and any of their respective affiliates, directors, officers or agents, pursuant to that certain Asset Purchase Agreement dated October 14, 2022, as amended, by and among the Company, Trees Colorado and Assignees.

This transaction closed in October 2023, and the Company recognized a loss on this transfer of $ 202,397 , located in loss on extinguishment of debt on the condensed consolidated statements of operations.

A summary of the license transfer is presented as follows:

Balance as of August 17, 2023

Asset to be transferred:

Intangible assets - License

Accumulated amortization - License

Consideration:

Extinguishment of 468 debt

In July 2023, we and our subsidiaries Green Tree Colorado, LLC, Green Tree Cultivation LLC, GT Retail LLC, and Green Tree MIP LLC, entered into a settlement agreement (“Settlement Agreement”), (“GT Retail”), (“GT MIP”), with Allyson Feiler Downing (“Downing”) and Loree Schwartz (“Schwartz” and together with Downing, “Green Tree Parties”), pursuant to which the Company and the Green Tree Parties agreed to transfer and assign to new entities controlled by the Green Tree Parties, cannabis licenses and related assets owned by (i) GT Retail relating to a cultivation facility and a retail dispensary located in Berthoud, Colorado;

(ii) GT MIP relating to a ‘marijuana infused product’ dispensary located in Boulder County, Colorado;

and (iii) certain intellectual property in respect thereof (collectively, the “Transferred Assets”).

The Company retained accounts payable and certain cannabis inventory in respect of the Transferred Assets.

Closing of the transaction is subject to approval of the license transfers by the Colorado Marijuana Enforcement Division as well as local regulatory authorities.

In exchange for the transfer to the Green Tree Parties of the Transferred Assets, the Company and the Green Tree Parties agreed that upon closing, the Green Tree Parties shall transfer and assign to the Company, and the Company shall redeem, 9,917,574 shares of the Company’s Common Stock owned by the Green Tree Parties and originally issued to the Green Tree Parties in the acquisition consummated in December 2022 pursuant to that certain Asset Purchase Agreement dated September 13, 2022, as amended, by and among the Company, Downing, Schwartz and various other parties thereto (the “APA”).

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

INVENTORIES, NET

Our inventories consisted of the following:

September 30,

Raw materials

8 unchanged sentences

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

The operating lease expense for the three and six months ended June 30, 2023, and June 30, 2022, is as follows:

For the three months ended June 30,

For the six months ended June 30,

The operating lease expense for the three and nine months ended September 30, 2023, and September 30, 2022, is as follows:

For the three months ended September 30,

For the nine months ended September 30,

Straight-line operating lease expense

1 unchanged sentence

Total operating lease expense

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

The finance lease expense for the six months ended June 30, 2023, and June 30, 2022, was approximately $ 83,647 and nil , respectively.

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

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

Related party lease s

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

During the six months ended June 30, 2022, the related party operating leases consisted of one dispensary and one cultivation facility.

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

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

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

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

As of June 30, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $ 925,826 , $ 532,221 , and $ 456,033 , respectively.

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

For the six months ended June 30, 2023 and 2022, the total lease expense for related party leases was $ 255,580 and $ 75,849 , respectively.

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

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

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

Lease Maturities

3 unchanged sentences

Finance lease

2023 (remaining six months)

2023 (remaining three months)

Present value adjustment

5 unchanged sentences

The total remaining lease payments in the table above include $ 1,219,188 related to renewal option periods that management is reasonably certain will be exercised.

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

As of June 30, 2023, the weighted average remaining term of the Company’s operating leases is 4.71 years, and the remaining term on the finance lease is 9.50 years.

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

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

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

Supplemental cash flow information

For the six months ended June 30,

For the nine months ended September 30,

Supplemental cash flow information

8 unchanged sentences

Balance as of December 31, 2022

Balance as of June 30, 2023

Balance as of September 30, 2023

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

1 unchanged sentence

The stock was issued on January 6, 2022.

The outstanding balance of accrued stock payable as of June 30, 2023 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services.

The outstanding balance of accrued stock payable as of September 30, 2023 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services.

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

As of June 30, 2023, none of the stock has been issued.

As of September 30, 2023, none of the stock has been issued.

NOTES PAYABLE

Our notes payable consisted of the following:

June 30, 2023

September 30, 2023

December 31, 2022

2 unchanged sentences

2022 12% Notes

2023 12% Notes

Trees Transaction Notes

11 unchanged sentences

( 1,723,517 )

( 1,903,344 )

Long-term portion

3 unchanged sentences

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

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

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

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

We recorded amortization of debt discount expense from this obligation of $ 184,902 and nil for the six months ended June 30, 2023 and June 30, 2022, respectively, and $ 93,831 and nil for the three months ended June 30, 2023 and June 30, 2022, respectively.

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

In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $ 1,500,000 in equal month installments over a period of 18 months .

1 unchanged sentence

The relative fair value of this obligation resulted in a debt discount of $ 275,154 .

We recorded amortization of debt discount expense from this obligation of $ 75,629 and nil for the six months ended June 30, 2023 and June 30, 2022, respectively, and $ 38,379 and nil for the three months ended June 30, 2023 and June 30, 2022, respectively.

We recorded amortization of debt discount expense from this obligation of $ 115,171 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $ 39,545 and nil for the three months ended September 30, 2023 and September 30, 2022, respectively.

On September 15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “ 12 % Investors”), pursuant to which we agreed to issue and sell senior secured convertible notes (the “ 12 % Notes”) with an aggregate principal amount of $ 13,500,000 to such 12 % Investors, in exchange for payment by certain 12 % Investors of an aggregate amount of $ 10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $ 2,912,750 represented by the 10 % Notes discussed below.

7 unchanged sentences

The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 103,577 .

We recorded amortization of debt discount expense from the 12 % Notes of $ 154,250 and nil for the six months ended June 30, 2023 and 2022, respectively, and $ 77,551 and nil for the three months ended June 30, 2023 and June 30, 2022, respectively.

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

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

9 unchanged sentences

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

We recorded amortization of debt discount expense from this Note of $ 16,552 for the six months ended June 30, 2023, and $ 9,840 for the three months ended June 30, 2023.

This 12 % Note is treated as conventional debt.

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

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

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “ 10 % Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “ 10 % Notes”) with an aggregate principal amount of $ 2,940,000 in exchange for payment to us by certain 10 % Investors of an aggregate amount of $ 1,940,000 in cash, as well as cancellation of outstanding indebtedness of previously issued 15 % notes in the aggregate amount of $ 1,000,000 .

6 unchanged sentences

The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $ 131,000 .

We recorded amortization of debt discount expense from the 10 % Notes of nil and $ 43,023 for the six months ended June 30, 2023 and 2022, and nil and $ 2,630 for the three months ended June 30, 2023 and June 30, 2022, respectively.

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

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

18 unchanged sentences

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

We recorded amortization of debt discount expense from the February 2021 10 % Notes of nil and $ 139,980 for the six months ended June 30, 2023 and 2022, respectively, and nil and $ 70,377 for the three months ended June 30, 2023 and June 30, 2022, respectively.

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

The 10 % Notes are treated as conventional debt.

16 unchanged sentences

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

We recorded amortization of debt discount expense from the April 2021 10 % Notes of nil and $ 247,939 for the six months ended June 30, 2023 and 2022, respectively, and nil and $ 124,654 for the three months ended June 30, 2023 and 2022, respectively.

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

The 10 % Notes are treated as conventional debt.

19 unchanged sentences

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

During the six months ended June 30, 2023, and 2022, we recognized a $ 5,219 gain and $ 1,406 loss on the change in fair value of the derivative liability, respectively.

During the three months ended June 30, 2023, and 2022, we recognized a $ 3,912 gain and $ 59,258 gain on the change in fair value of the derivative liability, respectively.

As of June 30, 2023, there were 322,807 of the 2019 Warrants outstanding.

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

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

As of September 30, 2023, there were 322,807 of the 2019 Warrants outstanding.

The following are the key assumptions that were used to determine the fair value of the 2019 Warrants:

September 30,

Number of shares underlying the warrants

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The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

Beginning balance

2 unchanged sentences

Ending balance

Under the provisions of the Coronavirus Aid Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria.

The Company applied for ERC for the last three quarters’ wages paid in calendar year 2020 and the first three quarters’ wages paid in calendar year 2021.

The Company recognized an ERC benefit of $ 1,085,939 , net of third-party specialist fees of $ 217,188 , which is included in Other Income on the accompanying Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2023.

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

COMMITMENTS AND CONTINGENCIES

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The warrants were valued using a Black Scholes model, at $ 117,131 and per the relative fair value allocation, $ 1,073,446 was allocated to the Series A proceeds.

As of June 30, 2023 we have recorded accrued dividends of $ 106,200 .

As of September 30, 2023 we have recorded accrued dividends of $ 106,200 .

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

Stock-based compensation

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

We recorded $ 18,054 and $ 28,886 in compensation expense for the three months ended June 30, 2023 and 2022, respectively and $ 45,450 and $ 105,001 for the six months ended June 30, 2023 and 2022, respectively.

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

Forfeited options result in a reversal in the period forfeited.

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

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

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

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

The following summarizes Employee Awards activity:

Exercise Price

Term (in years)

Intrinsic Value

Outstanding as of December 31, 2022

Forfeited or expired

Outstanding as of June 30, 2023

Exercisable as of June 30, 2023

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

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

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

The Restricted Stock Unit’s (“RSU”) were granted pursuant to our 2020 Omnibus Incentive Plan.

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

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

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

We recorded $ 26,799 and $ 13,500 in compensation expense for the six months ended June 30, 2023 and 2022, respectively, and $ 12,905 and $ 13,500 for the three months ended June 30, 2023 and 2022, respectively.

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

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

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

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

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

The following summarizes Employee Awards activity:

Exercise Price

Term (in years)

Intrinsic Value

Outstanding as of December 31, 2022

Forfeited or expired

Outstanding as of September 30, 2023

Exercisable as of September 30, 2023

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

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

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

Forfeited options result in a reversal in the period forfeited.

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

RELATED PARTY TRANSACTIONS

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The exercise price and all other terms and conditions of such warrants remain unchanged.

We paid $ 50,000 and $ 24,999 for the three months ended June 30, 2023 and 2022, respectively, and $ 100,000 and $ 49,998 for the six months ended June 30, 2023 and 2022, respectively.

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

In February 2023, the Company completed the acquisition of Station 2, LLC’s assets.

Station 2, LLC is owned by a board member, who is also a shareholder and executive level employee of the Company.

See Note 3 for additional information regarding the Station 2 asset acquisition.

See Note 3 for additional information regarding the Station 2 asset acquisition and Note 5 for the license transfer.

On July 7, 2023, the Company entered into a Transaction Services Agreement with Allyson Feiler Downing and Loree Schwartz as a result of the Settlement Agreement entered into with the Green Tree Parties as described in Note 3.

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

Under this Agreement, Ms.

Downing and Ms.

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

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

On August 3, 2023, Ms.

Downing resigned from the Company’s Board of Directors.

The Company currently has a lease agreement with Dalton Adventures, LLC in which the Company leases 17,000 square feet of greenhouse space in Boulder, Colorado for $ 29,691 a month, of which $ 27,000 is base rent and $ 2,691 is property taxes.

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

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

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

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

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

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

We have incurred $ 51,942 and nil in related party lease expense for the three months ended June 30, 2023 and 2022, respectively, and $ 103,883 and nil for the six months ended June 30, 2023 and 2022, respectively.

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

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

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

We incurred nil and $ 22,574 of related party lease expense for the three months ended June 30, 2023 and 2022, respectively, and nil and $ 52,287 for the six months ended June 30, 2023 and 2022, respectively.

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

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

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Our financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP.

Three months ended June 30,

Three months ended September 30,

Costs and expenses

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Net loss from continuing operations before income taxes

( 2,036,155 )

Costs and expenses

5 unchanged sentences

Net loss from continuing operations before income taxes

Six months ended June 30,

( 2,704,679 )

Nine months ended September 30,

Total revenues

5 unchanged sentences

Segment operating income (loss)

( 1,413,154 )

Corporate expenses

12 unchanged sentences

( 3,753,966 )

September 30,

Total assets - segments

2 unchanged sentences

SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date that the accompanying financial statements were issued and has determined that the events below occurred subsequent to June 30, 2023.

On July 1, 2023, the Company and its subsidiaries Green Tree Colorado, LLC, Green Tree Cultivation LLC, GT Retail LLC, and Green Tree MIP LLC, each a Colorado limited liability company, entered into a settlement agreement (“Settlement Agreement”) with Allyson Feiler Downing (“Downing”) and Loree Schwartz (“Schwartz” and together with Downing, “Green Tree Parties”), pursuant to which the Company and the Green Tree Parties agreed to transfer and assign to new entities controlled by the Green Tree Parties, cannabis licenses and related assets owned by (i) GT Retail relating to a cultivation facility and a retail dispensary located in Berthoud, Colorado;

(ii) GT MIP relating to a ‘marijuana infused product’ dispensary located in Boulder County, Colorado;

and (iii) certain intellectual property in respect thereof (collectively, the “Transferred Assets”).

The Company retained accounts payable and certain cannabis inventory in respect of the Transferred Assets.

Closing of the transaction is subject to approval of the license transfers by the Colorado Marijuana Enforcement Division as well as local regulatory authorities.

Further, other than payments due Michael Abrams, no further payments shall be due either of the Green Tree Parties or any affiliate thereof under the APA or otherwise.

On July 1, 2023, the Company terminated the employment of each of Downing and Schwartz and each of Downing and Schwartz entered into a Termination of Employment Agreement and Mutual General Release with the Company (“Termination Agreements”).

The Termination Agreements provide for the termination of employment by the Company of each of Downing and Schwartz, including a termination of their respective Employment Agreements with the Company dated December 12, 2022, mutual releases, and a waiver of the non-compete and non-solicitation agreements contained in the APA.

The parties also executed a separate waiver in respect thereof (“Waiver”).

Furthermore, also on July 1, 2023, the Company and a newly-formed entity controlled by the Green Tree Parties entered into a consulting agreement pursuant to which such entity together with Downing agreed to pay consulting fees to the Company in an aggregate amount equal to $ 289,452 , subject to and conditioned upon the Company’s completion of payments under the APA to Michael Abrams of $ 562,381 (“Consulting Agreement”).

On July 1, 2023, the parties also entered into a Transition Services Agreement pursuant to which the Green Tree Parties will provide certain administrative and management services on a transition basis to the Company in respect of the Transferred Assets in exchange for retaining all revenue generated from the businesses relating to the Transferred Assets;

until such time as the transfer under the Settlement Agreement is consummated.

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

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

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

What changed 10-Q

Item 1. Financial Statements