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Item 1A. Risk Factors

2023-03-03 compared with 2022-03-16 · 281 added, 358 removed, 1 unchanged (100% of the section changed)

Company’s business is subject to numerous risks, including but not limited to those set forth below.

The Company’s operations

and performance could also be subject to risks that do not exist as of the date of this report but emerge thereafter as well as risks

that the Company does not currently deem material.

Related to the Company’s Operations

Company’s business, operations, financial

condition, and liquidity have been and may continue to be affected by the outbreak of COVID-19.

In March 2020, the World Health Organization declared

the outbreak of COVID-19 a global pandemic.

The spread of COVID-19 in the United States and the measures to contain it—including

business shutdowns, indoor capacity restrictions, social distancing, and diminished travel—have negatively impacted the economy

and created significant volatility and disruption in financial markets.

Business shutdowns in certain states in response to stay-at-home

orders and related measures had temporarily eliminated access to the Company’s dispensaries by certain customers, principally

non-medical use customers, impacting sales during this restricted period.

Further, the volatility in the financial markets and investor

uncertainty has delayed the implementation of the Company’s Consolidation Plan.

As a result, the Company’s

business, operations, financial condition, and liquidity have been and may continue to be impacted.

Further, the disruption to the global

economy and to the Company’s business, along with the decline in its stock price, may also negatively impact the

future carrying values of certain assets, including inventories, accounts receivables, intangibles, and goodwill.

remains illegal under federal law.

Cannabis remains illegal under federal law.

It is a Schedule I controlled substance.

Even in those jurisdictions in which the use of medical cannabis has been legalized at

the state level, its prescription is a violation of federal law.

The United States Supreme Court has ruled that it is the federal government

that has the right to regulate and criminalize cannabis, even for medical purposes.

Therefore, federal law criminalizing the use of cannabis

trumps state laws that legalize its use for even medicinal purposes.

At present the states are standing tall against the federal

government, maintaining existing laws and passing new ones in this area.

States continue to exert this freedom, with more states considering

legalization.

However, the Company continually faces election cycles, and a new administration or the United States Congress

could introduce a less favorable policy.

A change in the federal attitude towards enforcement could cripple the industry.

There is currently

broad support for changes in the federal law for improved banking, investing, and the potential legalization of cannabis.

However, there

is no certainty what will get changed or when.

The medical and recreational cannabis industries are the Company’s

primary markets, and if these industries were to be unable to operate, the Company would lose its potential clients and licenses,

which would have a significantly negative impact on the Company’s business, operations, and financial condition.

growth is dependent on additional states legalizing cannabis.

Continued development of the cannabis market

is dependent upon continued legislative authorization of cannabis at the state level for medical and adult recreational use.

number of factors could slow or halt the progress.

Further, progress, while encouraging, is not assured and the process normally encounters

set-backs before achieving success.

While there may be ample public support for legislative proposal, key support must be created in

the legislative committee, or a bill may never advance to a vote.

Numerous factors impact the legislative process.

these factors could slow or halt the progress and adoption of cannabis for medical and/or recreational purposes, which would limit

the market for the Company’s products and negatively impact its ability to grow into other states.

Company’s consolidation plan and growth strategy is subject to regulatory hurdles.

Company’s strategy to expand its footprint into additional legal cannabis states through new applications and acquisitions of existing

cannabis businesses is subject, in each respective jurisdiction, to the approval of a new license application or license transfer application.

Such approvals are subject to numerous delays and uncertainties based upon administrative and legislative changes in what are typically,

in light of the recent cannabis legalization status in most jurisdictions, new and untested rules and regulations.

There is little interpretative

guidance on how states will apply their respective licensing regulations and limited control over when an application will be acted upon.

As a result, there is no assurance that the Company’s expansion plan will not be frustrated by regulatory delays, and no assurance

that any license application or transfer application will be approved.

It will be difficult to evaluate the

Company based on its past performance because it is transitioning its business into that of an owner of cannabis licenses and operator

of cannabis operations.

The Company has been actively engaged in the cannabis industry as an MSO for a relatively short period of time and, accordingly, has only limited financial results on which it can be evaluated.

In addition, the components of the Company’s revenue and costs are changing as it continues to move

away from a fee-based-only business to a multi-state seed-to-sale operation.

The Company is subject to, and must be successful in addressing,

the risks typically encountered by companies operating in the rapidly evolving cannabis marketplace, including those risks relating to:

failure to develop brand name recognition and reputation;

failure to achieve market acceptance of the Company’s services;

slowdown in general consumer acceptance of legalized cannabis;

inability to grow and adapt the Company’s business to evolving consumer demand.

medical cannabis industry faces strong opposition from traditional medicines.

It is believed by many that existing, entrenched,

well-funded, businesses may have a strong economic opposition to the medical cannabis industry as currently formed.

the Company believes that the pharmaceutical industry does not want to cede control of any compound that could become a strong

selling drug.

Specifically, medical cannabis will likely adversely impact the existing market for Marinol, the current “cannabis

pill” sold by mainstream pharmaceutical companies.

Further, the medical cannabis industry could face a material threat

from the pharmaceutical industry should cannabis displace other drugs or simply encroach upon the pharmaceutical industry’s

market share for compounds such as cannabis and its component parts.

The pharmaceutical industry is well funded with a strong

and experienced lobby that eclipses the funding of the medical cannabis movement.

Any inroads the pharmaceutical industry makes

in halting or rolling back the medical cannabis movement could have a detrimental impact on the market for the Company’s

products and thus on its business, operations and financial condition.

The Company’s clients may

have difficulty accessing the service of banks, which may make it difficult for such clients to purchase the Company’s

products and services.

As discussed above, the use of cannabis is

illegal under federal law.

Therefore, there are banks that will not accept for deposit funds from sale of cannabis and may choose not

to do business with the Company’s clients.

While there is pending legislation in the United States Senate that will allow

banks to transact business with state-authorized medical cannabis businesses, there can be no assurance his legislation will be

successful, that banks will decide to do business with medical cannabis retailers, or that in the absence of legislation state

and federal banking regulators will not create issues on banks handling funds generated from an activity that is illegal under federal

Notwithstanding, the Company has been able to secure state-chartered banks that are in compliance with federal law and provide certain

banking services to companies in the cannabis industry.

The inability of potential clients in the Company’s target market

to open accounts and otherwise use the service of banks may make it difficult for them to purchase the Company’s products

and services.

The Company may not be able to economically

comply with any new government regulation that may be adopted with respect to the cannabis industry.

New legislation or regulation, or the application

of existing laws and regulations to the medical and consumer cannabis industries could add additional costs and risks to doing business.

the Company is subject to regulations applicable to businesses generally and laws or regulations directly applicable to communications

over the Internet and access to e-commerce.

Although there are currently few laws and regulations regulating the cannabis products, it

is reasonable to assume that as cannabis use becomes more mainstream that the FDA and or other federal, state and local governmental

agencies will impose regulations covering the cultivation, purity, privacy, quality control, security and many other aspects of the industry,

all of which will likely raise the cost of compliance thereby reducing profits or even making it more difficult to continue operations,

either of which scenarios, if they occur, could have a negative impact on the Company’s business and operations.

The Company’s relatively small

size and limited resources may restrict its ability to manage any growth it may experience.

Growth of the Company’s business may

place a significant strain on its management systems and resources and may require the Company to implement new operating

and financial systems, procedures and controls.

the Company’s failure to manage its growth and expansion could adversely

affect its business, results of operations and financial condition.

Failure to implement new systems effectively or within a reasonable

period of time could adversely affect the Company’s business, results of operations and financial condition.

is constantly looking to add additional qualified talent to the management team to support its growth, but there is no assurance it

will be successful in identifying and/or hiring such people.

The market may not readily accept the Company’s

Demand and market acceptance for the Company’s

licensed branded new cannabis-infused products are subject to a high level of uncertainty.

The successful introduction of any new

product requires a focused, efficient strategy to create awareness of and desire for the products.

For example, in order to achieve market

acceptance for the Company’s cannabis products it will need to gain market and patient acceptance.

management’s efforts to gather data before introducing new products as a means to minimize the risk of product non-acceptance,

no assurance can be given that the Company’s efforts will be successful.

The Company’s marketing strategy may

be unsuccessful and is subject to change as a result of a number of factors, including changes in market conditions (including the emergence

of new market segments which in the Company’s judgment can be readily exploited through the use of its technology),

the nature of possible license and distribution arrangements and strategic alliances which may become available to us in the future and

general economic, regulatory and competitive factors.

There can be no assurance that the Company’s strategy will result

in successful product commercialization or that its efforts will result in initial or continued market acceptance for its

proposed products.

If the Company is unable to protect its

intellectual property rights, competitors may be able to use the Company’s technology or trademarks, which could weaken

its competitive position.

The Company relies on a combination of copyright,

trademark, and trade secret laws and restrictions on disclosure to protect its intellectual property rights.

The Company enters

into confidentiality or license agreements with its employees, consultants and customers, and controls access to and distribution

of its products, and other proprietary information.

Despite the Company’s efforts to protect its proprietary

rights, unauthorized parties may attempt to copy or otherwise obtain and use its products.

If the Company loses its key employees

or fails to hire and retain other talented employees when necessary, its operations could be harmed.

The success of the Company’s business

is currently dependent, in large part, on the personal efforts of Messrs.

Robert Fireman, Jon R.

Levine, and Timothy Shaw, the Company’s

chief executive officer, chief financial officer, and chief operating officer, respectively.

The loss of their services could have

a material adverse effect on the Company’s business.

The success of the Company’s business is currently dependent,

in large part, upon its ability to hire and retain additional qualified management, marketing, technical, financial, and other personnel

if and when its growth so requires.

Competition for qualified personnel is intense and the Company may not be able to hire

or retain such additional qualified personnel.

Any inability to attract and retain qualified management and other personnel would have

a material adverse effect on the Company’s ability to grow its business and operations.

The Company faces competition from

entities with greater resources.

There is potential that the Company will face intense

competition from other companies, some of which can be expected to have longer operating histories and more financial resources and experience

than the Company.

Increased competition by larger and better-financed competitors could materially and adversely affect the business,

financial condition, results of operations or prospects of the Company.

Because of the early stage of the industry in which

the Company operates, the Company expects to face additional competition from new entrants.

To become and remain competitive, the Company

will require research and development, marketing, sales and support.

The Company may not have sufficient resources to maintain research

and development, marketing, sales and support efforts on a competitive basis which could materially and adversely affect the business,

financial condition, results of operations or prospects of the Company.

The introduction of a recreational model for cannabis

production and distribution may impact the medical cannabis market.

The impact of this potential development may be negative for

the Company, and could result in increased levels of competition in its existing medical market and/or the entry of new competitors in

the overall cannabis market in which the Company operates.

A change in federal laws regarding the classification

of cannabis as a controlled substance, interstate cannabis commerce, banking for entities in the cannabis industry, or other related regulations

may have a significant impact on the Company’s business.

Results of clinical research, if unfavorable,

could have a negative impact on the industries in which the Company operates and consequently on its business model.

Research in Canada, the United States and internationally

regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such as

CBD and THC) remains in early stages.

There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids

(such as CBD and THC).

Although the Company believes that the articles, reports and studies support its beliefs regarding the medical

benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements

to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis.

Future research studies and clinical trials

may reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and

perceptions related to cannabis, which could have a material adverse effect on the demand for the Company’s products with the potential

to lead to a material adverse effect on the Company’s business, financial condition, results of operations or prospects.

The Company faces the prospect of

claims of product liability if anyone is harmed by its products.

The Company’s products will be produced for

sale directly to end consumers, and therefore there is an inherent risk of exposure to product liability claims, regulatory action and

litigation if the products are alleged to have caused loss or injury.

In addition, the production and sale of the Company’s products

involves the risk of injury to end users due to tampering by unauthorized third parties or product contamination.

Previously unknown

adverse reactions resulting from human or animal consumption of the Company’s products alone or in combination with other medications

or substances could occur.

The Company may be subject to various product liability claims, including, among others, that its products

caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or

interactions with other substances.

While the Company has product liability insurance coverage in place and works with third party providers

to ensure they do as well, a product liability claim or regulatory action against the Company could exceed the Company’s

insurance coverage, and could adversely affect the Company’s reputation and have a material adverse effect on its business and

operational results.

The Company is subject to compliance

with environmental regulations which can be onerous and costly.

The Company’s operations are subject to environmental

regulation in the various jurisdictions in which it operates.

These regulations mandate, among other things, the maintenance of air and

water quality standards and land reclamation.

They also set forth limitations on the generation, transportation, storage and disposal

of solid and hazardous waste.

Environmental legislation is evolving in a manner which will require stricter standards and enforcement,

increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree

of responsibility for companies and their officers, directors and employees.

There is no assurance that future changes in environmental

regulation, if any, will not adversely affect the Company’s operations.

Government environmental approvals and permits are

currently, and may in the future, be required in connection with the Company’s operations.

To the extent such approvals are required

and not obtained, the Company may be curtailed or prohibited from implementing its proposed business activities or from proceeding with

the development of its operations as currently proposed.

Failure to comply with applicable environmental laws,

regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial

authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation

of additional equipment, or remedial actions.

The Company may be required to compensate those suffering loss or damage due to its operations

and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations which could have a material

adverse effect on its business and operational results.

The Company is subject to potential

risks related to, and arising from, acquiring companies.

The Company is in the process of acquiring several

companies and intends to acquire other companies in the future.

There are risks inherent in any such acquisition.

Specifically, there

could be unknown or undisclosed risks or liabilities of such companies for which the Company is not sufficiently indemnified.

unknown or undisclosed risks or liabilities could materially and adversely affect the Company’s financial performance and results

of operations.

The Company could encounter additional transaction and integration related costs or other factors such as the failure

to realize all of the benefits from such acquisitions.

All of these factors could cause dilution to the Company’s earnings per

share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of the Company’s

The Company may not be able to successfully integrate and combine the operations, personnel and technology infrastructure

of any such acquired company with its existing operations.

If integration is not managed successfully by the Company’s management,

the Company may experience interruptions in its business activities, deterioration in its employee and customer relationships, increased

costs of integration and harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial

condition and results of operations.

The Company may experience difficulties in combining corporate cultures, maintaining employee morale

and retaining key employees.

The integration of any such acquired companies may also impose substantial demands on the Company’s

There is no assurance that these acquisitions will be successfully integrated in a timely or cost-efficient manner, or

In the event the Company is sued for

any reason, it would face potential cost and interference with its business operations.

The Company is, and may from time to time become,

party to litigation in the ordinary course of business which could adversely affect its business.

Should any litigation in which the Company

is, or becomes, involved be determined against the Company, such a decision could adversely affect the Company’s ability to continue

Even if the Company is involved in litigation and wins, litigation can redirect significant Company resources.

Litigation may

also create a negative perception of the Company’s brand.

Related to the Company’s Common Stock

issuances of the Company’s capital stock would cause dilution to its existing shareholders.

Company currently has approximately 335.2 million shares of common stock outstanding and it is authorized to issue up to 700

million shares.

Therefore, the Company will be able to issue a substantial number of additional shares without obtaining shareholder

In the event the Company elects to issue additional shares of common stock in connection with any financing, acquisition or

otherwise, current shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of the

In addition, the Company currently has outstanding approximately 4.9 million shares of Series B preferred stock (which

convert on a one-for-one basis into shares of common stock) and approximately 6.2 million shares of Series C preferred stock (which

convert on a five-for-one basis into shares of common stock).

The Company’s board of directors is authorized to issue up to

a total of 50 million shares of preferred stock (including the previously issued shares) with terms it designates without

any further shareholder approval.

exercise or conversion of outstanding warrants and options into common stock will dilute the percentage ownership of the Company’s

other shareholders.

The sale of such common stock or other common stock in the open market could adversely affect the market price of

the Company’s common stock.

of December 31, 2021, there were potentially dilutive securities convertible into shares of common stock comprised of stock

options, convertible into 39,821,671 shares, warrants, convertible into 26,351,571 shares, Series B preferred stock, convertible into

4,908,333 shares, Series C preferred stock, convertible into 31,081,080, and promissory notes, convertible into 1,142,857 shares.

More convertible securities will likely be granted in the future to the Company’s officers, directors, employees or consultants

and as part of future financings.

The exercise of outstanding stock options and warrants and conversion of notes and debentures will

dilute the percentage ownership of the Company’s other shareholders.

Sales, or the expectation of sales, of a substantial number

of shares of the Company’s common stock in the private or public markets could adversely affect the prevailing market price of

the Company’s common stock.

Volatility of Common Share Price

market price of the Company’s common stock could be subject to significant fluctuations.

Some of the factors that may cause the

market price of the common stock to fluctuate include:

public’s reaction to the Company’s press releases, announcements and filings with regulatory authorities and those of

its competitors;

in broader stock market prices and volumes;

in market valuations of similar companies;

perception of the Company, its prospects or the industry in general;

or departures of key personnel;

of or involvement in litigation;

in the regulatory landscape applicable to the Company, the dietary supplement and/or the cannabis and hemp industries;

reports, publications or public statements relating to, or public perceptions of, the regulatory landscape applicable to the Company,

the cannabis or the hemp industry, whether correct or not;

announcements

by the Company or its competitors of strategic alliances, significant contracts, new technologies, acquisitions, commercial relationships,

joint ventures or capital commitments;

in the Company’s quarterly results of operations or cash flows or those of other comparable companies;

and operating results failing to meet the expectations of securities analysts or investors in a particular period;

in the Company’s pricing policies or the pricing policies of its competitors;

issuances and sales of the Company’s common stock;

of the Company’s common stock by insiders of the Company;

party disclosure of significant short positions;

for and trading volume of the Company’s common stock;

in securities analysts’ recommendations and their estimates of the Company’s financial performance;

fluctuation in stock price caused by changes in general conditions in the domestic and worldwide economies or financial markets;

other risk factors described in this section or other sections of this 10-K.

realization of any of these risks and other factors beyond the Company’s control could cause the market price of the common stock

to decline significantly.

addition, broad market and industry factors may harm the market price of the Company’s common stock.

Hence, the price of the common

stock could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations could materially

reduce the price of the common stock regardless of the Company’s operating performance.

In the past, following a significant decline

in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted

against that company.

If the Company were involved in any similar litigation, it could incur substantial costs, Management’s attention

and resources could be diverted and it could harm the Company’s business, operating results and financial condition.

the event the Company requires additional financing and access to capital, covenants and restrictions in existing agreements may limit

the Company’s options.

of the Company’s existing financing agreements contain covenants that restrict its ability to incur additional debt, pay dividends

or redeem shares of its stock.

If the Company seeks to raise additional capital or financing, there can be no assurance that such capital

or additional financing will be available on terms that comply with existing covenants and are satisfactory to the Company.

Company has no plans to pay dividends on its common stock.

Company does not expect to declare or pay dividends on the common stock in the foreseeable future.

In addition, the payment of cash dividends

is limited by the terms of the Company’s financing agreements.

Our business faces significant risks and uncertainties.

Certain important factors may have a material adverse effect on our business prospects, financial condition and results of operations, and they should be carefully considered.

Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors in its entirety in addition to other information contained in or incorporated by reference into this Annual Report on Form 10-K and our other public filings with the U.S.

Securities and Exchange Commission (“SEC”).

Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

Risks Related to the Industry in Which We Operate

Cannabis remains illegal under U.S.

In the United States, cannabis is largely regulated at the state level.

Each state in which we operate or that we are currently proposing to operate authorizes, as applicable, medical and/or adult use cannabis production and distribution by licensed or registered entities.

Many other states have legalized cannabis in some form.

However, under U.S.

federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia are illegal, and any such acts are criminalized under the Controlled Substances Act, as amended, which we refer to as the “CSA.” Cannabis remains illegal under U.S.

federal law and is considered a Schedule I controlled substance under the CSA.

As a result, cannabis is deemed to have a high potential for abuse and is not approved or accepted for medical use.

The concepts of “medical cannabis,” “retail cannabis” and “adult-use cannabis” do not exist under U.S.

While we believe that our business activities are compliant with applicable state and local laws, strict compliance with state and local cannabis laws would not provide a defense to any federal proceeding that may be brought against us.

The enforcement of applicable U.S.

federal laws poses a significant risk to us.

Violations of any U.S.

federal laws and regulations could result in significant fines, penalties, administrative sanctions, or settlements arising from civil proceedings conducted either by the U.S.

federal government or private citizens.

We may also be subject to criminal charges under the CSA and, if convicted, could face a variety of penalties including, but not limited to, disgorgement of profits, cessation of business activities, or divestiture.

Any of these penalties could have a material adverse effect on our reputation and ability to conduct our business, our holding (directly or indirectly) of medical and adult-use cannabis licenses in the United States;

our financial position;

operating results;

profitability;

or the market price of our publicly-traded shares.

In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation, settlement, or trial of any such proceedings or charges, and such time or resources could be substantial.

The cannabis industry is relatively new.

We are operating in a relatively new industry and in a new market.

We not only are subject to general business risks, but we must also build brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance, and compliance with regulations.

Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy, and dosing of cannabis or isolated cannabinoids (such as cannabidiol, or “CBD,” and tetrahydrocannabinol, or “THC”) remains in early stages.

Few clinical trials on the benefits of cannabis or isolated cannabinoids have been conducted.

Although we believe that the articles, reports and studies support our beliefs regarding the medical benefits, viability, safety, efficacy, and dosing of cannabis, future research and clinical trials may result in opposing conclusions to statements contained in articles, reports, and studies currently favored or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, or other facts and perceptions related medical cannabis, which could adversely affect social acceptance of cannabis and/or the demand for our products and dispensary services.

Accordingly, there is no assurance that the cannabis industry and the market for medicinal and/or adult-use cannabis will continue to exist and grow as currently anticipated or function and evolve in a manner consistent with our expectations and assumptions.

Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets, could have a material adverse effect on our business, financial condition, and results of operations.

Regulation of cannabis in the United States is uncertain.

Our activities are subject to regulation by various state and local government authorities.

Our business objectives are contingent upon, in part, compliance with regulatory requirements enacted by these governmental authorities and obtaining all regulatory approvals necessary for operation of our production and dispensary facilities and the sale of our products in the jurisdictions in which we operate.

Any delays in obtaining or failure to obtain necessary regulatory approvals would significantly delay our development of markets and products, which could have a material adverse effect on our business, results of operations, and financial condition.

Furthermore, while we believe that our operations are currently carried out in accordance with all applicable state and local rules and regulations, new rules and regulations could be enacted or existing rules and regulations may be applied in a manner that could limit or curtail our ability to distribute or produce cannabis and cannabis products.

Amendments to current laws and regulations governing the importation, distribution transportation and/or production of cannabis and cannabis products, or more stringent implementation thereof could have an adverse impact on us.

The re-classification of cannabis or changes in U.S.

controlled substance laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.

If cannabis is re-classified as a Schedule II or lower controlled substance under the CSA, the ability to conduct research on the medical benefits of cannabis would most likely be more accessible.

However, if cannabis is re-categorized as a Schedule II or lower controlled substance, the resulting re-classification would result in the need for approval by the U.S.

Food and Drug Administration, or “FDA,” if medical claims are made about our medical cannabis products.

Moreover, any such reclassification could result in a significant degree of regulation relating to the manufacture, importation, exportation, domestic distribution, storage, sale, and use of such products by the U.S.

Drug Enforcement Administration, or the “DEA.” If so, we may be required to be registered to perform these activities and have the security, control, recordkeeping, reporting, and inventory mechanisms required by the DEA to prevent drug loss and diversion.

Obtaining the necessary registrations may result in the delay in the manufacturing or distribution of our products.

The DEA conducts periodic inspections of registered establishments that handle controlled substances.

Failure to maintain compliance could have a material adverse effect on our business, financial condition, and results of operations.

The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend, or revoke those registrations.

In certain circumstances, violations could lead to criminal proceedings.

Potential regulation by the DEA could have a material adverse effect on our business, financial condition, and results of operations.

federal government legalizes cannabis, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938.

Moreover, the FDA may issue rules and regulations, including good manufacturing practices related to the growth, cultivation, harvesting, and processing of medical cannabis.

Clinical trials may be needed to verify efficacy and safety of our medical cannabis products.

It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the agency and comply with certain federally prescribed regulations.

In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions.

If we are unable to comply with the regulations and/or registration as required by the FDA, it may have an adverse effect on our business, operating results, and financial condition.

As a cannabis business, we are subject to certain tax provisions that have a material adverse effect on our business, financial condition, and results of operations.

Under Section 280E of the U.S.

Internal Revenue Code of 1986, or the “IRC,” “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities that comprise such trade or business) consists of trafficking in controlled substances within the meaning of Schedule I and II of the Controlled Substances Act, which is prohibited by federal law or the law of any state in which such trade or business is conducted,” This provision has been applied by the U.S.

Internal Revenue Service, or the “IRS,” to

cannabis operations, prohibiting them from deducting expenses directly associated with cannabis businesses.

Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations than on sales operations.

Section 280E and related IRS enforcement activity has had a significant impact on the operations of cannabis companies.

Accordingly, an otherwise profitable business may, in fact, operate at a loss, after taking into account its U.S.

income tax expenses.

Risks Related to Our Current Operations and Our Expansion Plan

Our future growth is dependent on additional states legalizing cannabis.

Continued development of the cannabis market and our opportunities to expand into new markets is dependent upon continued legislative authorization of cannabis at the state and local level for medical and adult recreational use of cannabis.

Any number of factors could slow or halt the growth of the cannabis market.

Additionally, progress, while encouraging, is not assured and the process to authorize the sale of cannabis at the state and local levels normally encounters set-backs before achieving success, if at all.

While there may be ample public support for legislative proposal to legalize the sale of cannabis on a state level, key support must be created in the legislative process.

Any one of these factors could slow or halt the progress and adoption of cannabis for medical and/or recreational purposes, which would limit the market for our products and negatively impact our ability to expand into new markets.

Our consolidation plan and growth strategy are subject to regulatory hurdles.

Our strategy to expand our footprint into additional legal cannabis states through new applications and acquisitions of existing cannabis businesses is subject, in each respective jurisdiction, to the approval of a new license application or license transfer application.

Such approvals are subject to numerous delays and uncertainties based upon administrative and legislative changes in what are typically, in light of the recent cannabis legalization status in most jurisdictions, new and untested rules and regulations.

There is little interpretative guidance on how states will apply their respective licensing regulations and limited control over when an application will be acted upon.

As a result, there is no assurance that our expansion plan will not be frustrated by regulatory delays, and no assurance that any license application or transfer application will be approved.

We face increasing competition that may materially and adversely affect our business, financial condition and results of operations.

We face competition from companies that may have greater capitalization, access to public equity markets, more experienced management or more maturity as a business.

The vast majority of both manufacturing and retail competitors in the cannabis market consists of localized businesses (those doing business in a single state) as well as multistate operators, with which we compete directly.

Aside from this direct competition, out-of-state operators that are capitalized well enough to enter markets through acquisitions are also part of the competitive landscape.

As we plan to grow our business, operators in future state markets will inevitably become direct competitors.

We are likely to continue to face increasing and intense competition from these companies.

Moreover, acquisitions and other consolidating transactions could harm us in a number of way, including losing customers, revenue and market share, or forcing us to expend greater resources to meet new or additional competitive threats all of which could harm our operating results.

Increased competition by larger and better financed competitors could materially and adversely impact our business, financial condition and results of operations.

Such competition could also intensify and place downward pressure on retail prices of our products and services, which could negatively impact our profitability.

If the number of users of adult-use and medical marijuana in the U.S.

increases, the demand for products will increase.

As a result, we believe that competition could become more intense as current and future competitors begin to offer an increasing number of diversified products to respond to such increased demand.

To remain competitive, we will need to continue to invest in research and development, marketing, sales, and client support.

We may not have sufficient resources to maintain sufficient levels of investment in these areas to remain competitive, which could materially and adversely affect our business, financial condition, and results of operations.

We are subject to limits on our ability to own the licenses necessary to operate our business, which could adversely affect our ability to grow our business and market share in certain states.

In certain states, the cannabis laws and regulations limit both the number of cannabis licenses issued as well as the number of cannabis licenses that one person or entity may own in that state.

Such limitations on the acquisition of ownership of additional licenses within certain states may limit our ability to grow organically or to increase market share in such states.

We may not be able to obtain or maintain necessary permits and authorizations.

We may not be able to maintain the necessary licenses, permits, certificates, authorizations, or accreditations to operate our businesses, or may only be able to do so at great cost.

Additionally, we may not be able to comply fully with the wide variety of laws and regulations applicable to the cannabis industry.

Failure to comply with or to obtain the necessary licenses, permits, certificates, authorizations, or accreditations could result in restrictions on our ability to operate in the cannabis industry, which could have a material adverse effect on our business, financial condition or results of operations.

We may have difficulty accessing the service of banks, which may make it difficult for us to operate in certain markets.

As discussed above, the use of cannabis is illegal under U.S.

Therefore, there are banks that will not accept for deposit funds from the sale of cannabis and may choose not to do business with the us.

While there is pending legislation in the United States Senate that will allow banks to transact business with state-authorized medical cannabis businesses, there can be no assurance his legislation will be successful, that banks will decide to do business with medical cannabis retailers, or that in the absence of legislation state and federal banking regulators will not create issues on banks handling funds generated from an activity that is illegal under federal law.

Notwithstanding, we have been able to secure state-chartered banks that are in compliance with federal law and provide certain banking services to companies in the cannabis industry.

Our inability to open accounts in our target market and otherwise use the service of banks may make it difficult for us to operate in those markets.

We may be subject to constraints on and differences in marketing our products under varying state laws.

Certain of the states in which we operate have enacted strict regulations regarding marketing and sales activities on cannabis products.

There may be restrictions on sales and marketing activities imposed by government regulatory bodies that could hinder the development of our business and operating results.

Restrictions may include regulations that specify what, where and to whom product information and descriptions may appear and/or be advertised.

Marketing, advertising, packaging, and labeling regulations also vary from state to state, potentially limiting the consistency and scale of consumer branding communication and product education efforts.

The regulatory environment in the U.S.

limits our ability to compete for market share in a manner similar to other industries.

If we are unable to effectively market our products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased pricing of our products, our sales and operating results could be adversely affected.

We face risks relating to our products.

We are committed and expect to continue to commit significant resources and capital to develop and market existing products and new products.

These products are relatively untested in the marketplace, and we cannot assure stockholders and investors that we will achieve market acceptance for these products, or other new products that we may offer in the future will gain acceptance.

These existing and new products may be subject to significant competition with offerings by new and existing competitors in the industry.

The failure to successfully develop, manage, and market new products could seriously harm our business, prospects, revenue, results of operation and financial condition.

We may be unable to obtain adequate insurance coverage.

We have insurance coverage with respect to workers’ compensation, general liability, directors’ and officers’ liability, fire and other similar policies customarily obtained for businesses to the extent commercially appropriate.

Nevertheless, since we are engaged in and operate within the cannabis industry, there are exclusions and additional difficulties and complexities associated with our insurance coverage that could cause us to suffer uninsured losses, which would then adversely affect our business, results of operations, and profitability.

There is no assurance that we will be able to obtain insurance coverage at a reasonable cost or fully utilize such insurance coverage, if necessary.

It may be difficult to evaluate us based on our past performance because we are transitioning our business into that of an owner of cannabis licenses and an operator of cannabis operations.

We have been actively engaged in the cannabis industry as an MSO for a relatively short period of time and, accordingly, have only limited financial results on which it can be evaluated.

In addition, the components of our revenue and costs are changing as we continue to move away from a fee-based-only business to a multi-state seed-to-sale operation.

We are subject to, and must be successful in addressing, the risks typically encountered by companies operating in the rapidly

evolving cannabis marketplace, including those risks relating to:

• the failure to develop brand name recognition and reputation;

• the failure to achieve market acceptance of our products;

• a slowdown in general consumer acceptance of legalized cannabis;

• an inability to grow and adapt our business to evolving consumer demand.

Our medical marijuana business may be impacted by consumer perception of the cannabis industry, which we cannot control or predict.

We believe that the medical marijuana industry is highly dependent upon consumer perception regarding the safety, efficacy, and quality of medical marijuana distributed to those consumers.

Consumer perception of our products may be significantly influenced by scientific research or findings, regulatory investigations, litigation, media, and other publicity regarding the consumption of medical marijuana products.

There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research or publicity will be favorable to the medical marijuana market or any particular product, or consistent with earlier publicity.

Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that perceived as less favorable than, or that question, earlier research reports, findings, or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows.

We face inherent risks of product liability claims if anyone is harmed by the use of our products.

Our products are designed to be ingested by humans and are produced for sale directly to end consumers.

As a result, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if the products are alleged to have caused or cause any significant loss or injury.

In addition, the production and sale of our products involve risk of injury to end users due to tampering by unauthorized third parties or product contamination.

Previously unknown adverse reactions resulting from human or animal consumption of our products alone or in combination with other medications or substances could occur.

We may be subject to various product liability claims, including, among others, that our products cause injury or illness, include inadequate instructions for use, or include inadequate warnings concerning possible side effects or interactions with other substances.

While we have product liability insurance coverage and works with third party providers to ensure they do as well, a product liability claim or regulatory action against us, whether or not successful, could result in materially increases costs, adversely affect our reputation with our clients and consumers generally, and/or exceed our insurance coverage.

Any of these scenarios could have a material adverse effect on our business and operational results.

Product recalls could result in a material and adverse impact on our business, financial condition, and results of operations.

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety, and inadequate or inaccurate labelling disclosure.

If any of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall.

We may lose a significant number of sales and we may not be able to replace those sales at an acceptable margin or at all.

Additionally, a product recall may require significant management attention.

Although we comply with all state mandated requirements for the testing of our products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action, or lawsuits.

Moreover, if one of our top brands was subject to a recall, the image of such brand and that of our company generally could be harmed.

Any recall could lead to decreased demand for our products and could have a material adverse effect on our results of operations and financial condition.

Product recalls may also lead to increased scrutiny of our operations by regulatory agencies, which would then require further management attention and potential legal fees and other expenses.

We are subject to risks related to growing an agricultural product.

Our business involves the growing of cannabis, an agricultural product.

Such business is subject to the risks inherent in the agricultural business, such as loss due to infestation by insects, plant diseases, or similar agricultural risks.

While all of our cannabis plants are grown indoors, there can be no assurance that natural elements will not have a material adverse effect on our future production.

Our business is subject to compliance with environmental regulations, which can be onerous and costly.

Our operations are subject to environmental regulation in the various jurisdictions in which it operates.

These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation, and also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste.

Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for affected companies and their officers, directors and employees.

There is no assurance that future changes in environmental regulation, if any, will not adversely affect our operations.

In the event we require additional financing and access to capital, the covenants and restrictions in our existing debt agreement may limit our options.

Our ability to raise additional capital and finance our expansion plan will be subject to contractual restrictions in instruments governing our indebtedness, including the Loan and Security Agreement between us, our subsidiaries, lenders from time-to-time party thereto, and Chicago Atlantic Admin, LLC, dated January 24, 2023.

The contractual restrictions in the instrument governing such loan include restrictive covenants that limit our discretion with respect to certain business matters.

These covenants place restrictions on, among other things, our ability to create liens or other encumbrances, to pay distributions, or to make certain other payments, and to sell or otherwise dispose of certain assets.

A failure to comply with such obligations could result in a default, which, if not cured or waived, could permit acceleration of the relevant indebtedness.

These restrictions could impair our ability to obtain additional financing for working capital, capital expenditures, or acquisitions;

and all or part of our cash flow from operations may be dedicated to the payment of the principal of, and interest on, our indebtedness, thereby reducing funds available for operations.

These factors may adversely affect our cash flow.

If we are unable to satisfy our debt obligations due to insufficient cash flow or if we cannot refinance our indebtedness on commercially reasonable terms or at all, then our business, results of operations, and financial condition could be materially adversely affected.

Anti-Money Laundering Laws in the U.S.

may limit access to funds from banks and other financial institutions.

In February 2014, the Financial Crimes Enforcement Network, or “FinCEN,” bureau of the U.S.

Treasury Department issued guidance, which is not law, with respect to financial institutions providing banking services to cannabis businesses, including burdensome due diligence expectations and reporting requirements.

While the guidance advised prosecutors not to focus their enforcement efforts on banks or other financial institutions that serve marijuana-related businesses, so long as they meet certain conditions, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the U.S.

Department of Justice, or the “DOJ,” FinCEN, or other federal regulators.

As a result of this guidance and the fact that such guidance may be amended or revoked at any time, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses.

Additionally, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses.

Accordingly, we may have only limited access to banking or other financial services in the U.S.

and may have to rely solely upon state-chartered banks.

If we are unable or limited in our ability to open or maintain bank accounts, obtain other banking services, or accept credit card and debit card payments, it may be difficult for us to operate and conduct our business as planned.

While we are actively pursuing alternatives that ensure our operations will continue to be compliant with the FinCEN guidance, including requirements related to disclosures about cash management and U.S.

federal tax reporting, we may not be able to meet all applicable requirements.

We are highly dependent upon certain key personnel.

The success of the Company’s business is currently dependent, in large part, on key managerial personnel, including Messrs.

Levine and Timothy Shaw, the Company’s chief executive officer and chief operating officer, respectively.

Moreover, our anticipated growth may require additional expertise and the addition of new qualified personnel.

Qualified individuals within the cannabis industry are in high demand and we may incur significant costs to attract and retain qualified managerial personnel, or be unable to attract or retain personnel necessary to operate or expand our business.

The loss of the services of existing personnel or our failure to recruit additional key managerial personnel in a timely manner, or at all, could have a material adverse effect on our business and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues.

Any inability to attract and retain qualified management and other key personnel could have a material adverse effect on the Company’s ability to grow its business and operations.

Our business is subject to potential risks related to, and arising from, acquiring companies or technologies.

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the cannabis industry as well as competitive pressures.

In some circumstances, we may determine to do so through the acquisition of complementary businesses rather than through internal development.

The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions.

In addition, we may not realize the expected benefits from completed acquisitions.

The risks we face in connection with acquisitions include:

• Diversion of management time and focus from operating our business to addressing acquisition integration challenges;

Coordination of research and development and sales and marketing functions;

• Retention of employees from the acquired company;

• Cultural challenges associated with integrating employees from the acquired company into our organization;

• Integration of the acquired company’s accounting, management information, human resources, and other administrative systems;

• The need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies;

• Potential write-offs of intangible assets or other assets acquired in transactions that may have an adverse effect on our operating results in a given period;

• Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;

• Litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders, or other third parties.

Our failure to address these risks or other problems encountered in connection with any future acquisitions or investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally.

Future acquisitions could also result in the incurrence of debt, contingent liabilities, amortization expenses, or the impairment of goodwill, any of which could harm our financial condition.

Risks Related to Our Common Stock

The market for our common stock may be limited for holders of our securities who live in the U.S.

Given the heightened risk profile associated with cannabis in the U.S., capital market participants may be unwilling to assist with the settlement of trades for U.S.

resident securityholders of companies with operations in the U.S.

cannabis industry, which may prohibit or significantly impair the ability of securityholders in the U.S.

to trade our securities.

In the event residents of the U.S.

are unable to settle trades of our securities, this may affect the pricing of such securities in the market, the transparency and availability of trading prices and the liquidity of these securities.

Possible issuances of our capital stock would cause dilution to our existing stockholders.

At December 31, 2022 we had 341.5 million shares of common stock outstanding and are authorized to issue up to 700 million shares.

Therefore, we are still authorized to issue a substantial number of additional shares of common stock without obtaining shareholder approval.

In addition, we currently have outstanding 4.9 million shares of Series B preferred stock (which convert on a one-for-one basis into shares of our common stock) and 6.2 million shares of Series C preferred stock (which convert on a five-for-one basis into shares of our common stock).

Our Board of Directors is authorized to issue up to a total of 50 million shares of preferred stock (including the previously issued shares) with terms it designates without any further shareholder approval.

In the event we elect to issue additional shares of common stock in connection with any financing, acquisition or otherwise or issue additional shares of preferred stock, current stockholders could find their holdings substantially diluted, which means they would own a smaller percentage of our company.

The exercise or conversion of outstanding warrants and options into common stock will dilute the percentage ownership of our other stockholders.

Additionally, the sale of such common stock or other common stock in the open market could adversely affect the market price of our common stock.

As of December 31, 2022, there were potentially dilutive securities convertible into shares of common stock comprised of stock options convertible into 36,504,673 shares of common stock;

warrants convertible into 22,855,540 shares of common stock;

shares of Series B preferred stock convertible into 4,908,333 shares of common stock;

shares of Series C preferred

stock convertible into 31,081,080 shares of common stock;

and restricted stock units convertible into 1,599,999 shares of common stock.

Additional convertible securities will likely be granted to our officers, directors, employees, or consultants as part of their compensation and such convertible securities will likely be issued in connection with financings.

The exercise of outstanding stock options and warrants and the conversion of our notes and debentures will dilute the percentage ownership of our other stockholders.

Sales, or the expectation of sales, of a substantial number of shares of our common stock in the private or public markets could adversely affect the prevailing market price of our common stock.

The market price of our common stock has been historically volatile and could continue to be volatile.

The market price of our common stock could be subject to significant fluctuations.

Some of the factors that may cause the market price of the common stock to fluctuate include:

• the public’s reaction to our press releases, announcements and filings with regulatory authorities and those of our competitors;

• fluctuations in broader stock market prices and volumes;

• changes in market valuations of similar companies;

• investor perception of us, our prospects or the cannabis industry in general;

• additions or departures of key personnel;

• commencement of, or involvement, in litigation;

• changes in the regulatory landscape applicable to us, any dietary supplements, and/or the cannabis and hemp industries;

• media reports, publications or public statements relating to, or public perceptions of, the regulatory landscape applicable to us, the cannabis and/or the hemp industries, whether accurate or not;

• announcements by us or our competitors of strategic alliances, significant contracts, new technologies, acquisitions, commercial relationships, joint ventures or capital commitments;

• variations in our quarterly results of operations or cash flows or those of other comparable companies;

• revenues and operating results failing to meet the expectations of securities analysts or investors in a particular period;

• changes in our pricing policies or the pricing policies of our competitors;

• future issuances and sales of our common stock;

• sales of our common stock by members of our Board of Directors or members of our management team;

• third party disclosure of significant short positions;

• demand for and trading volume of our common stock;

• changes in securities analysts’ recommendations and their estimates of our financial performance;

• short-term fluctuation in stock price caused by changes in general conditions in the domestic and worldwide economies or financial markets;

• the other risk factors described in this section or other sections of this Annual Report on Form 10-K.

The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly.

In addition, broad market and industry factors may harm the market price of our common stock.

Accordingly, the price of the common stock could fluctuate based upon factors that have little or nothing to do with us, and these fluctuations could materially reduce the price of our common stock, regardless of our operating performance.

In the past, following a significant decline in the market price of a company’s securities, there have been instances of securities class action litigation having been instituted against that company.

If we were involved in any similar litigation, it could incur substantial costs and significant efforts of our management could be diverted, which in turn could harm our business, operating results and financial condition.

We are an “emerging growth company” and will be able to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an emerging growth company, we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute

payments not previously approved.

We could be an emerging growth company for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion;

(b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter;

or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding fiscal year period.

We expect to take advantage of these reporting exemptions described above until we are no longer an emerging growth company.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies.

We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions.

If some investors find that our common stock is less attractive as a result of any choices to reduce future disclosures, there may be a less active trading market for our common stock and the price of our stock may be more volatile.

Our internal controls over financial reporting may not be effective, and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business.

We are subject to various SEC reporting and other regulatory requirements.

We have incurred, and will continue to incur, expenses and, to a lesser extent, diversion of management of our management’s time in our effects to comply with Section 404 of the Sarbanes-Oxley Act of 2002 regarding internal control over financial reporting.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.

Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.

In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or the subsequent testing by our independent registered public accounting firm when required, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement.

Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Unresolved Staff Comments

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 1A. Risk Factors