UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 000-54730

ITEM 9 LABS CORP.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

96-0665018

(I.R.S. Employer Identification No.)

~~4802~~2111 E. ~~Ray~~Highland ~~Road~~Ave., Suite 23B375, Phoenix, ~~Arizona 85044~~AZ 85016

(Address of principal executive offices and zip code)

1-833-867-6337

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~February~~May 1422, 2023, there were ~~100~~101,~~787~~756,~~770~~183 shares of the issuer's common stock, $0.0001 par value per share, outstanding.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as well as information communicated orally or in writing between the dates of such filings, contains or may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, and other risks identified in the Registrant's filings with the Securities and Exchange Commission from time to time.

In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

ITEM 9 LABS CORP.

FORM 10-Q

~~DECEMBER~~ March 31, ~~2022~~2023

INDEX

		Page	~~Page~~
Part I - Financial Information
Item 1.	Financial Statements	F-1		~~F-1~~
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20		23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25		29
Item 4.	Controls and Procedures	25		29
Part II - Other Information
Item 1.	Legal Proceedings	26		30
Item 1A.	Risk Factors	26		30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26		30
Item 3.	Defaults Upon Senior Securities	26		30
Item 4.	Mine Safety Disclosures	26		30
Item 5.	Other Information	26		30
Item 6.	Exhibits	27		31
Signatures		27		31
Certifications

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEX		F-1
Condensed Consolidated Balance Sheets as of December 31, 2022 (Unaudited) and September 30, 2022		F-2
Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and September 30, 2022		F-2
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended December 31, 2022 and 2021		F-3
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, 2023 and 2022		F-3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended December 31, 2022 and 2021		F-4
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended March 31, 2023 and 2022		F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2022 and 2021		F-5
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2023 and 2022		F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)		F-6

F-1

ITEM 9 LABS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,			September 30,
	March 31,			September 30,
	2022			2022
	2023			2022
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	21101,~~781~~150		$	85,637
Accounts receivable, net		~~601~~595,~~923~~539			586,270
Inventory		12,~~937~~640,~~433~~763			2,464,222
Prepaid expenses and other current assets		~~285~~343,~~149~~984			417,096
Total current assets		23,~~846~~681,~~286~~436			3,553,225
Property and equipment, net		2324,~~009~~853,~~284~~997			21,019,724
Right of use asset		~~693~~912,~~418~~767			938,687
Construction escrow deposits		74,~~717~~784,~~908~~752			7,717,908
Deposits		8094,~~000~~114			86,604
Other assets		3,~~830~~600,~~250~~754			655,598
Assets held for sale		6,815,000			6,815,000
Intangible assets, net		11,~~444~~150,~~700~~438			11,741,487
Goodwill		58,233,386			58,233,386
Total Assets	$	114,~~670~~126,~~232~~644		$	110,761,619
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	6,~~378~~920,~~820~~331		$	6,422,196
Accrued payroll and payroll taxes		1,~~060~~394,~~406~~863			2,086,051
Accrued interest		46,~~078~~389,~~706~~259			3,070,415
Accrued expenses		41,~~187~~748,~~460~~939			3,328,222
Deferred revenue, current portion		~~169~~174,~~992~~997			219,992
Notes payable, current portion, net of discounts		21,~~221~~521,~~322~~790			15,924,033
Income tax payable		1620,~~961~~580			13,221
Operating lease liability, current portion		~~231~~336,~~389~~431			271,573
Convertible notes payable, net of discounts		3,~~730~~129,~~000~~172			3,750,000
Liabilities related to assets held for sale		5,500,000			5,500,000
Total current liabilities		4647,~~575~~136,~~056~~362			40,585,703
Deferred revenue, net of current portion		~~330~~419,~~861~~608			335,859
Operating lease liability, net of current portion		~~470~~600,~~814~~849			682,752
Convertible notes payable, net of current portion and discounts		~~326~~1,~~498~~042,075			—
Notes payables, net of current portion and discounts		67,~~609~~244,~~392~~705			7,216,710
Total liabilities		5456,~~312~~443,~~621~~599			48,821,024
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 112,302,264 and 109,950,509 shares issued and 100,002,264 and 97,650,509 shares outstanding at December 31, 2022 and September 30, 2022		11,230			10,995
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 113,988,219 and 109,950,509 shares issued and 101,688,219 and 97,650,509 shares outstanding at March 31, 2023 and September 30, 2022		11,399			10,995
Additional paid-in capital		142,~~081~~813,~~468~~669			140,417,114
Accumulated deficit		(6871,~~274~~691,~~382~~103	)		(65,016,698	)
Treasury stock		(13,450,000	)		(13,450,000	)
Total Item 9 Labs Corp. Stockholders' Equity		6057,~~368~~683,~~316~~965			61,961,411
Non-controlling interest		(~~10,705~~920	)		(20,816	)
Total Stockholders' Equity		6057,~~357~~683,~~611~~045			61,940,595
Total Liabilities and Stockholders' Equity	$	114,~~670~~126,~~232~~644		$	110,761,619

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

F-2

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended December 31, 2022			For the three months ended December 31, 2021
	For the three months ended			For the three months ended			For the six months ended			For the six months ended
Revenues, net	$	5,003,879		$	6,186,011
	March 31, 2023			March 31, 2022			March 31, 2023			March 31, 2022
Cost of revenues		2,382,006			3,787,245
Revenues, net	$	5,663,007		$	6,638,186		$	10,666,886		$	12,824,197
Gross profit		2,621,873			2,398,766
Cost of revenues		1,944,872			3,960,948			4,326,878			7,748,193
Operating expenses
Gross profit		3,718,135			2,677,238			6,340,008			5,076,004
Professional fees and outside services		855,660			657,445
Operating expenses
Payroll and employee related expenses		2,189,824			2,150,706
Professional fees and outside services		1,157,858			556,721			2,013,518			1,214,166
Sales and marketing		287,949			439,436
Payroll and employee related expenses		2,202,639			3,055,244			4,392,463			5,205,950
Depreciation and amortization		379,356			439,135
Sales and marketing		385,022			613,902			672,971			1,053,338
Other operating expenses		494,549			846,668
Depreciation and amortization		378,008			442,477			757,364			881,612
Total expenses		4,207,338			4,533,390
Other operating expenses		890,615			786,167			1,385,164			1,632,835
Loss from operations		(1,585,465	)		(2,134,624	)
Provision for (recovery of) bad debt		—			(5,000	)		—			(5,000	)
Other income (expense)
Total expenses		5,014,142			5,449,511			9,221,480			9,982,901
Interest expense		(1,661,853	)		(1,210,390	)
Loss from operations		(1,296,007	)		(2,772,273	)		(2,881,472	)		(4,906,897	)
Other income		3,485			—
Other income (expense)
Total other income (expense), net		(1,658,368	)		(1,210,390	)
Interest expense		(2,107,310	)		(1,097,373	)		(3,769,163	)		(2,307,763	)
Net loss, before income tax provision (benefit)		(3,243,833	)		(3,345,014	)
Other income (expense)		—			318			3,485			318
Income tax provision (benefit)		3,740			—
Total other income (expense), net		(2,107,310	)		(1,097,055	)		(3,765,678	)		(2,307,445	)
Net loss		(3,247,573	)		(3,345,014	)
Net loss, before income tax provision (benefit)		(3,403,317	)		(3,869,328	)		(6,647,150	)		(7,214,342	)
Less: Net net income attributable to non-controlling interest		10,111			—
Income tax provision (benefit)		3,619			3,324			7,359			3,324
Net loss attributable to Item 9 Labs Corp.	$	(3,257,684	)	$	(3,345,014	)
Net loss		(3,406,936	)		(3,872,652	)		(6,654,509	)		(7,217,666	)
Basic net loss per common share	$	(0.03	)	$	(0.04	)
Less: Net net income attributable to non-controlling interest		9,785			5,426			19,896			5,426
Basic weighted average common shares outstanding		99,156,853			94,910,167
Net loss attributable to Item 9 Labs Corp.	$	(3,416,721	)	$	(3,878,078	)	$	(6,674,405	)	$	(7,223,092	)
Diluted net loss per common share	$	(0.03	)	$	(0.04	)
Basic net loss per common share	$	(0.03	)	$	(0.04	)	$	(0.07	)	$	(0.08	)
Diluted weighted average common shares outstanding		99,156,853			94,910,167
Basic weighted average common shares outstanding		101,076,982			95,271,726			100,008,166			95,088,960
Diluted net loss per common share	$	(0.03	)	$	(0.04	)	$	(0.07	)	$	(0.08	)
Diluted weighted average common shares outstanding		101,076,982			95,271,726			100,008,166			95,088,960

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

F-3

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND SIX MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~2022~~2023 AND ~~2021~~2022

	Item 9 Labs Corp. Equity
					Additional												Non-
	Common Stock				Paid-in			Treasury Stock						Accumulated			Controlling
	Shares		Amount		Capital			Shares			Amount			(Deficit)			Interest			Total
Balance at September 30, 2021		107,074,417	$	10,707	$	133,414,830			(12,300,000	)	$	(13,450,000	)	$	(33,874,094	)	$	—		$	86,101,443
Stock issued for debt inducement		142,365		14		128,348			—			—			—			—			128,362
Warrants issued with debt		—		—		574,239			—			—			—			—			574,239
Beneficial conversion feature		—		—		470,047			—			—			—			—			470,047
Beneficial conversion features		—		—		470,047			—			—			—			—			470,047
Issuance of shares for services		16,666		2		25,830			—			—			—			—			25,832
Stock based compensation		—		—		507,294			—			—			—			—			507,294
Stock issued on exercise of options		9,896		1		(1	)		—			—			—			—			—
Net loss		—		—		—			—			—			(3,345,014	)		—			(3,345,014	)
Balance at December 31, 2021		107,243,344	$	10,724	$	135,120,587			(12,300,000	)	$	(13,450,000	)	$	(37,219,108	)	$	—		$	84,462,203
Stock issued for cash, net		278,000		28		288,813			—			—			—			—			288,841
Stock issued for acquisition		69,892		7		64,993			—			—			—			—			65,000
Stock issued for licenses		300,000		30		335,970			—			—			—			—			336,000
Stock issued for debt issuance		25,000		2		24,998			—			—			—			—			25,000
Beneficial conversion features		—		—		25,000			—			—			—			—			25,000
Issuance of shares for services		335,159		34		328,466			—			—			—			—			328,500
Stock based compensation		—		—		1,091,560			—			—			—			—			1,091,560
Stock issued on exercise of options		18,033		2		(2	)		—			—			—			—			—
Non-controlling interest		—		—		—			—			—			—			15,633			15,633
Net loss		—		—		—			—			—			(3,878,078	)		5,426			(3,872,652	)
Balance at March 31, 2022		108,269,428	$	10,827	$	137,280,385			(12,300,000	)	$	(13,450,000	)	$	(41,097,186	)	$	21,059		$	82,765,085
Balance at September 30, 2022		109,950,509	$	10,995	$	140,417,114			(12,300,000	)	$	(13,450,000	)	$	(65,016,698	)	$	(20,816	)	$	61,940,595
Stock issued on debt conversion		1,164,032		116		309,463			—			—			—			—			309,579
Stock issued for debt conversion		1,164,032		116		309,463			—			—			—			—			309,579
Stock issued for debt inducement		1,045,000		105		246,715			—			—			—			—			246,820
Stock issued for debt issuance		1,045,000		105		246,715			—			—			—			—			246,820
Beneficial conversion feature		—		—		5,000			—			—			—			—			5,000
Beneficial conversion features		—		—		5,000			—			—			—			—			5,000
Issuance of shares for services		142,723		14		49,986			—			—			—			—			50,000
Stock based compensation		—		—		1,053,190			—			—			—			—			1,053,190
Net loss		—		—		—			—			—			(3,257,684	)		10,111			(3,247,573	)
Balance at December 31, 2022		112,302,264	$	11,230	$	142,081,468			(12,300,000	)	$	(13,450,000	)	$	(68,274,382	)	$	(10,705	)	$	60,357,611
Stock issued for debt issuance		337,500		34		42,876			—			—			—			—			42,910
Issuance of stock for services		1,348,455		135		229,865			—			—			—			—			230,000
Stock based compensation		—		—		459,460			—			—			—			—			459,460
Net loss		—		—		—			—			—			(3,416,721	)		9,785			(3,406,936	)
Balance at March 31, 2023		113,988,219	$	11,399	$	142,813,669			(12,300,000	)	$	(13,450,000	)	$	(71,691,103	)	$	(920	)	$	57,683,045

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

F-4

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the three months ended December 31, 2022			For the three months ended December 31, 2021
	For the six months ended			For the six months ended
	March 31, 2023			March 31, 2022
Operating Activities:
Net loss	$	(36,~~247~~654,~~573~~509	)	$	(37,~~345~~217,~~014~~666	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		82166,~~569~~315			71146,~~368~~078
Amortization of intangible assets		~~296~~591,~~787~~049			~~367~~735,~~767~~534
Amortization of right of use asset		63,751			2,629
Amortization of right of use assets		128,263			29,964
Amortization of debt discounts		~~504~~1,~~501~~004,903			~~990~~1,~~281~~728,325
Stock based compensation expense		1,053,190			507,294
Common stock issued for services		280,000			271,925
Stock based compensation expense		1,512,650			1,598,854
Recovery of bad debt		—			(5,000	)
Employee retention credits received		(952,805	)		—
Loss on disposal of fixed assets		30,952			—10,841
Changes in operating assets and liabilities:
Accounts receivable		(159,~~653~~269	)		~~(174~~271,~~324~~277	)
Inventory		~~526~~(176,~~789~~541	)		1,~~138~~587,~~024~~365
Prepaid expenses and other assets		(~~492~~372,~~705~~044	)		(20234,~~197~~057	)
Deposits		6(7,~~604~~510	)		—(98,701	)
Accounts payable		~~(17~~817,~~454~~087	)		~~841~~1,~~910~~810,603
Accrued payroll and payroll taxes		~~(72~~261,~~840~~617	)		(~~487~~32,~~860~~658	)
Income tax payable		37,~~740~~359			—3,324
Accrued interest		~~698~~1,~~692~~736,294			~~144~~324,~~459~~397
Accrued expenses		~~322~~684,~~413~~767			(~~298~~320,~~647~~350	)
Deferred revenue		~~(54~~38,~~998~~754	)		(4209,~~998~~996	)
Operating lease liability		(70119,~~604~~388	)		(~~386~~26,247	)
Net Cash Used in Operating Activities		(1,334,644	)		(267,694	)
Net Cash Provided by (Used in) Operating Activities		(1,032,056	)		373,812
Investing Activities:
Purchases of property, equipment and construction in progress		(6,825	)		(2,492,445	)
Cash paid for acquisition		—			(70,724	)
Cash received from construction escrow accounts		—			1,053,290
Purchases of property, equipment and construction in progress		(5,331	)		(3,235,125	)
Net Cash Used in Investing Activities		(6,825	)		(1,439,155	)
Cash received for note receivable		—			5,000
Cash received from construction escrow accounts		—			794,807
Cash acquired in acquisition		—			6,143
Cash paid to acquisition escrow accounts		—			(381,932	)
Purchase of license		—			(1,130,872	)
Net Cash Used in Investing Activities		(5,331	)		(4,012,703	)
Financing Activities:
Payment of debt discount		—			(18,750	)
Proceeds from the sale of common stock		—			288,841
Proceeds from the issuance of debt		1,597,500			1,500,000
Payment of debt discount		—			(35,750	)
Payment of debt		(319,887	)		(1,068,150	)
Proceeds from the issuance of debt		1,585,000			3,980,762
Net Cash Provided by Financing Activities		1,277,613			413,100
Payment of debt		(532,100	)		(1,944,294	)
Net Decrease in Cash		(63,856	)		(1,293,749	)
Net Cash Provided by Financing Activities		1,052,900			2,289,559
Net Increase (Decrease) in Cash		15,513			(1,349,332	)
Cash and cash equivalents- Beginning of Period		85,637			1,454,460
Cash and cash equivalents - End of Period	$	21101,~~781~~150		$	~~160~~105,~~711~~128
Supplemental disclosure of cash flow information:
Interest paid in cash	$	~~458~~782,~~660~~603		$	751,~~650~~990,720
Income taxes paid in cash	$	—		$	—
Supplemental disclosure of non-cash investing and financing activities:
Stock and warrants issued for debt	$	246,820		$	728,433
Stock issued for acquisitions	$	—		$	65,000
Debt proceeds used to pay debt discounts	$	27,000		$	—
Stock issued for acquisition of a license	$	—		$	336,000
Transfer of accrued interest to debt	$	620,861		$	1,762
Stock and warrants issued for debt and acquisition	$	289,730		$	777,433
Non-controlling interest	$	—		$	15,633
Stock issuance costs paid in stock	$	—		$	89,645
Debt issued for acquisition of a license	$	—		$	200,000
Debt proceeds used to pay debt discounts	$	327,000		$	80,000
Transfer of accrued interest to debt	$	789,308		$	1,762
Land purchased with escrow funds and deposit	$	—		$	3,000,000
Stock issued to pay accounts payable and prepay expenses	$	50280,000		$	—292,500
Operating lease right of use asset and liability	$	515,858		$	603,542
Cancellation of operating lease right of use asset and liability	$	413,515		$	—
Addition of operating lease right of use asset and liability	$	231,997		$	—
Beneficial conversion feature on convertible debt	$	5,000		$	495,047
Beneficial conversion feature on convertible debt	$	5,000		$	470,047
Construction in progress paid with escrow funds	$	2,933,156		$	4,937,018
Construction in progress paid with escrow funds	$	—		$	1,019,944
Stock issued for conversion of debt	$	309,579		$	—
Accrued liabilities capitalized in construction in progress	$	1,467,285		$	1,125,776
Accrued debt discount fees	$	75,000		$	75,000
Amortized debt discount capitalized in construction in progress	$	628,971		$	875,430
Debt discount amortization capitalized to construction in progress	$	1,041,448		$	1,763,399
Accounts payable and accrued liabilities capitalized in construction in progress	$	2,984,761		$	272,981
Debt proceeds used to fund other assets	$	2,500,000		$	—
Accounts payable converted debt	$	25294,~~922~~838		$	—

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

F-5

ITEM 9 LABS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Description of Business

Item 9 Labs Corp. ("Item 9 Labs" or, including its subsidiaries, the "Company"), formerly Airware Labs Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010 as Crown Dynamics Corp.

Item 9 Labs is a holding company, investing in cannabis and cannabis-related businesses. Its subsidiaries currently compete in two different market segments: (1) producing of cannabis and cannabis-derived products and technologies through its Item 9 Labs brand (“Cultivation”), which is currently distributed ~~though~~through out the State of Arizona in licensed medical and adult-use dispensaries; and (2) sell medical and adult-use cannabis dispensary franchises under its franchise brand “Unity Rd.” (“Franchising”).

In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd., a dispensary franchisor, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd. has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd. retail dispensary locations in ~~twelve~~more than ten (1210) states. The majority of the locations are in the licensing process. We currently have two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings.

Principles of Consolidation

The accompanying condensed consolidated financial statements of the Company as of ~~December~~March 31, ~~2022~~2023 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with US GAAP and should be read in conjunction with our September 30, 2022 audited financial statements filed with the SEC on our Form 10-K on January 13, 2023. It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. We derived the September 30, 2022 condensed consolidated balance sheet data from audited financial statements, however, we did not include all disclosures required by US GAAP. The results for the interim ~~period~~periods ended ~~December~~March 31, ~~2022~~ 2023 are not necessarily indicative of the results to be expected for the year ending September 30, 2023.

The condensed consolidated financial statements of the Company include the accounts of the Company, and its wholly-owned subsidiaries and a consolidated variable interest entity (“VIE”). Intercompany balances and transactions have been eliminated.

Item 9 Labs consolidates a VIE in which the Company is deemed to be the primary beneficiary. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company makes significant judgments in determining whether an entity is a VIE and, for each reporting period, the Company assesses whether it is the primary beneficiary of the VIE.

Effective February 1, 2022, the Company was deemed the primary beneficiary of Elevated Connections, Inc. The equity in Elevated Connections, Inc. held by its stockholder has been presented on the balance sheet and the statement of operations as a non-controlling interest.

~~Certain~~Accounting prior period balances have been reclassified in the accompanying condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on the prior periods’ net loss or accumulated deficit.Estimates

~~F-6~~The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, inventory, accruals and contingencies, carrying value of fixed assets, construction in progress, goodwill and intangible assets, the fair value of common stock and the estimated fair value of stock options and warrants. Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term.

~~Accounting Estimates~~Inventory

~~The preparation~~Inventory ofis ~~financial~~stated ~~statements~~at ~~in conformity with US GAAP requires management to make estimates and assumptions that affect~~ the ~~reported~~ ~~amounts~~lower of ~~assets~~cost ~~and~~or ~~liabilities~~net ~~and~~realizable value ~~disclosure~~with ofcost ~~contingent~~being ~~assets~~determined ~~and~~on ~~liabilities at~~ the ~~date~~first ofin ~~the~~first ~~financial~~out ~~statements and the reported amounts of revenue and expenses during the reporting period~~method. ~~Actual~~Inventory ~~results~~primarily ~~could~~consists ~~materially differ from those estimates. Significant estimates~~ of the ~~Company~~costs ~~include~~directly ~~but~~related ~~are not limited~~ to ~~accounting~~the ~~for depreciation~~ production and ~~amortization,~~cultivation ~~current~~of ~~and~~cannabis ~~deferred income taxes~~crops, ~~inventory,~~cannabis ~~accruals and contingencies~~oils, ~~carrying value of goodwill~~ and ~~intangible~~cannabis ~~assets,~~concentrate ~~the~~products. ~~fair~~Inventory ~~value~~is ofrelieved ~~common~~to ~~stock and~~cost ~~the estimated fair value~~ of ~~stock~~revenues ~~options~~as ~~and~~products are ~~warrants.~~delivered ~~Due~~ to ~~the~~dispensaries. ~~uncertainties~~Inventory inconsists ~~the~~primarily ~~formation~~ of ~~accounting~~labor, ~~estimates~~utilities, ~~and~~costs ~~the significance~~ of ~~these~~raw ~~items~~materials, itpackaging, isnutrients ~~reasonably~~and ~~possible that these estimates could be materially changed in the near term~~overhead.

~~Inventory~~The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value.

~~Inventory is~~Revenue stated at the lower of cost or net realizable value with cost being determined on the first in first out method. Inventory primarily consists of the costs directly related to the production and cultivation of cannabis crops, cannabis oils, and cannabis concentrate products. Inventory is relieved to cost of revenues as products are delivered to dispensaries. Inventory consists primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead.Recognition

~~The~~Cultivation Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value.revenue

~~Revenue~~The core principle of ASC ~~Recognition~~606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, including estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and recognizing revenue when (or as) the performance obligation is satisfied.

~~Cultivation revenue~~F-6

~~The core~~All ~~principle~~ of ~~ASC~~the ~~606~~Company's ~~requires that an entity recognize~~ cultivation revenue tois ~~depict~~associated ~~the~~with ~~transfer~~a ofcustomer ~~promised~~contract ~~goods~~that orrepresents ~~services~~an obligation to ~~customers in~~provide ancannabis ~~amount~~products that ~~reflects~~are ~~the~~delivered ~~consideration~~at toa ~~which~~single point ~~the company expects to be entitled~~ in ~~exchange for those goods or services~~time. For ~~ASC 606 defines a five-step process to achieve this core principle, including identifying~~ the ~~contract~~three ~~with~~months ~~the~~ended ~~customer,~~March ~~identifying the performance obligations in the contract~~31, ~~determining~~2023 ~~the~~and ~~transaction price~~2022, ~~including~~97% ~~estimating the amount~~ of ~~variable consideration to include in~~ the ~~transaction~~Company's ~~price,~~net ~~allocating~~revenue ~~the~~was ~~transaction~~generated ~~price~~from ~~to each separate~~ performance ~~obligation and recognizing revenue~~ ~~when~~obligations ~~(or~~completed ~~as)~~in the ~~performance~~state ~~obligation~~of ~~is satisfied~~Arizona.

~~All~~The Company recognizes revenue ofonce the ~~Company's~~products ~~cultivation~~are ~~revenue~~delivered. Revenue is ~~associated~~considered ~~with~~earned aupon ~~customer~~successful ~~contract~~delivery ~~that~~of ~~represents~~the anproduct ~~obligation~~ to ~~provide~~the ~~cannabis~~dispensary ~~products~~as the Company ~~that~~has ~~are~~no ~~delivered~~further atperformance aobligations ~~single~~at this point in time and collection is reasonably assured. ~~For~~ ~~the~~The ~~three~~Company ~~months~~records ~~ended~~revenue ~~December~~at ~~31,~~the amount ~~2022~~it ~~and~~expects ~~2021~~to collect, 96100% ~~and~~of ~~99%~~the wholesale sales. Beginning April 1, ~~respectively~~2020, the Company entered into a three-year agreement with a dispensary, which calls for monthly payments of $40,000 to be paid by the Company's. ~~net~~The ~~revenue~~fees ~~was~~paid ~~generated~~for ~~from~~operating ~~performance~~under ~~obligations~~the ~~completed~~contract inare expensed ~~the~~to ~~state~~cost of ~~Arizona~~revenues.

The Company's ~~recognizes~~revenues ~~revenue~~accounted for ~~once~~under ~~the~~ASC ~~products~~606 ~~are~~do ~~delivered.~~not ~~Revenue~~require issignificant ~~considered~~estimates ~~earned~~or ~~upon~~judgments ~~successful~~based ~~delivery~~on of the ~~product~~nature toof the ~~dispensary~~ asCompany's ~~the~~revenue ~~Company~~stream. ~~has~~The nosales ~~further~~price is ~~performance~~generally ~~obligations~~fixed at ~~this~~the point inof ~~time~~sale and ~~collection~~all isconsideration ~~reasonably~~from ~~assured. The Company records revenue at~~ the ~~amount~~contract itis ~~expects~~included toin ~~collect, 100% of~~ the ~~wholesale~~transaction ~~sales~~price. ~~Beginning~~The ~~April 1, 2020, the~~ Company's ~~entered into a~~contracts ~~three-year~~do ~~agreement~~not ~~with~~include amultiple ~~dispensary~~performance obligations, ~~which~~variable ~~calls for monthly payments of $40~~consideration,~~000~~ toa besignificant ~~paid by the Company. The fees paid for operating under the~~ contract, ~~are~~rights ~~expensed~~of toreturn ~~cost~~or ~~of revenues~~warranties.

~~The Company's~~Franchising ~~revenues accounted for under ASC 606 do not require significant estimates or judgments based on the nature of the Company's~~ revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company's contracts do not include multiple performance obligations, variable consideration, a significant contract, rights of return or warranties.

~~Franchising~~The Company enters into franchise agreements and consulting agreements. The franchise agreement allows the franchisee to, among other things, establish a franchised outlet under the Company’s Unity Rd. brand. Under the consulting agreements, the Company assists customers with applying for and being awarded a retail cannabis license through the state license application process. The initial franchise fee and the consulting fee are due upon execution of the related agreement. These payments are deferred on the condensed consolidated balance sheet. The initial franchise fee is recognized into revenue ratably over the term of the agreement and the consulting fee is recognized at the time the performance obligation has been satisfied. Revenue recognized during the three months ended March 31, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $6,248 and $204,998, respectively. Revenue recognized during the six months ended March 31, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $61,246 and $209,996, respectively.

~~The Company~~Disaggregation enters into franchise agreements and consulting agreements. The franchise agreement allows the franchisee to, among other things, establish a franchised outlet under the Company’s Unity Rd. brand. Under the consulting agreements, the Company assists customers with applying for and being awarded a retail cannabis license through the state license application process. The initial franchise fee and the consulting fee are due upon execution of the related agreement. These payments are deferred on the condensed consolidated balance sheet. The initial franchise fee is recognized into revenue ratably over the term of the agreement and the consulting fee is recognized at the time the performance obligation has been satisfied. Revenue ~~recognized during the three months ended December 31, 2022 and 2021 that was included in deferred revenue at September 30, 2022 and 2021 was $54,998 and $4,998, respectively.~~

~~F-7~~The following table presents our revenue disaggregated by source.

Disaggregation of Revenue


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Cultivation segment
Flower	$	614,057	$	943,957	$	1,217,149	$	2,021,168
Vape products		4,258,825		4,655,541		8,005,795		8,904,891
Concentrates and other cannabis products		515,727		694,351		935,655		1,469,942
Accessories		101,806		64,040		142,905		103,106
		5,490,415		6,357,889		10,301,504		12,499,107
Franchising segment
Franchising revenue		59,133		228,080		160,985		258,498

Corporate
Dispensary sales revenue		113,459		33,322		204,397		33,322
Other		—		18,895		—		33,270
		113,459		52,217		204,397		66,592
	$	5,663,007	$	6,638,186	$	10,666,886	$	12,824,197

~~The following~~Net ~~table~~Loss ~~presents~~Per ~~our revenue disaggregated by source.~~Share

	Three months ended December 31,
	2022		2021
Cultivation segment
Flower	$	603,092	$	1,077,211
Vape products		3,746,970		4,249,350
Concentrates and other cannabis products		419,928		775,591
Accessories		41,099		39,066
		4,811,089		6,141,218
Franchising segment
Franchising revenue		101,852		30,418
Corporate
Dispensary sales revenue		90,938		—
Other		—		14,375
		90,938		14,375
	$	5,003,879	$	6,186,011

Basic net loss per share does not include dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities that could share in the losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. The following table summarizes the securities outstanding at March 31, 2023 and 2022 that were excluded from the diluted net loss per share calculation for the three and six months ended March 31, 2023 and 2022 because the effect of including these potential shares was antidilutive due to the Company’s net loss.

Net Loss Per Share

	2023		2022
Potentially dilutive common share equivalents
Options		9,040,096		6,237,693
Warrants		49,370,537		47,938,030
Convertible notes		23,912,551		2,661,571
Non-vested common stock		360,000		—
Potentially dilutive shares outstanding		82,683,184		56,837,294

Basic net loss per share does not include dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities that could share in the losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. The following table summarizes the securities outstanding at December 31Warrants, ~~2022 and 2021 that were excluded from the~~ ~~diluted~~Conversion ~~net loss per share calculation for the three months ended December 31~~Options, ~~2022~~Debt Discounts and ~~2021 because the effect of including these potential shares was antidilutive due to the Company’s net loss.~~Amendments

	2022		2021
Potentially dilutive common share equivalents
Options		9,115,941		5,206,251
Warrants		49,370,537		47,834,744
Convertible notes		15,796,004		2,350,969
Potentially dilutive shares outstanding		74,282,482		55,391,964

The Company analyzes warrants issued with debt to determine if the warrants are required to be bifurcated and accounted for at fair value at each reporting period. When bifurcation is not required, the Company records a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes option-pricing model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company's stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company's common stock over the expected term of the award or, if earlier, since March 20, 2018, the day of the merger between BSSD Group LLC ("BSSD") and Airware Labs Corp, and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards.

~~Warrants,~~The Company also analyzes ~~Conversion~~conversion ~~Options,~~options ~~Debt~~embedded ~~Discounts~~with debt to determine if the conversion options are required to be bifurcated and ~~Amendments~~accounted for at fair value at each reporting period or to determine if there is a beneficial conversion feature. At March 31, 2023 and September 30, 2022, none of the conversion options embedded in the Company’s debt were required to be bifurcated.

The Company analyzes warrants issued with debt to determine if the warrants are required to be bifurcated and accounted for at fair value at each reporting period. When bifurcation is not required, the Company records a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the BlackF-Scholes option-pricing model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company's stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company's common stock over the expected term of the award or, if earlier, since March 20, 2018, the day of the merger between BSSD Group LLC ("BSSD") and Airware Labs Corp, and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards.7

The Company ~~also~~ analyzes the ~~conversion~~terms ~~options~~of ~~embedded~~its ~~with~~ debt amendments to determine if the ~~conversion~~changes ~~options~~made ~~are required~~ to bethe ~~bifurcated~~terms ~~and accounted~~have ~~for~~affected atthe ~~fair~~debt’s ~~value~~cash atflows. ~~each~~If ~~reporting~~the ~~period~~debt’s cash orflows tohave ~~determine~~been ifaffected, ~~there~~the isCompany athen ~~beneficial~~determines ~~conversion~~if ~~feature.~~the Atamendment ~~December~~should ~~31,~~be ~~2022 and~~accounted ~~September~~for ~~30,~~as ~~2022,~~a ~~none~~troubled ofdebt ~~the~~restructuring, an ~~conversion~~extinguishment ~~options~~or ~~embedded~~a inmodification and the ~~Company’s~~appropriate ~~debt~~accounting ~~were~~model ~~required~~is ~~to be bifurcated~~applied.

~~The Company~~Segment analyzes the terms of its debt amendments to determine if the changes made to the terms have affected the debt’s cash flows. If the debt’s cash flows have been affected, the Company then determines if the amendment should be accounted for as a troubled debt restructuring, an extinguishment or a modification and the appropriate accounting model is applied.Reporting

~~F-8~~The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company allocates its resources and assesses the performance of its sales activities based on the services performed by its subsidiaries. For the three and six months ended March 31, 2023 and 2022, the Company has identified two segments: the cultivation, production and sale of cannabis and cannabis derived products and technologies (“Cultivation”) and the sales of Unity Rd. franchises to dispensaries (“Franchising”).

~~Segment~~Held ~~Reporting~~for sale

The Company ~~defines~~classifies long-lived ~~operating~~assets ~~segments~~or asdisposal ~~components~~groups ~~about~~and ~~which~~related ~~separate~~liabilities ~~financial~~as ~~information~~held-for-sale iswhen ~~available~~management ~~that~~having isthe ~~evaluated~~appropriate ~~regularly~~authority, generally byour ~~the~~Board ~~chief~~of ~~operating~~Directors ~~decision~~or ~~maker~~certain inof ~~deciding~~our ~~how~~Executive Officers, commits to ~~allocate~~a ~~resources~~plan ~~and~~of insale, ~~assessing~~the ~~performance.~~disposal ~~The~~group ~~Company~~is ~~allocates~~ready ~~its~~for ~~resources~~immediate sale, ~~and~~an ~~assesses~~active ~~the~~program ~~performance~~to oflocate ~~its~~a ~~sales~~buyer ~~activities~~has ~~based~~been oninitiated and the ~~services~~sale ~~performed~~is byprobable ~~its~~and ~~subsidiaries.~~expected ~~For~~to ~~the~~be ~~three~~completed ~~months~~within ~~ended~~one year. Once classified ~~December~~as ~~31,~~held-for-sale ~~2022~~disposal ~~and~~groups ~~2021,~~are ~~the~~valued ~~Company~~at ~~has~~the ~~identified~~lower ~~two~~of ~~segments:~~their ~~the~~carrying ~~cultivation,~~amount ~~production~~or ~~and~~fair ~~sale~~value ofless ~~cannabis~~estimated ~~and~~selling ~~cannabis~~costs. ~~derived~~Depreciation ~~products~~on ~~and~~these ~~technologies~~properties, ~~(“Cultivation”)~~if ~~and~~placed into service, is discontinued at the ~~sales~~time ofthey ~~Unity~~are ~~Rd.~~classified ~~franchises~~as toheld ~~dispensaries~~for ~~(“Franchising”)~~sale.

~~Held for~~Employer ~~sale~~Retention Credit

~~The Company~~During ~~classifies~~the ~~long-lived~~six ~~assets~~months orended ~~disposal~~March ~~groups~~31, ~~and~~2023, ~~related~~the ~~liabilities~~Company received as$952,805 ~~held-for-sale~~of ~~when~~tax ~~management~~credits ~~having~~in ~~the~~accordance ~~appropriate authority,~~with ~~generally~~the ~~our~~Employer ~~Board~~Retention ofCredit ~~Directors~~(“ERC”) orprogram, ~~certain~~authorized ofby ~~our~~the ~~Executive~~Coronavirus Aid, ~~Officers~~Relief, ~~commits~~and toEconomic aSecurity ~~plan~~(CARES) ~~of sale~~Act, ~~the~~as ~~disposal~~amended. ~~group~~The isCompany’s ~~ready for~~policy ~~immediate~~is ~~sale,~~to anaccount ~~active~~for ~~program~~the toERC ~~locate~~as a ~~buyer~~grant ~~has~~using ~~been~~guidance analogous ~~initiated~~to ~~and~~government ~~the~~grants ~~sale~~found isin ~~probable~~IAS ~~and~~20, Accounting ~~expected~~for toGovernment beGrants ~~completed~~and ~~within one~~Disclosure ~~year.~~of ~~Once~~Government ~~classified~~Assistance. In accordance aswith ~~held-for-sale~~this ~~disposal~~guidance, ~~groups are valued at~~ the ~~lower~~ERC ofis ~~their~~recognized ~~carrying~~as ~~amount~~a orreduction ~~fair~~to ~~value~~Payroll ~~less~~and ~~estimated selling~~employee ~~costs.~~related ~~Depreciation~~expenses on ~~these~~the ~~properties,~~statement ifof ~~placed~~operations when ~~into~~there ~~service,~~ is ~~discontinued~~reasonable atassurance that the ~~time~~Company ~~they~~will ~~are~~receive ~~classified~~the ~~as held for sale~~ERC.

~~Employer Retention Credit~~Leases

~~During the~~The ~~three~~Company ~~months~~determines ~~ended~~if ~~December~~an ~~31,~~arrangement ~~2022,~~is ~~the~~a ~~Company~~lease at ~~received~~inception. ~~$952,805~~Operating ofleases ~~tax~~are ~~credits~~included in ~~accordance~~operating ~~with~~lease ~~the~~right-of-use ~~Employer Retention Credit~~ (“~~ERC~~ROU”) ~~program,~~assets ~~authorized by the Coronavirus Aid, Relief,~~ and ~~Economic~~current ~~Security (CARES) Act, as amended. The Company’s policy is to account for the ERC as a grant using guidance analogous to government grants found in IAS 20, Accounting for Government Grants~~ and ~~Disclosure~~long-term ~~of Government Assistance. In accordance with this guidance, the ERC is recognized as a reduction to Payroll~~operating ~~and~~lease ~~employee~~liabilities ~~related expenses~~ on ~~the~~our ~~statement~~condensed ofconsolidated ~~operations~~balance ~~when~~sheets. ~~there~~We iscurrently ~~reasonable~~do ~~assurance~~not ~~that~~have ~~the~~any ~~Company~~material ~~will~~finance ~~receive~~lease ~~the ERC~~arrangements.

~~Leases~~Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Generally, our leases do not provide an implicit rate. As such, we use our incremental borrowing rate in effect at the commencement date of the lease in determining the present value of future payments.

~~The Company~~When ~~determines~~we ifhave anthe ~~arrangement~~option isto aextend the lease atterm, ~~inception.~~terminate the ~~Operating~~lease ~~leases~~before ~~are~~the ~~included~~contractual inexpiration ~~operating~~date, ~~lease~~or ~~right-of-use~~purchase ~~(“ROU”) assets~~the ~~and~~leased ~~current~~asset, and ~~long-term~~if ~~operating~~it ~~lease~~is ~~liabilities~~reasonably oncertain ~~our~~that ~~condensed~~we ~~consolidated~~will ~~balance~~exercise the ~~sheets.~~option, Wewe ~~currently~~consider dothese ~~not~~options ~~have~~in ~~any material~~determining ~~finance~~the ~~lease~~classification ~~arrangements~~and measurement of the lease.

~~Operating lease~~Recently ~~ROU~~Issued ~~assets~~Accounting and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Generally, our leases do not provide an implicit rate. As such, we use our incremental borrowing rate in effect at the commencement date of the lease in determining the present value of future payments.Pronouncements

~~When we~~Pending have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and if it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease.Adoption

~~Recently~~In June 2016, the FASB issued ASU No. 2016-13, Financial ~~Issued~~Instruments ~~Accounting~~– ~~Pronouncements~~Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for the Company on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements.

~~Pending~~In August 2020, the FASB ~~Adoption~~issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, excluding entities eligible to be smaller reporting companies, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.

In ~~June~~ ~~2016~~October 2021, the FASB issued ASU No. ~~2016~~2021-1308, Business ~~Financial~~Combinations ~~Instruments – Credit Losses~~ (Topic ~~326~~805),: ~~which~~Accounting ~~provides~~for ~~guidance~~Contract ~~on measuring~~Assets ~~credit~~and ~~losses~~Contract onLiabilities ~~financial~~from ~~instruments.~~Contracts ~~The~~with ~~amended~~Customers. ~~guidance~~This standard ~~replaces~~requires ~~current~~contract ~~incurred~~assets ~~loss~~and ~~impairment~~contract ~~methodology~~liabilities ofacquired ~~recognizing credit~~in ~~losses when~~ a ~~loss~~business iscombination ~~probable~~to ~~with~~be arecognized ~~methodology~~in ~~that~~accordance ~~reflects~~with ~~expected~~Topic 606 ~~credit~~as ~~losses~~if ~~and~~the ~~requires~~acquirer ahad ~~broader~~originated ~~range~~the ofcontracts. ~~reasonable and~~For ~~supportable~~public ~~information~~business toentities, ~~assess credit loss estimates.~~ ASU ~~2016~~2021-1308 is effective for ~~the~~fiscal ~~Company~~years onbeginning after ~~October~~December 115, ~~2023~~2022, ~~with~~including ~~early adoption~~interim ~~permitted~~periods onwithin ~~October~~those 1,years ~~2019.~~and Weearly ~~are~~adoption ~~assessing~~is ~~the~~permitted. ~~provisions~~We ofare ~~this~~currently ~~amended~~evaluating ~~guidance; however,~~ the impact of adoption of ~~the~~this standard is ~~not expected to have a material effect~~ on ~~our~~the Company’s condensed consolidated financial statements and disclosures.

~~In August~~There ~~2020,~~have ~~the~~been ~~FASB~~no ~~issued~~other ~~ASU~~recent ~~No.~~accounting ~~2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging~~pronouncements –or ~~Contracts~~changes in ~~Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion~~ accounting ~~models~~pronouncements ~~for~~that ~~convertible~~have ~~instruments.~~been Itissued ~~also~~but ~~amends~~not ~~the~~yet ~~accounting~~adopted ~~for certain contracts in an entity’s own equity~~ that are ~~currently accounted for as derivatives because~~ of ~~specific settlement provisions. In addition~~significance, ~~the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash~~ or ~~shares~~potential ~~impact the diluted EPS computation. For public business entities~~significance, ~~excluding entities eligible~~ to be smaller reporting companies, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective methodus. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.

F-98

~~In October~~Note ~~2021,~~2 ~~the~~– ~~FASB~~Going issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those years and early adoption is permitted. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.Concern

~~There~~The accompanying condensed consolidated financial statements have been noprepared ~~other~~in ~~recent~~conformity ~~accounting~~with ~~pronouncements~~US orGAAP, ~~changes~~which incontemplates ~~accounting~~continuation ~~pronouncements~~of ~~that~~the ~~have~~Company ~~been~~as ~~issued~~a ~~but~~going concern. The Company has not yet ~~adopted~~established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses ~~that~~since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of ~~significance~~the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, orrealization ~~potential~~of ~~significance~~a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company operates in a new, developing industry with a variety of competitors. The Company is in default on numerous financial obligations and its property in Arizona is currently in the foreclosure process. These factors raise substantial doubt about the Company’s ability to uscontinue as a going concern.

~~Note~~In order to continue as a going concern, the Company 2will –need ~~Going~~to ~~Concern~~generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows:

~~The accompanying~~Sales ~~condensed~~and ~~consolidated~~Marketing. ~~financial statements have been prepared in conformity with US GAAP~~Historically, ~~which contemplates continuation of~~ the Company ~~as a going concern. The Company~~ has generated ~~not~~the ~~yet~~majority ~~established an ongoing source~~ of ~~revenue sufficient to cover~~ its ~~operating costs~~revenues ~~and~~by ~~has~~providing ~~incurred~~the ~~net~~products ~~losses~~it ~~since~~produces ~~its~~to ~~inception.~~dispensaries ~~These~~throughout ~~losses, with~~ the ~~associated~~state ~~substantial accumulated deficit, are a direct result~~ of ~~the~~Arizona. The Company’s revenues ~~planned~~have ~~ramp~~increased upsignificantly ~~period~~since asits itinception isin ~~pursuing~~May ~~market acceptance and geographic expansion~~2017. InManagement ~~view~~will ofcontinue ~~these~~its ~~matters, realization~~plans ofto aincrease ~~major~~revenues ~~portion of the assets~~ in the Arizona ~~accompanying~~market ~~condensed~~by ~~consolidated~~providing ~~balance~~superior ~~sheets~~products. isAdditionally, ~~dependent~~as ~~upon~~capital ~~continued~~resources ~~operations of~~become ~~the~~available, ~~Company which in turn is dependent upon~~ the Company’s ~~ability~~plans to ~~meet~~expand ~~its~~into ~~financing requirements, and the success of its~~additional ~~future~~markets ~~operations.~~outside ~~The Company operates in a new, developing industry with a variety~~ of ~~competitors~~Arizona. ~~These factors raise substantial doubt about the Company’s ability to continue as a going concern.~~

InFinancing. To date, the Company has financed its operations ~~order~~primarily towith ~~continue~~loans asfrom athird ~~going~~parties ~~concern~~and shareholders, ~~the~~private ~~Company~~placement ~~will~~financings ~~need~~and tosales ~~generate~~revenue. ~~additional~~Management ~~revenue~~believes that with continued production efficiencies, production growth, and ~~obtain~~continued ~~additional~~marketing ~~capital~~efforts, sales revenue will grow, thus enabling the Company to ~~fund~~reverse its ~~operating~~ ~~losses~~negative cash flow from operations and ~~service~~raise ~~its~~additional ~~debt~~capital as needed. ~~Management’s~~However, ~~plans~~there inis ~~regard~~no toassurance ~~these~~that ~~matters~~the ~~are~~Company’s overall ~~described~~efforts aswill ~~follows:~~be successful.

~~Sales and~~If ~~Marketing. Historically,~~ the Company ~~has~~is ~~generated~~unable ~~the~~to ~~majority~~generate ofadditional ~~its~~sales growth ~~revenues~~in bythe ~~providing~~near ~~the~~term ~~products~~and itraise ~~produces~~additional ~~to dispensaries~~capital, ~~throughout~~there ~~the~~is ~~state~~a ofrisk ~~Arizona.~~that ~~The~~the Company’s ~~revenues~~could ~~have~~default ~~increased~~on ~~significantly~~additional ~~since~~obligations ~~its~~and ~~inception~~could be inrequired ~~May 2017.~~to ~~Management~~discontinue ~~will~~or ~~continue~~significantly ~~its~~reduce ~~plans~~the toscope ~~increase~~of ~~revenues~~its inoperations ~~the~~if ~~Arizona~~no ~~market~~other bymeans ~~providing~~of ~~superior~~financing ~~products.~~operations ~~Additionally,~~are asavailable. ~~capital~~The ~~resources~~condensed ~~become~~consolidated ~~available,~~financial ~~the~~statements ~~Company~~do ~~plans~~not toinclude ~~expand~~any ~~into~~adjustments ~~additional~~relating ~~markets~~to ~~outside~~the ofrecoverability ~~Arizona.~~and ~~The~~classification ~~Company~~of ~~believes~~recorded ~~that~~asset itamounts ~~will~~or ~~continue reducing~~ the ~~overall~~amount ~~costs of revenues~~ and ~~costs~~classification of ~~revenues~~liabilities ~~will~~or ~~increase~~any atother aadjustment ~~lower~~that ~~rate~~might ~~than~~be ~~revenues~~necessary ~~in future~~should ~~periods,~~the ~~which~~Company isbe ~~expected~~ unable to ~~lead~~ tocontinue ~~increased~~as ~~profit~~a ~~margins~~going concern.

~~Financing. To~~Note ~~date,~~3 ~~the~~– Company has financed its operations primarily with loans from third parties and shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful.Inventory

~~If the~~Inventory ~~Company~~consisted isof ~~unable to generate additional sales growth in~~ the ~~near~~following ~~term~~at ~~and~~March ~~raise additional capital~~31, ~~there is a risk that the Company~~ ~~could~~2023 ~~default on additional obligations~~ and ~~could~~September be30, ~~required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available~~2022. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

Note 3 – Inventory

	March 31,		September 30,
	2023		2022
Raw materials and work in process	$	1,320,760	$	1,209,892
Finished goods		994,714		835,420
Packaging and other		325,289		418,910
	$	2,640,763	$	2,464,222

~~Inventory consisted~~Note of4 ~~the~~– ~~following at December 31, 2022 and September 30, 2022.~~Pending Acquisitions

	December 31,		September 30,
	2022		2022
Raw materials and work in process	$	937,678	$	1,209,892
Finished goods		610,309		835,420
Packaging and other		389,446		418,910
	$	1,937,433	$	2,464,222

The Herbal Cure pending acquisition

~~F-10~~On March 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC (“Seller”), pursuant to which, the Company is purchasing certain assets from the Seller. The total purchase price for the assets to be acquired is $5,750,000, payable as follows:

(i) Upon mutual execution and delivery of the Asset Purchase Agreement, the Company shall convey to the Seller a down payment in the amount of $250,000; (ii) At the Closing, the Company shall pay to Seller $3,700,000 in immediately available funds; (iii) $700,000 shall be financed by the Seller and paid pursuant to the terms and conditions of the Secured Promissory Note 4 –(the ~~Pending~~"Herbal ~~Acquisitions~~Cure Note"), which interest shall accrue at a rate of 5% per annum, for a term of 18 months commencing on the Closing Date, and payable in even monthly installments until paid in full; and (iv) the Company shall pay the remainder of the purchase price in shares of its common stock on the Closing Date, in such amount of Shares as is the quotient of $1,100,000 divided by the product of the 10 day volume weighted average price of the shares as of the Closing Date, and 85%.

~~The~~At ~~Herbal~~March ~~Cure~~31, ~~pending~~2023, the $250,000 down payment was paid and is included in Other Assets on the condensed consolidated balance sheets. At March 31, 2023, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is expected to be accounted for under ASC 805, Business Combinations, have not been included in the Company’s condensed consolidated balance sheet or statement of operations as of and for the three and six months ended March 31, 2023. Given the current capital constraints of the Company and the market as a whole, it is unlikely that this acquisition will be closed.

OnSessions ~~March~~pending 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC (“Seller”), pursuant to which, the Company is purchasing certain assets from the Seller. The total purchase price for the assets to be acquired is $5,750,000, payable as follows:acquisition

~~(i)~~On ~~Upon~~May ~~mutual~~18, ~~execution~~2022, the Company and ~~delivery~~its ofwholly ~~the~~owned ~~Asset~~subsidiary, ~~Purchase~~OCG ~~Agreement~~Management Ontario, ~~the~~Inc., ~~Company~~a ~~shall~~corporation ~~convey~~formed tounder the ~~Seller~~laws aof ~~down payment in~~ the ~~amount~~Province of ~~$250,000;~~Ontario (ii“Purchaser”) solely Atfor the ~~Closing,~~purpose ~~the~~of ~~Company~~completing ~~shall~~this ~~pay to Seller $3~~transaction,~~700,000~~ inentered ~~immediately~~into ~~available~~a ~~funds;~~Share ~~(iii)~~Purchase ~~$700,000~~Agreement ~~shall be financed by the Seller and paid~~ pursuant to ~~the~~which ~~terms and conditions of~~ the ~~Secured~~Purchaser ~~Promissory~~is ~~Note (the "Herbal Cure Note")~~purchasing all, ~~which~~but ~~interest~~not ~~shall~~less ~~accrue~~than ~~at a rate of 5% per annum~~all, ~~for a term~~ of ~~18 months commencing on~~ the ~~Closing~~issued ~~Date,~~ and ~~payable~~outstanding inshares ~~even monthly installments until paid~~ in ~~full; and (iv)~~ the ~~Company~~capital ~~shall pay the remainder~~ of ~~the~~Wild ~~purchase~~Card ~~price~~Cannabis ~~in shares of its common stock on the Closing Date~~Incorporated, ina ~~such~~corporation ~~amount~~formed under ~~of Shares as is~~ the ~~quotient~~laws of ~~$1,100,000 divided by~~ the ~~product~~Province of ~~the~~Ontario 10free ~~day~~and ~~volume~~clear ~~weighted average price~~ of ~~the~~all ~~shares~~Liens asfrom of the ~~Closing Date, and 85%~~Shareholders.

At December 31, 2022, the $250,000 down payment was paid and is included in Other Assets on the condensed consolidated balance sheets. At December 31, 2022, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is expected to be accounted for under ASC 805, Business Combinations, have not been included in the Company’s condensed consolidated balance sheet or statement of operations as of and for the three months ended December 31, 2022. The Company can provide no assurance that it will be successful in finalizing this acquisition.F-9

~~Sessions~~The total purchase price for ~~pending~~the ~~acquisition~~Shares is $12,800,000 (the "Purchase Price"), as adjusted, plus the Earnout Payment, if any (collectively, the “Purchase Price”) payable as follows:

~~On May~~(i) ~~18,~~The ~~2022,~~Company has delivered the ~~Company~~Exclusivity ~~and~~Deposit ~~its~~in ~~wholly~~the ~~owned~~amount ~~subsidiary~~of $156,902 ~~OCG~~to ~~Management~~the ~~Ontario~~Escrow Agent on March 4, ~~Inc~~2022. (ii) At the Closing, aPurchaser ~~corporation~~shall ~~formed~~pay ~~under~~to Shareholders the ~~laws~~Estimated ofPurchase ~~the~~Price ~~Province~~ of ~~Ontario~~$12,800,000, as adjusted, in immediately available funds; (~~“Purchaser”~~iii) ~~solely~~$4,100,000, ~~for~~as adjusted, payable by the ~~purpose~~delivery of ~~completing~~the ~~this~~Company’s ~~transaction~~common stock, ~~entered~~the ~~into~~number of which will be calculated on the basis of a ~~Share~~deemed ~~Purchase~~price ~~Agreement~~per ~~pursuant~~ common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the ~~Purchaser~~Company’s iscommon ~~purchasing~~stock ~~all~~is listed, ~~but~~with ~~not~~the last day of the First Earnout Period (the date that is 12 months following the Closing Date) as the measurement date less ~~than~~a ~~all~~15% discount, if actual Net Revenue is respect of the ~~issued~~First Earnout Period is greater than or equal to the Target Net Revenue for the First Earnout Period; and ~~outstanding~~(iv) ~~shares~~$4,100,000, inas adjusted, payable by the ~~capital~~delivery of ~~Wild~~the ~~Card~~Company’s ~~Cannabis Incorporated~~common stock, the number of which will be calculated on the basis of a ~~corporation~~deemed ~~formed~~price ~~under~~per common share equal to the ~~laws~~10-Day VWAP of the ~~Province~~trading price of ~~Ontario~~the ~~free~~Company’s ~~and~~common ~~clear~~stock on the stock exchange upon which the Company’s common stock is listed, with the last day of ~~all~~the ~~Liens~~Second ~~from~~Earnout Period (the ~~Shareholders~~date that is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period.

~~The~~At March 31, 2023, the $156,902 ~~total~~Exclusivity ~~purchase~~Deposit ~~price~~has been paid and is included in Other Assets on the condensed consolidated balance sheets. In addition, at March 31, 2023, the Company has placed $3.0 million in a deposit account related to the potential financing for this acquisition. The $3.0 million deposit is included in Other assets on the ~~Shares~~condensed consolidated balance sheet. At March 31, 2023, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is ~~$12~~expected to be accounted for under ASC 805,~~800~~ Business Combinations,~~000~~ (have not been included in the ~~"Purchase~~Company’s ~~Price"),~~condensed consolidated balance sheet or statement of operations as ~~adjusted,~~of ~~plus~~and for the ~~Earnout~~three ~~Payment,~~and six ifmonths ~~any~~ended ~~(collectively~~March 31, ~~the~~2023. ~~“Purchase~~The ~~Price”)~~Company ~~payable~~can asprovide ~~follows:~~no assurance that it will be successful in finalizing this acquisition.

~~(i) The~~Note ~~Company~~5 ~~has~~– Variable ~~delivered~~Interest ~~the Exclusivity Deposit in the amount of $156,902 to the Escrow Agent on March 4, 2022.~~Entity

~~(ii) At~~In January 2022, the Company signed a Co-Management Agreement with a dispensary in Oklahoma for a term of three years. Under the ~~Closing~~terms of the Co-Management Agreement, the ~~Purchaser~~Company ~~shall~~purchased ~~pay~~substantially toall ~~Shareholders~~of the ~~Estimated~~assets ~~Purchase~~of ~~Price~~a ofdispensary, ~~$12~~excluding cannabis and cannabis related products and licenses,~~800~~ and assumed the dispensary’s lease. Further,~~000~~ under the Co-Management Agreement, asthe ~~adjusted~~Company is to operate, instaff, ~~immediately~~and ~~available~~otherwise manage ~~funds;~~the day-to-day operations of the dispensary. The Company shall also pay all claims, costs and liabilities associated with operating the dispensary. See Note 14.

~~(iii) $4,100,000,~~The asterms ~~adjusted,~~of ~~payable by~~ the ~~delivery~~Co-Management Agreement ofprovide the Company’s ~~common~~with, ~~stock~~in its judgment, the ~~number~~ability ofto ~~which~~manage ~~will~~and bemake ~~calculated~~decisions onthat most significantly affect the ~~basis~~operations of aElevated ~~deemed~~Connections ~~price~~and ~~per~~to ~~common~~absorb ~~share~~losses ~~equal~~that tocould ~~the~~potentially ~~10-Day~~be ~~VWAP~~significant ofto ~~the~~Elevated ~~trading~~Connections. ~~price~~As ofsuch, the Company’s ~~common~~has ~~stock on the stock exchange~~consolidated ~~upon~~Elevated ~~which~~Connections ~~the~~effective ~~Company’s~~February ~~common stock is listed~~1, ~~with~~2022. ~~the~~The ~~last~~purpose ~~day~~ of ~~the~~Elevated ~~First~~Connections, ~~Earnout Period (the date that is 12 months following the Closing Date)~~ as ~~the measurement date less~~ a ~~15%~~licensed ~~discount~~dispensary, ~~if actual Net Revenue~~ is ~~respect~~to ofhold the ~~First Earnout Period is greater~~cannabis ~~than~~and orcannabis ~~equal~~related toproducts ~~the~~and ~~Target~~licenses ~~Net~~of ~~Revenue for~~ the ~~First Earnout Period; and~~dispensary.

~~(iv) $4,100,000,~~The asassets ~~adjusted, payable by the delivery~~ of the ~~Company’s~~VIE ~~common stock, the number of which will~~ cannot be ~~calculated~~used ~~on the basis of a deemed price per common share equal~~ to ~~the~~settle ~~10-Day~~obligations ~~VWAP~~ of the ~~trading price of the~~ Company’s ~~common~~or ~~stock~~its onwholly ~~the~~owned ~~stock~~subsidiaries. ~~exchange upon which the Company’s common stock is listed~~However, ~~with~~liabilities ~~the~~recognized ~~last day of the Second Earnout Period (the date that is 24 months following the Closing Date)~~ as ~~the measurement date less~~ a ~~15%~~result ~~discount, if actual Net Revenue is respect~~ of consolidating the ~~Second~~VIE ~~Earnout~~do ~~Period~~represent isadditional ~~greater than~~claims oron ~~equal to~~ the ~~Target~~Company’s ~~Net~~general ~~Revenue for the Second Earnout Period~~assets.

~~At December~~The ~~31,~~following ~~2022,~~table ~~the $156,902 Exclusivity Deposit has been paid and is included in Other Assets on the condensed consolidated balance~~presents ~~sheets. In addition, at December 31, 2022,~~ the ~~Company~~carrying ~~has~~values ~~placed~~of ~~$3.0 million in a deposit account related to~~ the ~~potential financing for this acquisition. The $3.0 million deposit is included in Other~~ assets onand ~~the~~liabilities ~~condensed~~of ~~consolidated balance sheet. At December 31, 2022, this acquisition has not yet been finalized. As such,~~ the ~~effects~~entity ofthat ~~this acquisition, which~~ is ~~expected~~a toVIE beand ~~accounted~~consolidated ~~for~~by ~~under ASC 805, Business Combinations, have not been included in~~ the Company’s ~~condensed~~at ~~consolidated~~March ~~balance sheet~~31, or2023 ~~statement of operations as of~~ and ~~for the three months ended December 31~~September 30, 2022. ~~The Company can provide no assurance that it will be successful in finalizing this acquisition.~~

F-11

	March 31,		September 30,
	2023		2022
Assets
Current assets
Inventory	$	15,798	$	26,909
Total assets	$	15,798	$	26,909

Liabilities
Current liabilities
Income tax payable	$	20,580	$	13,221
Total liabilities	$	20,580	$	13,221

~~Note~~The following table presents 5the –operations ~~Variable~~(after ~~Interest~~intercompany ~~Entity~~eliminations) of the entity that is a VIE and consolidated by the Company for the three and six months ended March 31, 2023.

In January 2022, the Company signed a Co-Management Agreement with a dispensary in Oklahoma for a term of three years. Under the terms of the Co-Management Agreement, the Company purchased substantially all of the assets of a dispensary, excluding cannabis and cannabis related products and licenses, and assumed the dispensary’s lease. Further, under the Co-Management Agreement, the Company is to operate, staff, and otherwise manage the day-to-day operations of the dispensary. The Company shall also pay all claims, costs and liabilities associated with operating the dispensary.


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Revenues, net	$	29,339	$	33,337	$	60,355	$	33,337
Cost of revenue		15,935		23,017		33,100		23,017
Gross profit		13,404		10,320		27,255		10,320
Income tax expense		3,619		3,324		7,359		3,324
Net income	$	9,785	$	6,996	$	19,896	$	6,996

~~The terms of the Co~~F-Management Agreement provide the Company with, in its judgment, the ability to manage and make decisions that most significantly affect the operations of Elevated Connections and to absorb losses that could potentially be significant to Elevated Connections. As such, the Company has consolidated Elevated Connections effective February 1, 2022. The purpose of Elevated Connections, as a licensed dispensary, is to hold the cannabis and cannabis related products and licenses of the dispensary.10

~~The assets~~Note of6 ~~the~~- ~~VIE~~Property ~~cannot be used to settle obligations of the Company or its wholly owned subsidiaries. However~~and Equipment, ~~liabilities recognized as a result of consolidating the VIE does represent additional claims on the Company’s general assets.~~Net

The following ~~table~~represents ~~presents~~a ~~the~~summary ~~carrying values~~ of ~~the~~our ~~assets~~ property and ~~liabilities~~equipment as of ~~the~~March ~~entity that is a VIE and consolidated by the Company at December~~ 31, ~~2022~~2023 and September 30, 2022.:

	December 31,			September 30,
	March 31,			September 30,
Assets	2022			2022
	2023			2022
Current assets
Cultivation and manufacturing equipment	$	674,374		$	612,137
Inventory	$	20,799		$	26,909
Computer equipment and software		270,795			270,795
Total assets	$	20,799		$	26,909
Leasehold improvements		63,788			63,788
Liabilities
Buildings and improvements		2,811,340			2,811,340
Current liabilities
		3,820,297			3,758,060
Income tax payable	$	16,961		$	13,221
Accumulated Depreciation		(943,788	)		(777,473	)
Total liabilities	$	16,961		$	13,221
		2,876,509			2,980,587
Land		3,455,563			3,455,563
Construction on progress		18,521,925			14,583,574
Property and Equipment, Net	$	24,853,997		$	21,019,724

~~The following~~During ~~table~~the ~~presents~~six months ended March 31, 2022, the ~~operations~~Company ~~(after~~completed ~~intercompany~~the ~~eliminations)~~purchase of ~~the~~44 ~~entity~~acres ~~that~~of island from a ~~VIE~~related ~~and~~party ~~consolidated~~for by$3.0 ~~the~~million ~~Company for~~plus expenses. The land-owner is one of the original ~~three~~members ~~months~~of ~~ended~~BSSD ~~December~~and ~~31,~~a ~~2022~~current employee of the Company.

	Three months ended
	December 31, 2022
Revenues, net	$	31,016
Cost of revenue		17,165
Gross profit		13,851
Income tax expense		3,740
Net income	$	10,111

Construction in progress relates to multiple capital projects ongoing during the six months ended March 31, 2023, including the construction of the Nevada facility and the expansion of the Arizona facility. Construction in progress also includes interest and fees on debt that is directly related to the financing of the Company’s capital projects.

~~Note~~Depreciation expense for the three months ended March 631, -2023 ~~Property~~and 2022 was $83,746 and ~~Equipment~~$74,710, ~~Net~~respectively. Depreciation expense for the six months ended March 31, 2023 and 2022 was $166,315 and $146,078, respectively.

~~The following~~Note ~~represents~~7 a– ~~summary of our property and equipment as of December 31, 2022 and September 30, 2022:~~Debt

	December 31,			September 30,
	2022			2022
Cultivation and manufacturing equipment	$	674,374		$	612,137
Computer equipment and software		270,795			270,795
Leasehold improvements		63,788			63,788
Buildings and improvements		2,811,340			2,811,340
		3,820,297			3,758,060
Accumulated Depreciation		(860,042	)		(777,473	)
		2,960,255			2,980,587
Land		3,455,563			3,455,563
Construction on progress		16,593,466			14,583,574
Property and Equipment, Net	$	23,009,284		$	21,019,724

Convertible Notes

F-12

			Maturity	Annual Interest			Balance at			Balance at	Conversion
	Effective Date		Date	Rate			March 31, 2023			September 30, 2022	Price
C-2	3/23/2020		9/23/2020	15	%	$	1,100,000		$	1,100,000	See C-2
C-3	8/15/2011		8/15/2012	8	%		—			20,000	$0.50
C-7	9/29/2021		1/1/2023	10	%		325,000			275,000	0.35
C-8	9/29/2021		1/1/2023	10	%		650,000			550,000	0.35
C-9	10/1/2021		1/1/2023	10	%		975,000			825,000	0.35
C-10	10/29/2021		5/31/2023	18	%		750,000			750,000	1.50
C-11	2/21/2022		8/31/2022	24	%		230,000			230,000	1.10
C-12	10/24/2022		10/24/2024	15	%		250,000			—	0.31
C-13	12/13/2022		12/13/2024	15	%		50,000			—	0.25
C-14	12/13/2022		12/13/2024	15	%		50,000			—	0.25
							4,380,000			3,750,000
		Less: unamortized discounts					(208,753	)		—
						$	4,171,247		$	3,750,000

~~During the three months ended December 31, 2021, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land~~(C-~~owner~~2) isConvertible ~~one~~Viridis ~~of the original members of BSSD and a current employee of the Company.~~Note

~~Construction~~On March 23, 2020 the Company borrowed proceeds from ina ~~progress~~related ~~relates~~party, toViridis ~~multiple~~I9 ~~capital~~Capital ~~projects~~LLC ~~ongoing~~(“Viridis”), ~~during~~in the ~~three~~amount ~~months~~of ~~ended~~$1.1 ~~December~~million. ~~31,~~The ~~2022,~~note ~~including~~is convertible at the ~~construction~~lesser of ~~the~~a) ~~Nevada~~$1.00 ~~facility~~per ~~and~~share or, b) 20% discount to the ~~expansion~~ten day average closing price of the ~~Arizona~~Company’s ~~facility.~~common ~~Construction~~stock, inimmediately ~~progress~~prior to ~~also~~the ~~includes~~conversion ~~interest~~date. All principal and ~~fees~~interest were due on ~~debt~~the ~~that~~maturity date. At March 31, 2023 the Company was not in compliance iswith ~~directly~~the ~~related~~terms toof the ~~financing~~Viridis note. The convertible Viridis note included a provision for the issuance of 5,000,000 warrants exercisable into the Company’s ~~capital~~common ~~projects~~stock. The exercise price on the warrants is $0.75 and the warrants have a term of 5 years.

~~Depreciation expense~~(C-3) ~~for~~Other ~~the three months ended December 31, 2022 and 2021 was $82,569 and $71,368, respectively.~~Convertible Note

~~Note~~The outstanding principal and accrued interest of 7C-3 –was ~~Debt~~converted into 5,714 shares of the Company’s common stock during the six months ended March 31, 2023.

(C-7, C-8) Convertible Lucas Ventures and LGH Investments Notes

			Maturity	Annual Interest			Balance at			Balance at	Conversion
	Effective Date		Date	Rate			December 31, 2022			September 30, 2022	Price
C-2	3/23/2020		9/23/2020	15	%	$	1,100,000		$	1,100,000	See C-2
C-3	8/15/2011		8/15/2012	8	%		—			20,000	$0.50
C-7	9/29/2021		1/1/2023	10	%		275,000			275,000	0.35
C-8	9/29/2021		1/1/2023	10	%		555,000			550,000	0.35
C-9	10/1/2021		1/1/2023	10	%		820,000			825,000	0.35
C-10	10/29/2021		3/31/2023	15	%		750,000			750,000	1.50
C-11	2/21/2022		8/31/2022	24	%		230,000			230,000	1.10
C-12	10/24/2022		10/24/2024	15	%		250,000			—	0.31
C-13	12/13/2022		12/13/2024	15	%		50,000			—	0.25
C-14	12/13/2022		12/13/2024	15	%		50,000			—	0.25
							4,080,000			3,750,000
		Less: unamortized discounts					(23,502	)		—
						$	4,056,498		$	3,750,000

These two convertible notes were amended effective January 1, 2023 to, among other terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment for C-7, the Company increased the principal amount due on the note to $325,000. As part of the amendment for C-8, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal balance to $650,000. The value of the stock issuance and the increase in principal amounts were recorded as a convertible debt discount and are being amortized to interest expense over the term of the notes.

(CF-~~2) Convertible Viridis Note~~11

~~On March 23, 2020 the Company borrowed proceeds from a related party, Viridis I9 Capital LLC~~ (~~“Viridis”~~C-9), ~~in the amount of $1.1~~Convertible ~~million.~~Tysadco The note is convertible at the lesser of a) $1.00 per share or, b) 20% discount to the ten day average closing price of the Company’s common stock, immediately prior to the conversion date. All principal and interest were due on the maturity date. At December 31, 2022 the Company was not in compliance with the terms of the Viridis note, however, during the three months ended December 31, 2022, the default cure period was extended to March 1, 2023. The convertible Viridis note included a provision for the issuance of 5,000,000 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $0.75 and the warrants have a term of 5 years.Note

~~(C-3)~~This note was amended effective January 1, 2023 to, ~~Other~~among ~~Convertible~~other ~~Note~~terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal amount to $975,000. The value of the stock issuance and the increase in principal amount were recorded as a convertible debt discount and are being amortized to interest expense over the term of the note.

~~The outstanding principal and accrued interest of~~ (C-310) ~~was~~Convertible ~~converted~~*Individual* ~~into 5,714 shares of the Company’s common stock during the three months ended December 31, 2022.~~Note

~~(C-7~~This note was amended effective March 31, 2023 to, ~~C-8~~among other terms, extend the maturity date to May 31, 2024 and to increase the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (x) ~~Convertible~~and ~~Lucas~~(dd) ~~Ventures~~below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. This extension fees was accrued at March 31, 2023 and ~~LGH~~the ~~Investments~~resulting ~~Notes~~discount is being amortized to interest expense over the term of the notes.

~~These~~(C-11) ~~two~~Convertible ~~convertible~~*Individual* notes were amended on September 30, 2022 to, among other terms, extend the maturity date to January 1, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. These notes are currently passed their maturity date and the Company is working with the lenders on an amendment.Note

(At March 31, 2023, Note C-9)11 was in default and the ~~Convertible~~Company ~~Tysadco~~is ~~Note~~working with the lenders to cure the default. As a result of the default, the Company is accruing an additional $2,500 of monthly default interest.

~~This~~(C-12) ~~note~~*Individual* was amended on September 30, 2022 to, among other terms, extend the maturity date to January 1, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. This note is currently passed its maturity date and the Company is working with the lender on an amendment.Note

~~(C-10)~~On October 24, 2022, the Company entered into a Secured Convertible ~~*Individual*~~ Promissory Note in the amount of $250,000, which is payable at maturity on October 24, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is finalized (see Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest are convertible into shares of the Company’s common stock at $0.31 per share. The Company issued 75,000 shares of its common stock, valued at $15,000, as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $15,000 is amortized to interest expense over the term of the debt.

~~This note~~(C-13) ~~was~~*Individual* ~~amended effective September 30, 2022 to, among other terms, extend the maturity date to March 31, 2023.~~Note

F-On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, with a member of its board of directors. The note is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is finalized (see Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of this note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt.

(C-1114) ~~Convertible~~ *Individual* Note

At On December 3113, 2022, ~~Note~~the ~~C-11~~Company ~~was~~entered ininto ~~default~~a ~~and~~Secured Convertible Promissory Note in the ~~Company~~amount of $50,000, which is ~~working~~payable ~~with~~at ~~the~~maturity ~~lenders~~on toDecember ~~cure~~13, 2024. Interest on the ~~default~~note is 15% per annum and is payable quarterly. AsThis note is secured by a ~~result~~first priority security interest in all assets of ~~the~~OCG ~~default~~Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is ~~accruing~~finalized an(see ~~additional~~Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of ~~monthly~~this ~~default~~note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt.

~~(C-12)~~The future minimum payments of the Company’s ~~Playmakers~~convertible ~~Note~~debt obligations as of March 31, 2023 are as follows. The unamortized discount will be amortized through December 2024.

On October 24, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $250,000, which is payable at maturity on October 24, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is finalized (see Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest are convertible into shares of the Company’s common stock at $0.31 per share. The Company issued 75,000 shares of its common stock, valued at $15,000, as an inducement to the lender to enter into the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $15,000 is amortized to interest expense over the term of the debt.

Year ended
March 31,		Amount
	2024	$	3,280,000
	2025		1,100,000
			4,380,000
	Unamortized discount		(208,753	)
			4,171,247
	Less: current portion		(3,129,172	)
		$	1,042,075

(CF-~~13) *Individual* Note~~12

~~On December~~Notes 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, with a member of its board of directors. The note is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is finalized (see Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as an inducement to the lender to enter into the note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt.Payable

(C-14) *Individual* Note

			Maturity	Annual Interest			Balance at			Balance at
	Effective Date		Date	Rate			March 31, 2023			September 30, 2022			Secured by
f	5/1/2020		11/1/2023		10	%	$	1,386,370		$	1,386,370		2nd DOT AZ property
h	5/1/2020		5/1/2023		15	%		283,666			283,666		N/A
l	7/22/2022		7/31/2023		36	%		2,362,354			1,823,405		Future revenues; shares of Company stock
o	3/19/2021		4/1/2024		10	%		255,803			637,114		N/A
p	2/1/2021		7/15/2023		15	%		167,739			220,590		N/A
q	8/6/2021		3/1/2023		16	%		13,500,000			13,500,000		1st AZ property and other personal property
r	8/6/2021		3/1/2023		16	%		5,500,000			5,500,000		1st NV property and other personal property
s	9/30/2021		12/31/2021		18	%		—			500,000		Restricted common stock
u	11/2/2022		7/18/2024		25	%		553,618			548,082		Future revenues
w	3/4/2022		5/21/2024		15	%		6,203,930			5,253,256
x	3/10/2022		5/31/2024		18	%		250,000			250,000		N/A
y	3/2/2022		8/1/2023		5	%		145,388			165,388		N/A
z	7/20/2022		4/30/2023		36	%		576,965			426,558		Future revenues
aa	10/28/2022		1/31/2023		70	%		2,000,000			—		Deposit account holding the funds
bb	11/2/2022		3/28/2023		41	%		691,931			—		Future revenues
cc	10/26/2022		11/16/2022		71	%		326,680			—		Deposit account holding the funds
dd	11/3/2022		5/3/2023		18	%		500,000			—		N/A
ee	11/1/2022		12/20/2022		1	%		25,922			—		N/A
ff	2/17/2023		11/1/2025		18	%		241,594			—		N/A
								34,971,960			30,494,429
	Less: liabilities related to assets held for sale							(5,500,000	)		(5,500,000	)
		Less: unamortized discounts						(705,465	)		(1,853,686	)
							$	28,766,495		$	23,140,743

On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, which is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company, until such time as the pending Sessions acquisition is finalized (~~see Note 4~~f). ~~Upon~~Viridis the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as an inducement to the lender to enter into the note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt.AZ

~~The~~On ~~future~~September ~~minimum~~13, ~~payments~~2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC ("Viridis"), a related party, in which Viridis agreed to loan the Company up to $1.2 million for the expansion of the Company’'s ~~convertible~~Arizona ~~debt~~property. ~~obligations~~In exchange asfor the loan, Viridis was to be repaid in the form of ~~December~~waterfall 31revenue participation schedules. Viridis was to receive 5% of the Company's gross revenues from the Arizona operations until the loan was repaid, ~~2022~~2% ~~are~~until asrepaid ~~follows~~200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. The ~~unamortized~~loan ~~discount~~was originally collateralized with a Deed of Trust on the Company's ~~will~~5-acre beparcel ~~amortized~~in ~~through~~Coolidge, ~~December~~AZ ~~2024~~and its two 10,000 square foot buildings. In August 2019, Viridis agreed to subordinate its first priority Deed of Trust and move into a 2nd position. At that time, the loan was amended to include 6% annualized interest.

Year ended
December 31,		Amount
	2023	$	3,730,000
	2024		350,000
			4,080,000
	Unamortized discount		(23,502	)
			4,056,498
	Less: current portion		(3,730,000	)
		$	326,498

On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,200,000 note payable. As part of the restructuring, the Company issued 1,555,556 warrants exercisable into the Company's common stock. The warrants have an exercise price of $1.00 and a term of 5 years. Accrued interest in the amount of $186,370 was added to the principal balance of the note, making the total principal $1,386,370. Interest only payments of $11,553 shall be paid monthly until November 1, 2020 at which time monthly principal and interest payments of $28,144 are required for 36 months, with a balloon payment of all outstanding principal and interest due upon the note's maturity. The note also entitles Viridis to a gross revenue participation of the Arizona Operations equal to 1% of the gross sales (up to $20,000 monthly) upon the maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. At March 31, 2023 the Company was not in compliance with the terms of the Viridis AZ note.

~~F-14~~(h) Viridis (unsecured)

~~Notes~~The ~~Payable~~Company's subsidiary, BSSD Group, LLC borrowed $269,000 from Viridis, a related party, in December 2019. This note bears annualized interest at 15%. On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $269,000 note payable. Accrued interest in the amount of $14,666 was added to the principal balance of the note, making the total principal $283,666. As part of the restructuring, the Company issued 400,000 warrants exercisable into the Company's common stock. The warrants have an exercise price of $.05 and a term of 5 years. Payments of principal and interest in the amount of $9,833 are due monthly, with a balloon payment of all outstanding principal and interest is due upon the note's maturity. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. At March 31, 2023 the Company was not in compliance with the terms of this note.

			Maturity	Annual Interest			Balance at			Balance at
	Effective Date		Date	Rate			December 31, 2022			September 30, 2022			Secured by
f	5/1/2020		11/1/2023		10	%	$	1,386,370		$	1,386,370		2nd DOT AZ property
h	5/1/2020		5/1/2023		15	%		283,666			283,666		N/A
l	7/22/2022		7/31/2023		36	%		1,953,004			1,823,405		Future revenues; shares of Company stock
o	3/19/2021		4/1/2024		10	%		295,113			637,114		N/A
p	2/1/2021		7/15/2023		15	%		220,590			220,590		N/A
q	8/6/2021		3/1/2023		16	%		13,500,000			13,500,000		1st AZ property and other personal property
r	8/6/2021		3/1/2023		16	%		5,500,000			5,500,000		1st NV property and other personal property
s	9/30/2021		12/31/2021		18	%		—			500,000		Restricted common stock
u	11/2/2022		7/18/2024		25	%		528,206			548,082		Future revenues
w	3/4/2022		5/21/2024		15	%		6,203,930			5,253,256
x	3/10/2022		3/31/2023		20	%		250,000			250,000		N/A
y	3/2/2022		8/1/2023		5	%		145,388			165,388		N/A
z	7/20/2022		4/30/2023		36	%		479,646			426,558		Future revenues
aa	10/28/2022		1/31/2023		70	%		2,000,000			—		Deposit account holding the funds
bb	11/2/2022		3/28/2023		41	%		734,159			—		Future revenues
cc	10/26/2022		11/16/2022		71	%		326,680			—		Deposit account holding the funds
dd	11/3/2022		5/3/2023		20	%		500,000			—		N/A
ee	11/1/2022		12/20/2022		1	%		25,922			—		N/A
								34,332,674			30,494,429
	Less: liabilities related to assets held for sale							(5,500,000	)		(5,500,000	)
		Less: unamortized discounts						(1,001,960	)		(1,853,686	)
							$	27,830,714		$	23,140,743

(o) OCG Officers Debt

~~(f)~~As part of the OCG transaction in March 2021, the Company ~~Viridis~~assumed AZthe debt that OCG, Inc. owed to its officers. Principal and interest payments are due monthly with a balloon payment of all outstanding principal and interest due at maturity. One of these officers is a director and officer of the Company. See Note 10.

On September 13, 2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC ("Viridis"), a related party, in which Viridis agreed to loan the Company up to $1.2 million for the expansion of the Company's Arizona property. In exchange for the loan, Viridis was to be repaid in the form of waterfall revenue participation schedules. Viridis was to receive 5% of the Company's gross revenues from the Arizona operations until the loan was repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. The loan was originally collateralized with a Deed of Trust on the Company's 5F-acre parcel in Coolidge, AZ and its two 10,000 square foot buildings. In August 2019, Viridis agreed to subordinate its first priority Deed of Trust and move into a 2nd position. At that time, the loan was amended to include 6% annualized interest.13

On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,200,000 note payable. As part of the restructuring, the Company issued 1,555,556 warrants exercisable into the Company's common stock. The warrants have an exercise price of $1.00 and a term of 5 years. Accrued interest in the amount of $186,370 was added to the principal balance of the note, making the total principal $1,386,370. Interest only payments of $11,553 shall be paid monthly until November 1, 2020 at which time monthly principal and interest payments of $28,144 are required for 36 months, with a balloon payment of all outstanding principal and interest due upon the note's maturity. The note also entitles Viridis to a gross revenue participation of the Arizona Operations equal to 1% of the gross sales (~~up to $20,000 monthly~~p) ~~upon~~Stockbridge ~~the~~Amended maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. At December 31, 2022 the Company was not in compliance with the terms of the Viridis AZ note, however, during the three months ended December 31, 2022, the default cure period was extended to March 1, 2023.Debt

~~(h)~~In February 2021, the Company and Stockbridge Enterprises, ~~Viridis~~a related party, under a troubled debt restructuring, agreed to restructure and settle its outstanding notes. The total outstanding balance of $1,660,590, including accrued interest, were to be repaid under a new promissory note, calling for a down payment of $300,000 (~~unsecured~~paid at time of signing), $120,000 monthly payments for 11 months with the remaining balance of $40,590 payable on February 1, 2022. This agreement was amended to extend the maturity date to March 31, 2022 and starting with the October 1, 2021 payment, the loan payments are interest only at an interest rate of 15% per annum until January 25, 2022. Principal payments in the amount of $50,000 were due on January 25, 2022, February 15, 2022 and March 15, 2022, with a final payment of the remaining principal and accrued interest due on March 31, 2022. Upon closing of an equity raise of at least $750,000, the Company will repay the outstanding balance plus any accrued interest immediately. As part of the amendment, the Company issued 164,744 warrants to purchase the Company’s common stock. The warrants have a two-year period and an exercise price of $1.00. The resulting discount of $58,352 was fully amortized to interest expense during the year ended September 30, 2022.

~~The Company's~~Effective ~~subsidiary,~~March ~~BSSD Group~~31, ~~LLC borrowed $269~~2022,~~000~~ ~~from~~the ~~Viridis,~~debt awas ~~related~~amended ~~party,~~to inextend the ~~December~~maturity ~~2019.~~date ~~This~~to ~~note~~June ~~bears~~30, ~~annualized~~2022, interest at ~~15%.~~payments Onwere ~~May~~due on April 1, ~~2020,~~May ~~under~~1 aand ~~troubled~~June ~~debt restructuring~~1, ~~the~~2022. ~~Company~~Principal ~~renegotiated~~payments in the amount of $~~269~~50,000 ~~note~~were ~~payable.~~due ~~Accrued~~on ~~interest~~April ~~in the~~15, ~~amount~~May of15 ~~$14~~and June 15,~~666~~ ~~was~~2022 ~~added~~and toa ~~the~~final ~~principal~~balloon ~~balance~~payment of ~~the~~outstanding ~~note,~~principal ~~making~~and ~~the~~interest ~~total~~in ~~principal~~the amount of $~~283~~223,~~666.~~972 Aswas ~~part~~due ofon ~~the~~June ~~restructuring~~30, ~~the~~ ~~Company~~2022. ~~issued~~On ~~400~~January 20,~~000~~ ~~warrants~~2023, ~~exercisable into~~ the Company's ~~common~~and ~~stock.~~Stockbridge ~~The~~Enterprises, ~~warrants~~a ~~have~~related anparty, ~~exercise~~entered ~~price~~into ofthe third ~~$.05~~amendment ~~and~~of athe ~~term of~~outstanding 5promissory ~~years~~note. ~~Payments~~The ofamendment calls for monthly principal and interest inpayments ~~the amount~~ of $925,~~833~~000 ~~are due monthly,~~ with a final balloon payment of all outstanding principal and interest isof $102,156 due ~~upon~~at ~~the note's~~ maturity. ~~The~~on ~~debt~~July ~~and~~15, ~~warrants were recorded at their relative fair values~~2023. ~~The~~Subsequent ~~resulting discount is amortized~~ to ~~interest~~March ~~expense over the term of the debt. At December~~ 31, ~~2022~~2023, ~~the~~this ~~Company~~note was ~~not~~ in ~~compliance~~default ~~with~~and the ~~terms~~Company ofis ~~this~~working ~~note,~~with ~~however, during~~ the ~~three~~lender ~~months~~to ~~ended~~cure ~~December 31, 2022,~~ the default ~~cure period was extended to March 1, 2023~~.

~~F-15~~(q, r) Pelorus Notes

~~(o)~~The Company entered into two notes payable with Pelorus ~~OCG~~Fund ~~Officers~~REIT, ~~Debt~~LLC in August 2021. The total $19,000,000 borrowing has a term of 18 months. Interest only payments in the amount of $253,333 are due monthly and all outstanding principal and interest are due on the maturity date. Upon payment in full of these notes, an exit fee of 1% of the then outstanding balance is payable to the lender. The Company has accrued this success fee and it was amortized to interest expense over the term of the notes. The notes included warrants to purchase a total of 2,850,000 shares of the Company’s common stock for $1.75 per share, with a 3.5 year term. The debt and warrants were recorded at their relative fair values. The resulting discount was amortized to interest expense over the term of the debt. The Pelorus notes are currently in default.

AsOn March 30, 2023, the Company ~~part~~and the Company’s Board of ~~the~~Directors ~~OCG~~became ~~transaction~~aware inthat Pelorus Fund REIT, LLC (“Pelorus”) filed a Notice of Trustee’s Sale on March ~~2021~~16, 2023 with respect to the ~~Company~~Construction ~~assumed~~Loan and Security Agreement dated as of August 25, 2021 by and between 938287AZ and Pelorus and the trust ~~debt~~deed ~~that~~recorded ~~OCG~~October 29, ~~Inc~~2021. ~~owed~~The Company had been in discussions with Pelorus to ~~its~~restructure ~~officers.~~the ~~Principal~~loan and ~~interest~~to ~~payments are~~avoid ~~due~~the ~~monthly~~Foreclosure, but ~~with~~those adiscussions ~~balloon~~have ~~payment~~not ofyet ~~all~~resulted ~~outstanding~~in ~~principal~~an ~~and~~agreement. ~~interest~~As ~~due~~of atthe ~~maturity.~~date ~~One~~ of ~~these~~the ~~officers~~filing isof athis ~~director~~Form ~~and~~10-Q ~~officer~~none of the Company., ~~See~~the ~~Note~~Board or 10the Company’s management have received any formal notice from Pelorus or any regulatory bodies regarding this Foreclosure.

~~(p)~~The Company has taken steps ~~Stockbridge~~to ~~Amended~~protect ~~Debt~~its interests in the property, including retaining legal counsel to represent the Company in the Foreclosure, which is set to occur June 16, 2023. The Company is currently evaluating the potential impact of the Foreclosure on its financial statements, liquidity, and operations. See Item 3. Defaults Upon Senior Securities in Part II, Other Information, of this Form 10-Q.

In February 2021, the Company and Stockbridge Enterprises, a related party, under a troubled debt restructuring, agreed to restructure and settle its outstanding notes. The total outstanding balance of $1,660,590, including accrued interest, were to be repaid under a new promissory note, calling for a down payment of $300,000 (~~paid at time of signing~~s), ~~$120,000~~Viridis ~~monthly payments for 11 months with the remaining balance of~~ $40500,590 payable on February 1, 2022. This agreement was amended to extend the maturity date to March 31, 2022 and starting with the October 1, 2021 payment, the loan payments are interest only at an interest rate of 15% per annum until January 25, 2022. Principal payments in the amount of $50,000 were due on January 25, 2022, February 15, 2022 and March 15, 2022, with a final payment of the remaining principal and accrued interest due on March 31, 2022. Upon closing of an equity raise of at least $750,000, the Company will repay the outstanding balance plus any accrued interest immediately. As part of the amendment, the Company issued 164,744 warrants to purchase the Company’s common stock. The warrants have a two-year period and an exercise price of $1.00. The resulting discount of $58,352 was fully amortized to interest expense during the year ended September 30, 2022.

~~Effective March~~On 31September 30, ~~2022~~2021, the ~~debt~~Company ~~was~~borrowed ~~amended~~$500,000 from toViridis ~~extend~~Group ~~the~~I9 ~~maturity~~Capital ~~date to June 30~~LLC, ~~2022,~~a ~~interest~~related ~~payments~~party. ~~were~~The ~~due~~proceeds onof ~~April~~the 1,debt ~~May~~were 1used ~~and~~to ~~June 1,~~make ~~2022.~~a ~~Principal~~payment ~~payments~~on in the ~~amount~~then ofoutstanding ~~$50,000~~unpaid payroll ~~were~~tax ~~due~~liability. onThe ~~April~~debt ~~15, May 15~~ and ~~June~~warrants ~~15,~~were ~~2022~~recorded ~~and~~at atheir ~~final~~relative ~~balloon~~fair ~~payment~~values. ofThe ~~outstanding principal~~resulting ~~and~~discount ~~interest~~ in the amount of $~~223~~284,~~972~~ 534 was ~~due~~amortized onto ~~June~~interest ~~30,~~expense ~~2022.~~over Atthe ~~December~~term ~~31,~~of ~~2022,~~the ~~this~~debt. ~~note~~During ~~was~~the insix ~~default,~~months ~~however,~~ended ~~on January~~March 2031, 2023, ~~the~~this ~~Company~~debt and ~~lender~~related ~~amended~~accrued interest ~~the~~were ~~note~~combined towith ~~extend~~other ~~the~~Viridis ~~maturity~~outstanding ~~date~~debt toand ~~July~~related ~~15,~~accrued ~~2023~~interest into one Unsecured Promissory Note. See ~~Note~~(w) 14below.

(~~q, r~~u) ~~Pelorus Notes~~Lendspark

~~The Company~~On ~~entered~~November ~~into~~2, ~~two notes payable with Pelorus Fund REIT~~2022, ~~LLC~~the inCompany ~~August~~entered ~~2021.~~into ~~The total $19,000,000 borrowing has~~ a third short-term offinancing 18arrangement ~~months~~with Lendspark. ~~Interest~~ ~~only~~The ~~payments~~proceeds ~~in the amount~~ of $~~253,333~~0.58 ~~are~~million ~~due~~were ~~monthly~~used ~~and~~to ~~all~~repay ~~outstanding~~the ~~principal~~previous ~~and~~Lendspark ~~interest~~short-term ~~are due on the maturity date~~financing. ~~Upon~~Payments ~~payment in full~~ of ~~these notes~~$7,967 anare ~~exit~~due ~~fee~~weekly ofuntil ~~1% of the then outstanding balance is payable to the lender~~$0.725 ~~The~~million ~~Company~~ has ~~accrued this~~been ~~success~~repaid. ~~fee~~This ~~and~~results itin isan ~~amortized~~effective to interest ~~expense~~rate ~~over the term~~ of ~~the notes~~25%. ~~The~~Fees ~~notes~~in ~~included warrants to purchase a total~~the amount of 2$12,~~850,~~000 ~~shares~~have ofbeen ~~the~~recorded ~~Company’s~~as ~~common stock for $1.75 per share, with~~ a ~~3.5~~discount ~~year term. The debt~~ and ~~warrants~~are ~~were~~being ~~recorded at their relative fair values. The resulting discount is~~ amortized to interest expense over the term of the ~~debt~~arrangement. ~~The Pelorus notes are currently in default and the Company is working with the lenders to cure the default.~~

(sw) Viridis ~~$500,000~~note

~~On September~~Effective 30December 1, ~~2021~~2022, the Company ~~borrowed~~entered ~~$500,000~~into an ~~from~~Unsecured Promissory Note with Viridis Group I9Holdings, ~~Capital~~ LLC, a related party. The ~~proceeds~~purpose of the ~~debt~~Unsecured ~~were~~Promissory ~~used to~~Note ~~make~~was ato ~~payment~~agree upon on the ~~then~~terms ~~outstanding~~for ~~unpaid~~the ~~payroll~~short ~~tax~~term ~~liability.~~loans ~~The~~that ~~debt~~this ~~and~~related ~~warrants~~party ~~were~~had ~~recorded~~previously atprovided ~~their~~to ~~relative~~the ~~fair values~~Company. ~~The~~ ~~resulting~~Including ~~discount~~interest inaccrued from the ~~amount~~date of ~~$284,534~~the isshort-term ~~amortized~~loans to ~~interest~~the ~~expense~~effective ~~over~~date of the ~~term~~agreement, the principal amount of the ~~debt.~~Unsecured ~~During~~Promissory ~~the~~Note ~~three~~is ~~months~~$6,203,930. ~~ended~~Interest ~~December~~only ~~31,~~payments ~~2022,~~in ~~this~~the ~~debt~~amount ~~and~~$82,396 ~~related~~will ~~accrued~~begin ~~interest~~on ~~were~~May ~~combined~~21, 2023 with ~~other~~a ~~Viridis~~final ~~outstanding~~balloon ~~debt~~payment ~~and~~of ~~related~~all ~~accrued~~outstanding principal and interest ~~into~~to ~~one~~be ~~Unsecured~~paid ~~Promissory~~at ~~Note.~~maturity ~~See~~on ~~(w)~~May ~~below~~21, 2024.

(ux) ~~Lendspark~~ *Individual* Note

On ~~November~~ 2March 10, 2022, the Company entered into a ~~third~~ short-term promissory ~~financing~~note ~~arrangement~~for ~~with Lendspark~~$250,000. The ~~proceeds~~short-term promissory note was due and payable in monthly payments of ~~$0.58~~interest ~~million~~only, ~~were~~with all principal ~~used~~and any accrued and unpaid interest due at maturity. Effective September 30, 2022, this note was amended to ~~repay~~extend the ~~previous~~maturity ~~Lendspark~~date ~~short-term~~to March ~~financing~~31, 2023. ~~Payments~~As part of $7the amendment,~~967~~ ~~are~~the ~~due~~Company ~~weekly~~issued ~~until~~100,000 ~~$0.725~~shares ~~million~~of ~~has~~its ~~been~~common ~~repaid.~~stock, valued at $40,000. This ~~results~~ innote anwas amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate ~~of 25~~to 17.5%. ~~Fees~~As inpart of this amendment, combined with the ~~amount~~amendments for notes (C-10) above and (dd) below, the Company agreed to pay an extension fee of $1275,000 ~~have~~on ~~been~~June ~~recorded~~1, as2023. aThis ~~discount~~extension fees was accrued at March 31, 2023 and ~~are~~the resulting discount is being amortized to interest expense over the term of the ~~arrangement~~notes.

(wy) ~~Viridis~~ ~~note~~Nebrina Adams County Note

Effective ~~December~~ 1,with ~~2022,~~ the ~~Company~~close ~~entered~~of ~~into~~the anAdams ~~Unsecured~~County ~~Promissory Note with Viridis Group Holdings~~acquisition, ~~LLC, a related party. The purpose~~ of the ~~Unsecured~~Company ~~Promissory~~entered ~~Note~~into ~~was~~a tonote ~~agree upon the terms~~ for ~~the~~$200,000 ~~short~~with ~~term loans that this related party had previously provided to~~ the ~~Company.~~seller ~~Including~~as ~~interest~~part ~~accrued from the date~~ of the ~~short-term~~purchase ~~loans~~price. toThe ~~the~~note ~~effective~~is ~~date~~payable ofin ~~the~~six ~~agreement,~~installments ~~the principal~~on ~~amount of~~ the ~~Unsecured~~last ~~Promissory~~day ~~Note~~of iseach ~~$6,203,930.~~three-month ~~Interest~~period ~~only~~following ~~payments in~~ the ~~amount~~Closing ~~$82,396~~Date. ~~will~~At ~~begin~~March ~~on May 21~~31, 2023, ~~with~~this ~~a final~~note ~~balloon~~was ~~payment~~in ~~of all outstanding principal and interest to be paid at maturity on May 21, 2024~~default.

~~F-16~~(aa) *Individual* Note

~~(x)~~On October 28, 2022, the Company entered into a Secured ~~Non-convertible~~Short ~~*Individual*~~Term Promissory Note in the amount of $2.0 million. Principal and interest in the amount of $2.35 million was due at maturity on January 31, 2023. The Company issued 650,000 shares of its common stock, valued at $166,819, to the lender as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $166,819 was amortized to interest expense over the term of the debt. Subsequent to March 31, 2023, the maturity date of this note was extended to the earlier of: (1) June 1, 2023; or (2) the outcome of the Sessions transaction, whether it closes or, alternatively, is terminated.

~~On March 10, 2022, the Company entered into a short~~F-term promissory note for $250,000. The short-term promissory note was due and payable in monthly payments of interest only, with all principal and any accrued and unpaid interest due at maturity. Effective September 30, 2022, this note was amended to extend the maturity date to March 31, 2023. As part of the amendment, the Company issued 100,000 shares of its common stock. The resulting discount of $40,000 was recorded to interest expense on the date of the amendment. 14

(ybb) ~~Nebrina~~ ~~Adams~~Lendspark ~~County~~2 Note

~~Effective with~~On ~~the~~November ~~close~~2, ~~of the Adams County acquisition~~2022, the Company entered into a ~~note~~short-term financing ~~for~~arrangement with Lendspark. The Company received proceeds of $~~200~~750,000. ~~with~~Payments ~~the~~of ~~seller~~$1,720 aswere ~~part~~paid ofdaily for the ~~purchase~~first three ~~price.~~months, ~~The~~and ~~note~~were isextended ~~payable~~through inMay ~~six~~19, ~~installments~~2023, onand ~~the~~then ~~last~~payments ~~day~~ of ~~each~~$19,658 ~~three-month~~are ~~period~~to ~~following~~be ~~the~~paid ~~Closing~~daily ~~Date.~~until Ata ~~December~~total 31of $862, ~~2022,~~500 ~~this~~has ~~note~~been ~~was in default~~repaid.

(aacc) ~~*Individual*~~ Viridis Note

On October 2826, 2022, the Company entered into a Secured Short Term Promissory Note inwith ~~the~~Viridis ~~amount~~Group ofI9 ~~$2.0~~Capital ~~million.~~LLC, ~~Principal~~a ~~and~~related ~~interest~~ party, in the amount of $2500,000.35 ~~million~~The isnote was due ~~at maturity~~ on ~~January 31~~November 16, ~~2023.~~2022 ~~The~~and ~~Company~~carried ~~issued~~an ~~650,000~~interest ~~shares~~rate of ~~its~~$1.94 ~~common~~per ~~stock,~~day ~~valued at~~per $~~166~~1,~~819,~~000 tooutstanding. ~~the~~In ~~lender~~addition, asthe annote ~~inducement~~required toa ~~the~~principal ~~lender~~payment toof ~~enter~~$150,000 on ~~into~~November ~~the~~4, ~~note agreement~~2022. The ~~debt~~ ~~and~~Secured ~~shares~~Short ofTerm ~~common~~Promissory ~~stock~~Note ~~were~~is ~~recorded~~currently atin ~~their~~default ~~relative~~and ~~fair~~the ~~values.~~Company ~~The~~is ~~resulting~~working ~~discount~~with ofthe ~~$166,819~~lender ~~is amortized~~ to ~~interest~~cure ~~expense over~~ the ~~term of the debt~~default.

(bbdd) ~~Lendspark~~ 2*Individual* Note

On November 23, 2022, the Company entered into a short-term promissory ~~financing~~note ~~arrangement~~in ~~with~~the ~~Lendspark~~amount of $500,000. Interest only payments are due monthly and all principal and any unpaid interest are due at maturity. The Company ~~received~~issued ~~proceeds~~300,000 shares of its common stock, valued at $~~750~~60,000, to the lender as part of the note agreement. The debt ~~Payments~~and shares of common stock were recorded at their relative fair values. The resulting discount of $160,~~720~~000 ~~are~~is ~~paid~~amortized ~~daily~~to ~~for~~interest expense over the ~~first~~term ~~three~~of ~~months~~the debt. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and ~~then~~to ~~payments~~decrease the interest rate to 17.5%. As part of ~~$19~~this amendment,~~658~~ ~~are~~combined ~~paid~~with ~~daily~~the ~~until~~amendments afor ~~total~~notes (C-10) and (x) above, the Company agreed to pay an extension fee of $~~862~~75,~~500~~000 ~~has~~on June 1, 2023. This extension fees was accrued at March 31, 2023 and the resulting ~~been~~discount ~~repaid~~is being amortized to interest expense over the term of the notes.

(ccee) ~~Viridis~~ VGI Citadel Note

OnAs part of the lease termination of the Company’s ~~October~~corporate ~~26,~~office ~~2022~~(see Note 9), the Company entered into a ~~Secured~~note ~~Short~~payable ~~Term Promissory Note~~ with ~~Viridis~~VGI ~~Group~~Citadel ~~I9 Capital~~ LLC, a related party, in for $25,922, the amount of ~~$500,000.~~rent ~~The~~owed ~~note~~at ~~was~~the ~~due~~time onof ~~November~~termination. ~~16,~~The ~~2022~~note ~~and~~carries ~~carried~~ an interest rate of $1~~.94~~% per ~~day per $1~~annum,~~000~~ ~~outstanding.~~compounding ~~In addition~~weekly, ~~the~~and ~~note~~matured ~~required a principal payment of $150,000~~ on ~~November 4~~December 20, 2022. ~~The~~This ~~Secured~~note ~~Short Term Promissory Note~~ is currently in default and the Company is working with the lender to cure the default.

(ddff) Accounts payable converted ~~*Individual*~~to a Note

On ~~November~~ 3February 17, ~~2022~~2023, the Company ~~entered~~converted ~~into~~outstanding accounts payable owed to a ~~short-term~~single ~~promissory~~vendor to a note payable in the amount of $~~500~~256,~~000~~415. ~~Interest~~Principal ~~only payments are due monthly~~ and ~~all principal and any unpaid~~ interest ~~are~~payments ~~due~~in ~~at maturity. The Company issued 300,000 shares of its common stock, valued at $60,000, to~~ the ~~lender~~amount ~~as an inducement to the lender to enter into the note agreement. The debt and shares~~ of ~~common stock were recorded at their relative fair values. The resulting discount of~~ $6010,000 isare ~~amortized~~due ~~to interest expense over the term of the debt~~monthly.

~~(ee)~~The future minimum payments of the Company’s ~~VGI~~notes ~~Citadel~~payable ~~Note~~obligations as of March 31, 2023 are as follows. The unamortized discount will be amortized through July 2024.

As part of the lease termination of the Company’s corporate office (see Note 9), the Company entered into a note payable with VGI Citadel LLC, a related party, for $25,922, the amount of rent owed at the time of termination. The note carries an interest rate of 1% per annum, compounding weekly, and matures on December 20, 2022. This note is currently in default and the Company is working with the lender to cure the default.

Year ended
March 31,	Amount
2024	$	27,727,256
2025		7,185,514
2026		59,190
		34,971,960
Less: liabilities related to assets held for sale		(5,500,000	)
Less: unamortized discount		(278,831	)
Less: imputed interest		(426,634	)
		28,766,495
Less: current portion		(21,521,790	)
	$	7,244,705

~~The future~~A ~~minimum~~summary ~~payments~~ of interest ~~the~~expense ~~Company’s~~for ~~notes~~the ~~payable~~three ~~obligations~~and assix ofmonths ~~December~~ended March 31, 2023 and 2022 ~~are~~is as follows. ~~The unamortized discount will be amortized through July 2024.~~

Year ended
	Three months ended March 31,						Six months ended March 31,
December 31,	Amount
	2023			2022			2023			2022
2023	$	28,433,541
Amortization of debt discounts	$	1,136,185		$	1,626,013		$	2,089,261		$	3,491,724
2024		6,609,391
Stated interest paid or accrued		2,051,950			1,361,523			4,059,245			2,565,455
2025		—
Finance charges and other interest		14,916			2,178			22,161			2,995
		35,042,932
		3,203,051			2,989,714			6,170,667			6,060,174
Less: liabilities related to assets held for sale		(5,500,000	)
Less: interest capitalized to construction in progress		(1,095,741	)		(1,892,341	)		(2,401,504	)		(3,752,411	)
Less: unamortized discount		(1,001,960	)
	$	2,107,310		$	1,097,373		$	3,769,163		$	2,307,763
Less: imputed interest		(710,258	)
		27,830,714
Less: current portion		(21,221,322	)
	$	6,609,392

FNote 8 -17 Concentrations

AFor the six months ended March 31, 2023 and 2022, ~~summary~~97% and 98%, respectively, of ~~interest~~the ~~expense~~Company's ~~for~~revenue was generated from a single customer. Given the agreement with the license holder, although the Company’s products are distributed to numerous dispensaries throughout Arizona, all sales are made through the license holder. The Company's wholly owned subsidiary provides cannabis products to this customer under a three-year Cultivation Management Services Agreement that commenced on April 1, 2020. This agreement has been extended through August 11, 2023. Provisions of the agreement require 30-day written notice to terminate except for the following circumstances, in which case the agreement is cancellable with no notice: (i) uncured default; (ii) gross negligence, intentional, or willful misconduct by either party; (iii) federal or state enforcement action against either party; (iv) any change or revocation of state or local law that has the effect of prohibiting the legal operation of the Cultivation Facility; (v) the dispensary license renewal is not approved; (vi) the dispensary fails to maintain its dispensary license in good standing with the regulators resulting in the revocation of the dispensary license. Two of our license holder’s customers that the Company’s products are distributed to account for approximately 50% and 11%, respectively, of our cultivation revenue for the six months ended ~~December~~March 31, ~~2022~~2023. ~~and~~Should ~~2021~~our isproducts asno longer ~~follows~~be distributed to these customers of our license holder, it would have a material adverse effect on our operations.

	Three months ended December 31,
	2022			2021
Amortization of debt discounts	$	1,133,472		$	1,865,711
Stated interest paid or accrued		2,007,295			1,203,932
Finance charges and other interest		7,245			817
		3,148,012			3,070,460
Less: interest capitalized to construction in progress		(1,305,763	)		(1,860,070	)
	$	1,842,249		$	1,210,390

F-15

Note 8 9 - ~~Concentrations~~Commitments and Contingencies

~~For the~~The ~~three~~production ~~months ended December 31, 2022~~ and ~~2021,~~possession ~~96% and 99%, respectively,~~ of the Company's revenue was generated from a single customer. Given the agreement with the license holder, although the Company’s products are distributed to numerous dispensaries throughout Arizona, all sales are made through the license holder. The Company's wholly owned subsidiary provides cannabis ~~products~~is ~~to this customer~~prohibited ~~under~~on a ~~three-year~~national ~~Cultivation~~level ~~Management~~by ~~Services Agreement that commenced on April 1, 2020. Provisions of~~ the ~~agreement~~Controlled ~~require~~Substances ~~30-day written notice to terminate except for the following circumstances~~Act, inthough ~~which case~~ the ~~agreement is cancellable with no notice: (i) uncured default; (ii) gross negligence, intentional, or willful misconduct by either party; (iii) federal or~~ state ~~enforcement action against either party; (iv) any change or revocation~~ of ~~state~~Arizona orallows ~~local~~these ~~law~~activities ~~that has the effect of prohibiting the legal operation of the Cultivation Facility; (v) the dispensary license renewal is not approved; (vi) the dispensary fails~~ to ~~maintain~~be ~~its~~performed ~~dispensary~~at ~~license in good standing~~licensed ~~with~~facilities ~~the~~such ~~regulators~~as ~~resulting in the revocation of the dispensary license~~BSSD. ~~Two~~If ~~of our license holder’s customers that~~ the ~~Company’s products~~federal ~~are~~government ~~distributed~~decides to ~~account~~change ~~for~~its ~~approximately~~policy ~~46%~~on ~~and~~the ~~11%,~~enforcement ~~respectively,~~ of ~~our cultivation revenue for~~ the ~~three~~Controlled ~~months~~Substances ~~ended December 31~~Act, ~~2022. Should our products no longer be distributed to these customers of our license holder,~~ it would have a material adverse effect on our ~~operations~~business.

~~Note~~The Company entered into a 60 month lease with VGI 9Citadel -LLC, ~~Commitments~~a related party, to rent office space for its corporate headquarters which began in June 2019. The monthly lease payments were $6,478 for the first twelve months and ~~Contingencies~~include all utilities and an estimated amount for common area maintenance and real estate taxes. The monthly lease payments increase to $6,653, $6,828, $7,003, and $7,178 for years two through five, respectively. Rent expense for the three months ended March 31, 2023 and 2022 on this lease was nil and $20,957, respectively. Rent expense for the six months ended March 31, 2023 and 2022 on this lease was $6,348 and $44,157, respectively. Interest was imputed using a discount rate of 20%. The lease does not include renewal options.

The ~~production~~ Company and ~~possession~~VGI ofCitadel ~~cannabis~~LLC isentered ~~prohibited~~into onan ~~a national level by the Controlled Substances Act, though the state of Arizona~~Agreement ~~allows these activities~~ to beTerminate ~~performed~~Lease atfor ~~licensed~~its ~~facilities~~corporate ~~such~~offices aswhich ~~BSSD.~~called Iffor the ~~federal~~termination ~~government~~of ~~decides to change its policy on~~ the ~~enforcement~~lease ofwith ~~the~~VGI ~~Controlled~~Citadel ~~Substances Act~~LLC, ~~it would have~~ a ~~material~~related ~~adverse~~party, ~~effect~~effective December on20, ~~our business~~2022.

~~The Company~~In ~~entered~~February ~~into~~2022, athe 60Company ~~month~~assumed a lease ~~with~~to ~~VGI~~rent approximately ~~Citadel LLC~~3,100 asquare ~~related~~feet ~~party,~~of toretail ~~rent~~space ~~office~~in ~~space~~Oklahoma ~~for~~City, ~~its~~Oklahoma ~~corporate~~as ~~headquarters~~part ~~which began~~of inthe ~~June~~Oklahoma ~~2019~~City acquisition. The ~~monthly~~ lease calls for base rent payments ~~were~~of $~~6,478 for~~21 ~~the~~per ~~first~~square ~~twelve~~foot ~~months~~($5,483), ~~and~~plus ~~include~~a ~~all~~prorated ~~utilities~~share ~~and~~of antaxes, ~~estimated amount~~insurance ~~for~~and common area maintenance expenses, per month and ~~real~~increasing ~~estate~~each ~~taxes.~~year ~~The~~by ~~monthly~~3% through the end of the lease ~~payments~~term ~~increase~~on toFebruary $628,~~653,~~ ~~$6,828,~~2029. ~~$7,003,~~The ~~and~~lease ~~$7,178~~ may be extended for ~~years~~ two ~~through~~additional 5 ~~five,~~year ~~respectively~~periods. Rent expense for the three months ended ~~December~~March 31, ~~2022~~2023 and ~~2021~~2022 on this lease was $616,~~348~~ 541 and $14,277, respectively. Rent expense for the six months ended March 31, 2023 and 2022 on this lease was $2344,~~200~~641 and $14,277, respectively. Interest was imputed using a discount rate of 2018%. ~~The~~Subsequent ~~lease~~to ~~does~~March ~~not~~31, ~~include~~2023, ~~renewal~~the ~~options.~~Company has closed this dispensary.

In March 2022, the Company assumed a lease to rent approximately 2,650 square feet of retail space in Adams County, Colorado as part of the Adams County acquisition. The lease calls for ~~Company~~base ~~and~~rent ~~VGI~~payments ~~Citadel~~of ~~LLC~~$15,450, ~~entered~~plus ~~into~~a anprorated ~~Agreement~~share of operating costs of the building, per month and escalate each year to ~~Terminate~~$15,913 in ~~Lease~~the final year which ends on February 1, 2024. The lease may be extended for ~~its~~one ~~corporate~~additional ~~offices~~3 ~~which~~year ~~called~~period. Rent expense for the ~~termination of~~three months ended March 31, 2023 and 2022 on this lease was $50,830 and $16,048, respectively. Rent expense for the six months ended March 31, 2023 and 2022 on this lease ~~with~~was ~~VGI~~$101,313 ~~Citadel~~and ~~LLC~~$16,048, respectively. Interest was imputed using a ~~related~~discount ~~party,~~rate ~~effective~~of ~~December~~18%. 20Subsequent to March 31, ~~2022~~2023, the Company is past due on its May 2023 lease payment.

In ~~February~~ ~~2022~~September 2021, the Company ~~assumed~~signed a seven-year lease to rent approximately 3,~~100~~000 square feet of retail space in ~~Oklahoma City~~Biddeford, ~~Oklahoma as part of the Oklahoma City acquisition~~Maine. The lease calls for base rent payments of $216,604, ~~per~~plus taxes ~~square~~and ~~foot~~operating ~~($5~~expenses,~~483),~~ ~~plus~~per amonth ~~prorated~~for ~~share~~the offirst ~~taxes, insurance~~year and ~~common~~escalate ~~area~~each ~~maintenance~~year ~~expenses~~to $7,886 per month ~~and~~in ~~increasing each~~ year byseven. 3%The ~~through~~lease ~~the~~may ~~end~~be extended offor ~~the~~two ~~lease~~terms ~~term~~of on5 ~~February 28,~~years ~~2029~~each. The commencement of this lease ~~may~~was becontingent ~~extended~~upon ~~for~~the ~~two~~issuance ~~additional~~and 5receipt ~~year~~of ~~periods~~a license and city approval. ~~Rent~~The ~~expense~~agreement ~~for~~will terminate if the ~~three~~contingency ~~months~~is ~~ended~~not ~~December~~met. At March 31, ~~2022~~2023, onthe ~~this~~ contingency was not met and the lease was terminated. ~~$28~~As such,~~100.~~ ~~There~~the ~~was~~Company nohas ~~rent~~removed ~~expense~~the onremaining ~~this~~balance ~~lease~~of ~~during~~the right of use asset and liability from the condensed consolidated balance sheet. Rent expense for the three and six months ended ~~December~~March 31, ~~2021~~2023 on this lease was $22,677. Interest was imputed using a a discount rate of 18%.

In ~~March~~ ~~2022~~October 2021, the Company ~~assumed~~entered into a commercial lease agreement to rent ~~approximately 2~~12,~~650~~000 square feet oflocated ~~retail space~~ in ~~Adams County~~Denver, Colorado. asThe ~~part~~lease ~~of the~~has ~~Adams~~a ~~County~~term ~~acquisition.~~of ~~The~~five ~~lease~~years ~~calls~~with ~~for~~escalating ~~base~~monthly base rent ~~payments~~beginning ofat $156,~~450~~354 and escalating each year to $7,295 ~~plus~~in ayear ~~prorated~~five. ~~share~~Commencement of ~~operating~~the ~~costs~~lease ofwas contingent upon the ~~building,~~Company receiving ~~per~~an ~~month~~approved ~~and~~retail ~~escalate~~license ~~each~~within ~~year~~120 todays ~~$15~~from October 22,~~913~~ in2021. The agreement was to terminate if the ~~final~~contingency ~~year~~was ~~which~~not ~~ends~~met. onAs ~~February~~of March 131, ~~2024.~~2023, ~~The~~the ~~lease~~contingency ~~may~~has bebeen ~~extended~~met ~~for~~and ~~one~~the ~~additional~~Company has recorded the right of use asset and liability to the condensed consolidated 3balance ~~year~~sheet ~~period~~at March 31, 2023. Rent expense for the three and six months ended ~~December~~March 31, ~~2022~~2023 on this lease was $5020,~~483~~779 and $41,673, respectively. ~~There~~Interest was noimputed ~~rent~~using ~~expense~~a ondiscount ~~this lease~~rate ~~during~~of ~~the~~18%. ~~three~~At ~~months~~and ~~ended~~subsequent ~~December~~to March 31, ~~2021.~~2023, ~~Interest~~the ~~was~~Company ~~imputed~~is ~~using~~past adue ~~discount~~on ~~rate~~its monthly oflease ~~18%~~payments.

F-In March 2023, the Company entered into a commercial lease agreement to rent 6,159 square feet located in Phoenix, Arizona. The lease has a term of 27 months with escalating monthly base rent beginning at $13,601 plus parking fees and escalating each to $14,114 plus parking fees in the second year. The Company has recorded the right of use asset and liability to the condensed consolidated balance sheet at March 31, 2023 in the amount of $283,861. Rent expense for the three and six months ended March 31, 2023 on this lease was $13,091. Interest was imputed using a discount rate of 18%.

~~In September~~The ~~2021,~~future ~~the Company signed a seven-year~~ lease ~~to rent approximately 3,000 square feet of retail space in Biddeford, Maine. The lease calls for base rent~~ payments ofare ~~$6,604,~~as ~~plus taxes and operating expenses, per month for the first year and escalate each year to $7,886 per month in year seven~~follows. The lease may be extended for two terms of 5 years each. The commencement of this lease was contingent upon the issuance and receipt of a license and city approval. The agreement will terminate if the contingency is not met. At December 31, 2022, the contingency was not met and the lease was terminated. As such, the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet. Rent expense for the three months ended December 31, 2022 and 2021 on this lease was $22,677 and $6,604, respectively. There was no rent expense on this lease during the three months ended December 31, 2021. Interest was imputed using a discount rate of 18%.

In October 2021, the Company entered into a commercial lease agreement to rent 12,000 square feet located in Denver, Colorado. The lease has a term of five years with escalating monthly base rent beginning at $6,354 and escalating each year to $7,295 in year five. Commencement of the lease was contingent upon the Company receiving an approved retail license within 120 days from October 22, 2021. The agreement was to terminate if the contingency was not met. As of December 31, 2022, the contingency has been met and the Company has recorded the right of use asset and liability to the condensed consolidated balance sheet at December 31, 2022. Rent expense for the three months ended December 31, 2022 on this lease was $20,779. Interest was imputed using a discount rate of 18%.

Year ended
March 31,		Amount
	2024	$	478,262
	2025		327,665
	2026		189,326
	2027		127,725
	2028		78,958
	Thereafter		74,179
			1,276,115
	Less: imputed interest		(338,835	)
			937,280
	Less: current portion:		(336,431	)
		$	600,849

~~The~~As of March 31, 2023 and September 30, 2022, the Company ~~future~~has ~~lease~~accrued ~~payments~~unpaid ~~are~~payroll taxes and estimated penalties and interest of approximately $730,000 and $1,450,000, respectively, and is included in accrued payroll and payroll taxes in the accompanying condensed consolidated balance sheets. During the six months ended March 31, 2023, the Company received approximately $953,000 of Employee Retention Credits ("ERCs") that were used to reduce the unpaid payroll tax liability. In addition, as ~~follows~~a result of the ERCs, the Company reduced its accrued payroll tax liability in the amount of approximately $316,000 related to the reduction of estimated penalties and interest. The ERCs were recorded to payroll and employee related expenses and the reduction of the estimated penalties and interest was recorded to other operating expenses on the condensed consolidated statement of operations. At March 31, 2023, an asset for the overpayment of certain payroll taxes was recorded to other assets on the condensed consolidated balance sheet in the amount of approximately $150,000.

Year ended
December 31,		Amount
	2023	$	339,443
	2024		186,152
	2025		159,301
	2026		149,045
	2027		78,374
	Thereafter		94,212
			1,006,527
	Less: imputed interest		(304,324	)
			702,203
	Less: current portion:		(231,389	)
		$	470,814

There are no material pending legal proceedings, other than the Foreclosure discussed in Note 7 (q, r) above, in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.

As of December 31, 2022 and September 30, 2022, the Company has accrued unpaid payroll taxes and estimated penalties and interest of approximately $579,000 and $1,450,000, respectively, and is included in accrued payroll and payroll taxes in the accompanying condensed consolidated balance sheets. During the three months ended December 31, 2022, the Company received approximately $953,000 of Employee Retention Credits ("ERCs") that were used to reduce the unpaid payroll tax liability. In addition, as a result of the ERCs, the Company reduced its accrued payroll tax liability in the amount of approximately $316,000 related to the reduction of estimated penalties and interest. The ERCs were recorded to payroll and employee related expenses and the reduction of the estimated penalties and interest was recorded to other operating expenses on the condensed consolidated statement of operations. At December 31, 2022, an asset for the overpayment of payroll taxes was recorded to other assets on the condensed consolidated balance sheet in the amount of approximately $150,000.F-16

~~There are~~Note no10 ~~material~~- ~~pending~~Related ~~legal~~Party proceedings in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.Transactions

As discussed in Note 6, the Company completed the purchase 10of 44 acres of land from a related party for $3.0 million plus expenses. The land-owner ~~Related~~is ~~Party~~one ~~Transactions~~of the original members of BSSD and a current employee of the Company.

As discussed in Note 67, the Company ~~completed~~has ~~the~~entered ~~purchase~~into various ofloan 44agreements ~~acres~~with ofViridis ~~land~~or ~~from~~its a related ~~party for $3~~entities.0 ~~million~~A ~~plus~~member ~~expenses.~~of ~~The land-owner~~Viridis isserves ~~one~~on of the ~~original~~Company’s ~~members~~board of ~~BSSD and a current employee of the Company~~directors.

As discussed in Note 7, the Company has ~~entered~~a ~~into various~~ loan ~~agreements~~ agreement with ~~Viridis~~Stockbridge orEnterprises. ~~its~~Stockbridge ~~related~~Enterprises ~~entities.~~holds Amore ~~member~~than 5% of ~~Viridis serves on~~ the Company’s ~~board~~common ~~of directors~~stock.

As discussed in Note 7, the Company has a convertible loan agreement with ~~Stockbridge~~a ~~Enterprises.~~member ~~Stockbridge Enterprises holds more than 5%~~ of the Company’s ~~common~~board ~~stock~~of directors.

As discussed in Note 7, as part of the OCG transaction in March 2021, the Company ~~has~~assumed athe ~~convertible~~debt ~~loan~~that ~~agreement~~OCG, ~~with~~ Inc. owed to its officers. One of these officers is a ~~member~~director and officer of the Company. This officer’s ~~board~~note had a maturity date of April 1, 2024 and an interest rate of 10% per annum. Principal and interest payments were due monthly with a balloon payment of ~~directors~~all outstanding principal and interest due at maturity. On November 2, 2022, the outstanding amount owed on this note of $289,579 was converted at $0.25 per share into 1,158,318 shares of the Company’s common stock.

~~F-19~~As discussed in Note 9, the Company previously had a lease agreement with VGI Capital LLC. As part of the lease termination, the Company entered into a note payable with VGI Citadel LLC. See Note 7. One member of VGI Capital LLC serves on the Company’s board of directors.

~~As discussed~~During ~~in Note 7, as part of~~ the ~~OCG~~three ~~transaction~~months inended March ~~2021~~31, 2023 and 2022, the Company ~~assumed~~purchased ~~the~~cultivation ~~debt~~supplies ~~that~~from ~~OCG,~~a ~~Inc.~~related ~~owed~~party toin ~~its~~the ~~officers. One~~amount of ~~these~~$0 ~~officers is a director~~ and ~~officer~~$18,715, ~~of the Company~~respectively. ~~This~~During ~~officer’s~~the ~~note~~six ~~had~~months aended March ~~maturity date of April 1~~31, ~~2024~~2023 and ~~an interest~~2022, ~~rate~~the ofCompany ~~10%~~purchased ~~per~~cultivation ~~annum.~~supplies ~~Principal~~from ~~and~~a ~~interest~~related ~~payments~~party ~~were~~in ~~due~~the ~~monthly~~amount ~~with a balloon payment~~ of ~~all~~$0 ~~outstanding principal~~ and ~~interest due at maturity. On November 2~~$31, ~~2022~~708, ~~the~~respectively. This ~~outstanding~~related ~~amount~~party ~~owed~~is onowned ~~this~~by ~~note~~the parent of ~~$289,579~~a ~~was~~stockholder ~~converted~~that atholds ~~$0.25~~more ~~per~~than ~~share into~~5% ~~1,158,318 shares~~ of the Company’s common stock.

~~As discussed~~Included in ~~Note~~our 9,accounts ~~the~~payable ~~Company~~at ~~had~~March a31, ~~lease~~2023 and ~~agreement~~September ~~with~~30, ~~VGI~~2022 ~~Capital~~is ~~LLC.~~approximately ~~One~~$174,000, ~~member~~and of$243,000, ~~VGI~~respectively ~~Capital~~in ~~LLC~~amounts ~~serves~~due onto ~~the~~related ~~Company’s board of directors~~parties.

~~During~~In February 2023, the ~~three~~Company ~~months~~entered ~~ended~~into ~~December~~an ~~31,~~Executive ~~2022~~Employment Agreement (“Agreement”) with its Chief Operating Officer. The Agreement is for a period of two years and ~~2021,~~contains ~~the~~provisions ~~Company~~customary ~~purchased~~with ~~cultivation~~similar ~~supplies~~agreements ~~from~~including a ~~related~~six ~~party~~month inseverance and non-competition period upon a termination without cause. Compensation under the ~~amount~~Agreement provides for an annual salary of $0225,000, a signing bonus ~~and~~of $1250,~~993,~~000 ~~respectively.~~paid ~~This~~in ~~related~~the ~~party~~Company’s iscommon ~~owned~~stock byand a transaction bonus in the ~~parent~~event ofthat the Company closes a ~~stockholder~~transaction ~~that~~in ~~holds~~which there ~~more~~is ~~than~~a 5%Change of Control. During February 2023, 319,900 shares of the Company’s common stock were issued for payment of the signing bonus.

~~During~~ ~~the~~Note ~~three~~11 ~~months~~– ~~ended~~Assets ~~December~~Held ~~31, 2022 and 2021, the Company incurred amounts due to a related party~~ for expenses that the related party paid on the Company’s behalf. These expenses included property taxes, utilities, legal expenses and interest on farm purchases. The amounts incurred during the three months ended December 31, 2022 and 2021 were $0 and $9,404, respectively. This related party is owned by the father of a stockholder that holds more than 5% of the Company’s common stock.Sale

~~Included~~During the year ended September 30, 2022, as a result inof ~~our~~a ~~accounts~~shift ~~payable~~in atthe ~~December~~Company’s 31business plan, ~~2022~~the Company approved a plan to sell its newly constructed Nevada facility and ~~September~~the ~~30,~~related cannabis ~~2022~~licenses. isThe ~~approximately~~Company ~~$172,000,~~controls these cannabis licenses through the Asset and ~~$243~~Equity Purchase and Contribution Agreement dated February 14,~~000,~~ ~~respectively~~2020. This sale is expected to occur in ~~amounts due~~the next 12 months. The assets held for sale are recorded at fair value less cost to ~~related~~sell. ~~parties~~Fair value was determined based on the value included in a prior letter of intent. The following assets and liability are included under “Corporate” in Note 13.

Note 11 – Assets Held for Sale

	March 31,
	2023
Assets held for sale
Construction in progress - land and building	$	9,646,612
Licenses		6,703,981
		16,350,593
Valuation allowance		(9,535,593	)
	$	6,815,000

Liabilities related to assets held for sale
Debt	$	5,500,000

~~During the~~Note year ended September 30, 2022, as a result of a shift in the Company’s business plan, the Company approved a plan to sell its newly constructed Nevada facility and the related cannabis licenses. The Company controls these cannabis licenses through the Asset and Equity Purchase and Contribution Agreement dated February 14, 2020. This sale is expected to occur in the next 12 ~~months.~~- ~~The~~Stockholders' assets held for sale are recorded at fair value less cost to sell. Fair value was determined based on the value included in the current letter of intent. The following assets and liability are included under “Corporate” in Note 13.Equity

	December 31,
	2022
Assets held for sale
Construction in progress - land and building	$	9,646,612
Licenses		6,703,981
		16,350,593
Valuation allowance		(9,535,593	)
	$	6,815,000
Liabilities related to assets held for sale
Debt	$	5,500,000

Warrants

~~Note~~The following table summarizes the Company’s 12warrant -activity ~~Stockholders'~~for ~~Equity~~the six months ended March 31, 2023:

Warrants

	Common Shares Issuable Upon Exercise of Warrants			Weighted Average Exercise Price		Weighted Average Contractual Term in Years		Aggregate Intrinsic Value
Balance of warrants at September 30, 2022		49,870,537		$	2.05		3.7	$	315,000

Warrants granted		2,300,000			0.50		2.0
Forfeited/Cancelled		(2,800,000	)		2.57		3.4

Balance of warrants at March 31, 2023		49,370,537		$	1.95		3.6	$	45,000

(1) The ~~following~~ ~~table~~aggregate ~~summarizes~~intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s ~~warrant~~common ~~activity~~stock as of March 31, 2023, for those awards that have an exercise price currently below the ~~three~~closing ~~months~~price ~~ended~~as ~~December~~of March 31, ~~2022:~~2023. Awards with an exercise price above the closing prices as of March 31, 2023 are considered to have no intrinsic value.

	Common Shares Issuable Upon Exercise of Warrants			Weighted Average Exercise Price		Weighted Average Contractual Term in Years		Aggregate Intrinsic Value
Balance of warrants at September 30, 2022		49,870,537		$	2.05		3.7	$	315,000.00
Warrants granted		2,300,000			0.50		2.0
Forfeited/Cancelled		(2,800,000	)		2.57		3.4
Balance of warrants at December 31, 2022		49,370,537		$	1.95		3.6	$	72,000

F-17

FThe following range of assumptions were used to estimate the fair value of warrants issued during the six months ended March 31, 2023, using the Black-20Scholes option-pricing model.

(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of December 31, 2022, for those awards that have an exercise price currently below the closing price as of December 31, 2022. Awards with an exercise price above the closing prices as of December 31, 2022 are considered to have no intrinsic value.

	Six months ended
	March 31, 2023
Expected stock price volatility		127%
Risk-free interest rate		4%
Expected term (years)		2.0
Expected dividend yield		0%
Black-scholes value		$0.23

~~The following~~Stock ~~range of assumptions were used to estimate the fair value of warrants issued during the three months ended December 31, 2022, using the Black-Scholes option-pricing model.~~Options

	Three months ended
	December 31, 2022
Expected stock price volatility		127%
Risk-free interest rate		4%
Expected term (years)		2.0
Expected dividend yield		0%
Black-scholes value		$0.23

On June 21, 2019, the Company’s shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. The maximum contractual term of the award is 10 years. The vesting period for options outstanding at March 31, 2023 ranges from vesting immediately to three years.

~~Stock~~The following table summarizes the Company’s ~~Options~~stock option activity for the six months ended March 31, 2023:

On June 21, 2019, the Company’s shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. The maximum contractual term of the award is 10 years. The vesting period for options outstanding at December 31, 2022 ranges from vesting immediately to three years.

	Common Shares Issuable Upon Exercise of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value (1)
Balance of Options at September 30, 2022		8,594,805		$	1.08		8.3	$	33,162

Options granted		656,656			0.28		8.1		—
Forfeited/Cancelled		(211,365	)		0.70		—		—

Balance of Options at March 31, 2023		9,040,096		$	0.98		7.9	$	7,653

Exercisable at March 31, 2023		5,054,599		$	1.06		7.1	$	6,190
Unvested at March 31, 2023		3,985,497		$	0.86

The following table summarizes the Company’s stock option activity for the three months ended December 31, 2022:

	Number of Options		Weighted Average Grant Date Fair Value
Unvested at March 31, 2023	3,985,497	$	0.83
Granted during the three months ended March 31, 2023	656,656	$	0.31
Forfeited during the three months ended March 31, 2023	211,365	$	0.63

	Common Shares Issuable Upon Exercise of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term in Years		Aggregate Intrinsic Value (1)
Balance of Options at September 30, 2022		8,594,805		$	1.08		8.3	$	33,162.00
Options granted		567,673			0.30		8.1		—
Forfeited/Cancelled		(46,537	)		1.88		—		—
Balance of Options at December 31, 2022		9,115,941		$	1.03		8.0	$	10,204
Exercisable at December 31, 2022		5,151,565		$	1.16		7.2	$	8,253
Unvested at December 31, 2022		3,964,376		$	0.86

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of March 31, 2023, for those awards that have an exercise price currently below the closing price as of March 31, 2023. Awards with an exercise price above the closing prices as of March 31, 2023 are considered to have no intrinsic value.

	Number of Options		Weighted Average Grant Date Fair Value
Unvested at December 31, 2022	3,964,376	$	0.82
Granted during the three months ended December 31, 2022	567,673	$	0.34
Forfeited during the three months ended December 31, 2022	46,537	$	1.86

The following range of assumptions were used to estimate the fair value of stock options granted during the six months ended March 31, 2023, using the Black-Scholes option-pricing model.

		Six months ended
		March 31, 2023
Expected stock price volatility		151% - 158%
Risk-free interest rate		3.7% - 4.3%
Expected term (years)		2.5 - 5.0
Expected dividend yield		0%
Black-scholes value		$0.12 - $0.37

~~F-21~~During the three months ended March 31, 2023 and 2022, the Company recognized compensation expense of $459,460 and $1,091,560, respectively. During the six months ended March 31, 2023 and 2022, the Company recognized compensation expense of $1,512,650 and $1,598,854, respectively. At March 31, 2023, there was $1,994,370 of total unrecognized compensation cost. This unrecognized cost is expected to be recognized over the weighted average vesting period of approximately 1 year.

~~The following range of assumptions were used to estimate the fair value of stock options granted during the three months ended December 31, 2022, using the Black~~F-~~Scholes option-pricing model.~~18

		Three months ended
		December 31, 2022
Expected stock price volatility		151% - 157%
Risk-free interest rate		3.7% - 4.3%
Expected term (years)		2.5 - 5.0
Expected dividend yield		0%
Black-scholes value		$0.24 - $0.37

Note 13 – Segment Information

~~During the~~The ~~three~~Company ~~months~~has ~~ended~~identified ~~December~~two ~~31,~~segments: ~~2022 and 2021,~~ the ~~Company recognized compensation expense of $1~~cultivation,~~053,190~~ production and ~~$507,294,~~sale ~~respectively. At~~of ~~December~~cannabis ~~31,~~products ~~2022,~~(Cultivation) ~~there~~and ~~was~~the ~~$2,499,183~~sales of ~~total~~Unity ~~unrecognized~~Rd. ~~compensation~~franchises ~~cost~~to dispensaries (Franchising). ~~This~~The ~~unrecognized~~following tables ~~cost~~presents issegment ~~expected~~information toat beand ~~recognized over~~for the ~~weighted~~three ~~average~~and ~~vesting~~six ~~period~~months ofended ~~approximately~~March 131, ~~year~~2023 and 2022.

Note 13 – Segment Information

	Cultivation		Franchising			Corporate			Total
Six months ended March 31, 2023
Revenues from external customers	$	10,301,504	$	160,985		$	204,397		$	10,666,886
Operating income (loss)		4,441,067		(1,371,518	)		(5,951,021	)		(2,881,472	)
Interest expense		716,394		6,103			3,046,666			3,769,163
Depreciation and amortization		53,540		594,065			109,759			757,364
Additions to property, equipment and construction in progress		—		—			4,000,588			4,000,588

Three months ended March 31, 2023
Revenues from external customers	$	5,490,414	$	59,133		$	113,460		$	5,663,007
Operating income (loss)		2,685,824		(691,228	)		(3,290,603	)		(1,296,007	)
Interest expense		347,246		1,885			1,758,179			2,107,310
Depreciation and amortization		26,770		294,837			56,401			378,008

At March 31, 2023
Property, equipment and construction in progress, net	$	340,155	$	15,547		$	24,498,295		$	24,853,997
Total assets (after intercompany eliminations)		3,629,770		66,660,086			43,836,788			114,126,644

Six months ended March 31, 2022
Revenues from external customers	$	12,499,107	$	258,498		$	66,592		$	12,824,197
Operating income (loss)		3,009,817		(1,703,385	)		(6,213,329	)		(4,906,897	)
Interest expense		157,062		43,216			2,107,485			2,307,763
Depreciation and amortization		62,532		601,525			217,555			881,612
Additions to property, equipment and construction in progress		—		50,797			13,220,286			13,271,083

Three months ended March 31, 2022
Revenues from external customers	$	6,357,890	$	228,080		$	52,216		$	6,638,186
Operating income (loss)		1,440,522		(744,246	)		(3,468,549	)		(2,772,273	)
Interest expense		156,866		20,406			920,101			1,097,373
Depreciation and amortization		31,267		300,786			110,424			442,477

At March 31, 2022
Property, equipment and construction in progress, net	$	627,009	$	77,346		$	23,305,384		$	24,009,739
Total assets (after intercompany eliminations)		6,804,504		67,876,897			46,192,548			120,873,949

~~The Company~~Note ~~has~~14 ~~identified~~- ~~two~~Subsequent segments: the cultivation, production and sale of cannabis products (Cultivation) and the sales of Unity Rd. franchises to dispensaries (Franchising). The following tables presents segment information at and for the three months ended December 31, 2022 and 2021.Events

	Cultivation		Franchising			Corporate			Total
Three months ended December 31, 2022
Revenues from external customers	$	4,811,090	$	101,852		$	90,937		$	5,003,879
Operating income (loss)		1,755,243		(680,290	)		(2,660,418	)		(1,585,465	)
Interest expense		369,148		4,218			1,288,487			1,661,853
Depreciation and amortization		26,770		299,228			53,358			379,356
Additions to property, equipment and construction in progress		—		6,826			2,065,303			2,072,129
At December 31, 2022
Property, equipment and construction in progress, net	$	366,925	$	24,086		$	22,618,273		$	23,009,284
Total assets (after intercompany eliminations)		2,812,904		67,162,112			44,695,216			114,670,232
Three months ended December 31, 2021
Revenues from external customers	$	6,141,217	$	30,418		$	14,376		$	6,186,011
Operating income (loss)		1,569,295		(959,139	)		(2,744,780	)		(2,134,624	)
Interest expense		196		22,810			1,187,384			1,210,390
Depreciation and amortization		31,265		300,739			107,131			439,135
Additions to property, equipment and construction in progress		—		—			8,399,584			8,399,584
At December 31, 2021
Property, equipment and construction in progress, net	$	658,276	$	77,630		$	18,470,158		$	19,206,064
Total assets (after intercompany eliminations)		7,905,440		68,151,658			40,963,918			117,021,016

Subsequent to March 31, 2023 the following events have occurred.

~~Note~~On May 16, 2023, the Company entered into a Separation 14Agreement and General Release (the “Agreement”) with the Company’s Chief Executive Officer, Michael Weinberger. The Agreement provides for thirty (30) equal biweekly installments of $7,500 and payment of Mr. Weinberger’s previously unreimbursed expenses. Further, Mr. Weinberger is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Weinberger has been paid in full under the Agreement. Finally, Mr. Weinberger is to receive his 2023 fiscal year option to purchase up to 200,000 shares of the Company’s common stock with a strike price based on the current 10-day ~~Subsequent~~VWAP. ~~Events~~ These options vest over a two (2) year period and have a term of five (5) years. The Chairman of the Company’s Board of Directors, Douglas Bowden, will serve as the Company’s Interim Chief Executive Officer.

~~Subsequent to~~The ~~December~~Company 31received debt proceeds of $250,000 ~~2022~~from an ~~the~~individual, ~~following~~with ~~events~~interest ~~have~~only ~~occurred~~payments due weekly. The terms of this debt are still being finalized.

~~On January~~The ~~20, 2023, the~~ Company ~~and~~issued ~~Stockbridge Enterprises~~67,964 ashares ~~related party, entered into the third amendment~~ of ~~the~~common ~~outstanding~~stock ~~promissory note. The amendment calls~~ for ~~monthly principal and interest payments of $25,000 with a final balloon payment of all outstanding principal~~ ~~and interest of $102,156 due at maturity on July 15, 2023~~services.

~~The Company issued 785,506 shares of common stock for services, including 227,776 shares, valued at $50,000, issued to an officer of the Company.~~F-19

~~F-22~~ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~ITEM~~The 2.following ~~MANAGEMENT~~discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended September 30, 2022 and the related Management'Ss ~~DISCUSSION~~Discussion ~~AND~~and ~~ANALYSIS~~Analysis OFof ~~FINANCIAL~~Financial ~~CONDITION~~Condition ~~AND~~and ~~RESULTS~~Results OFof ~~OPERATIONS~~Operations, both of which are contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2022, filed with the Securities and Exchange Commission (the "SEC") on January 13, 2023.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10Forward-QLooking and the audited financial statements and notes thereto as of and for the year ended September 30, 2022 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2022, filed with the Securities and Exchange Commission (the "SEC") on January 13, 2023.Statements

~~Forward~~The information in this discussion contains forward-~~Looking~~looking ~~Statements~~statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the securities Exchange Act of 1934, as amended, (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. The words "anticipated," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "should," "could," "predicts," "potential," "continue," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this quarterly report on Form 10-Q. You should carefully consider these risks and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the securities Exchange Act of 1934, as amended, (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. The words "anticipated," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "should," "could," "predicts," "potential," "continue," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this quarterly report on Form 10-Q. You should carefully consider these risks and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.Overview

~~Overview~~Item 9 Labs Corp. (OTCQX: INLB) is a vertically integrated cannabis operator and dispensary franchisor delivering premium products from its large-scale cultivation and production facilities in the United States. The award-winning Item 9 Labs brand specializes in best-in-class products and user experience across several cannabis categories. The company also offers a unique dispensary franchise model through the national Unity Rd. retail brand. Easing barriers to entry, the franchise provides an opportunity for both new and existing dispensary owners to leverage the knowledge, resources, and ongoing support needed to thrive in their state compliantly and successfully. Item 9 Labs brings the best industry practices to markets nationwide through distinctive retail experience, cultivation capabilities, and product innovation. The veteran management team combines a diverse skill set with deep experience in the cannabis sector, franchising, and the capital markets to lead a new generation of public cannabis companies that provide transparency, consistency, and well-being.

Item 9 Labs Corp. (OTCQX: INLB) is a vertically integrated cannabis operator and dispensary franchisor delivering premium products from its large-scale cultivation and production facilities in the United States. The award-winning Item 9 Nine Labs brand ~~specializes~~seeks into offer best-in-class products and user experience across several cannabis categories. The ~~company~~product ~~also~~catalog ~~offers a unique dispensary franchise model through~~includes ~~the national Unity Rd. retail brand. Easing barriers to entry, the franchise provides~~ an ~~opportunity~~extensive ~~for~~range ~~both~~of ~~new~~premium ~~and~~cannabis ~~existing~~products ~~dispensary owners~~comprised toof ~~leverage~~responsibly ~~the~~cultivated ~~knowledge~~flower, ~~resources,~~Orion ~~and~~vape ~~ongoing~~technology, ~~support~~concentrates ~~needed to thrive in their state compliantly~~ and ~~successfully~~more. ~~Item 9~~ ~~Labs~~The ~~brings~~highly ~~the~~regarded ~~best~~brand ~~industry~~has ~~practices~~received tomore ~~markets~~than ~~nationwide~~thirty-five ~~through~~(35) ~~distinctive~~wins ~~retail experience, cultivation capabilities,~~ and ~~product innovation.~~podium ~~The~~placements ~~veteran management team combines a diverse skill set with deep experience~~ in ~~the~~Arizona ~~cannabis~~marijuana ~~sector~~competitions, ~~franchising~~including Cannabis Cup, ~~and~~Errl ~~the capital~~Cup ~~markets~~and to710 ~~lead~~Degree aCup, ~~new~~across ~~generation~~its suite of ~~public~~high-quality cannabis ~~companies~~products. ~~that~~Item ~~provide~~Nine ~~transparency,~~Labs ~~consistency,~~has ~~and~~delivered ~~well-being.~~over ~~Headquartered~~3 million inpackaged ~~Arizona,~~goods ~~the~~in ~~company is currently expanding~~ its ~~operations~~history, ~~space~~and byover ~~640~~330,000+ ~~square~~units ~~feet~~during ~~on its 50-acre site, one of~~ the ~~largest~~quarter ~~properties in~~ended ~~Arizona~~March ~~zoned~~31, ~~to grow and cultivate flower~~2023.

~~The~~With its national Unity Rd. ~~award-winning~~retail dispensary franchise brand, the Company believes it offers a unique value proposition through both the sale of Item Nine Labs ~~brand~~products and its Unity Rd dispensary franchise model. Easing barriers to entry, the franchise approach seeks to ~~offer~~provide ~~best-in-class~~an ~~products~~opportunity for both new and ~~user~~existing dispensary owners to leverage the knowledge, resources, and ongoing support needed to compliantly thrive in their state. With many years of experience ~~across~~in ~~several~~the legal cannabis ~~categories~~industry and franchising, Unity Rd.’s ~~The~~standard operating procedures guide franchise ~~product~~partners ~~catalogue~~through ~~exceeds~~every ~~seventy-five~~operational ~~(75)~~function ~~active~~of ~~cannabis~~the ~~strains~~business. ~~and~~The ~~more~~dispensary ~~than~~franchise ~~one~~ranked ~~hundred~~in ~~fifty~~the top five (~~150~~5) ~~differentiated~~out ~~cannabis~~of seven hundred ~~vape~~(700) ~~products~~submissions asfor ~~well~~MJBizDaily asmagazine’s ~~premium~~ranking ~~concentrates~~of the top cannabis retail leaders in the nation and ~~Orion~~has ~~vape~~earned ~~technologies.~~high ~~The~~placements in ~~highly~~several ~~regarded~~trade ~~brand~~industry lists. Unity Rd. has ~~received~~agreements with more than twenty ~~five~~(20) entrepreneurial groups to open more than thirty (2530) ~~wins~~Unity ~~and~~Rd. ~~podium~~retail ~~placements~~dispensary locations in ~~Arizona~~more ~~marijuana~~than ~~competitions,~~ten ~~including~~(10) ~~Cannabis~~states. ~~Cup,~~The ~~Errl~~majority ~~Cup~~of ~~and~~the ~~710~~locations ~~Degree~~are ~~Cup,~~in ~~for~~the ~~its~~licensing process. The Company ~~high-quality,~~makes ~~premium~~its ~~flower~~best efforts to obtain these dispensary licenses, ~~concentrates~~though ~~and~~it ~~vape~~can ~~products.~~make ~~Item~~no ~~Nine~~assurances ~~Labs~~that ~~has~~the ~~delivered~~licenses ~~over~~will 3be ~~million~~awarded. ~~packaged~~We ~~goods~~currently have two franchisees operating in ~~its history~~Hartford, South Dakota and ~~over~~Boulder, ~~290~~Colorado. Additionally,~~000~~ ~~units~~the ~~during~~Company ~~the~~has ~~quarter~~one ~~ended~~(1) ~~December~~dispensary owned 31and operated by its wholly owned subsidiary in North Denver, ~~2022~~CO.

~~With~~On ~~its~~March ~~national~~11, ~~Unity Rd. retail dispensary franchise brand~~2022, the Company entered ~~believes~~into itan ~~offers~~Asset aPurchase ~~unique~~Agreement ~~value~~with ~~proposition~~The ~~through~~Herbal ~~both~~Cure ~~the~~LLC, ~~sale~~a ofColorado ~~Item~~limited ~~Nine~~liability ~~Labs products~~company, ~~and~~pursuant ~~its~~to ~~Unity~~which Rdthe ~~dispensary~~Company is ~~franchise~~purchasing ~~model~~certain assets. ~~Easing~~Effective ~~barriers~~upon ~~to entry,~~ the ~~franchise~~completion ~~approach~~of ~~seeks~~the tosale, ~~provide~~which anhas ~~opportunity for~~not ~~both~~occurred ~~new~~as ~~and~~of ~~existing~~the ~~dispensary~~date ~~owners~~of tothis ~~leverage~~filing, the ~~knowledge~~licenses, contracts ~~resources,~~ and ~~ongoing~~certain ~~support~~personal ~~needed~~property to ~~compliantly~~operate ~~thrive~~a ~~in their~~licensed ~~state.~~medicinal ~~With~~and ~~many~~recreational ~~years~~cannabis ofdispensary ~~experience~~will inbe delivered to the Company. ~~legal~~The ~~cannabis~~total ~~industry~~purchase ~~and~~price ~~franchising~~is $5,750,000, ~~Unity~~as ~~Rd.’s~~to ~~standard~~which ~~operating~~$250,000 ~~procedures guide~~is ~~franchise~~to ~~partners~~be ~~through~~paid ~~every~~upon ~~operational~~execution ~~function~~ of the ~~business.~~Asset ~~The~~Purchase ~~dispensary~~Agreement, ~~franchise~~$3,700,000 payable ~~ranked~~at inclosing, ~~the~~$700,000 ~~top~~shall ~~five~~be ~~(5)~~financed ~~out of~~by ~~seven~~seller ~~hundred~~pursuant ~~(700)~~to ~~submissions~~a ~~for~~Secured ~~MJBizDaily~~Promissory ~~magazine’s~~Note ~~ranking~~and the remainder of the ~~top~~purchase ~~cannabis~~prices shall ~~retail~~be ~~leaders~~paid in ~~the~~shares ~~nation~~of ~~and~~the ~~has~~Company’s ~~earned high~~common ~~placements~~stock inon ~~several~~the ~~trade~~closing ~~industry lists~~date. ~~Unity~~The RdSecured ~~has~~Promissory ~~agreements~~Note ~~with~~shall ~~more~~accrue ~~than~~interest ~~twenty~~at 5% ~~(20)~~per ~~entrepreneurial~~annum ~~groups~~and tohave ~~open~~a ~~more than~~term ~~thirty~~of ~~(30)~~18 ~~Unity~~months, Rdcommencing ~~retail~~on ~~dispensary~~the ~~locations~~closing date, payable in ~~more~~even ~~than~~monthly ~~ten~~installments ~~(10)~~until ~~states~~paid in full. The shares ~~majority~~ of the ~~locations~~Company’s ~~are~~common instock ~~the~~to ~~licensing process.~~be ~~The~~issued ~~Company~~shall ~~makes~~be ~~its~~in ~~best~~such ~~efforts~~an toamount ~~obtain~~as ~~these~~is ~~dispensary~~the ~~licenses,~~quotient ~~though~~of it$1,100,000 ~~can~~divided ~~make~~by nothe ~~assurances~~product of ~~that~~ the ~~licenses~~10-day ~~will be~~volume ~~awarded.~~weighted Weaverage ~~currently~~price ~~have~~of ~~two~~the ~~franchisees~~shares ~~operating~~as inof ~~Hartford,~~the ~~South~~closing ~~Dakota~~date and ~~Boulder, Colorado~~85%. ~~Additionally,~~ Given the ~~Company has~~current ~~two~~capital ~~(2)~~constraints ~~dispensaries~~of ~~owned~~the Company and ~~operated~~the bymarket ~~its~~as ~~wholly~~a ~~owned dispensaries~~whole, ~~one~~it inis ~~North~~unlikely ~~Denver,~~that ~~CO,~~this ~~and~~acquisition ~~another~~will inbe ~~Oklahoma City, OK~~closed.

2320

On ~~March~~ 11May 18, 2022, Item 9 Labs Corp., a Delaware corporation (“Company”), and OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario (“Purchaser”) and a wholly owned subsidiary of the Company incorporated solely for the purpose of completing the transaction, entered into ana ~~Asset~~Share Purchase Agreement ~~with~~(the ~~The~~“Agreement”) ~~Herbal~~with ~~Cure~~Steven ~~LLC~~Fry, aNajla ~~Colorado~~Guthrie, ~~limited~~Darryl ~~liability company~~Allen, Louis ~~pursuant~~Laskovski, toeach ~~which~~an individual residing in the ~~Company~~Province isof ~~purchasing~~Ontario, ~~certain~~and ~~assets~~2628146 Ontario Ltd., ~~Effective~~a ~~upon~~corporation formed under the ~~completion~~laws of the Province ~~sale~~of Ontario, ~~which~~and ~~has~~11949896 ~~not~~Canada ~~occurred~~Inc., asa ofcorporation formed under the ~~date~~ federal laws of ~~this~~Canada ~~filing~~(together, the ~~licenses~~“Shareholders”), pursuant ~~contracts~~to ~~and~~which ~~certain~~Purchaser ~~personal~~is ~~property~~purchasing toall ~~operate~~(but anot ~~licensed~~less ~~medicinal~~than all) of the issued and ~~recreational~~outstanding ~~cannabis~~shares in the capital of Wild Card ~~dispensary~~Cannabis ~~will~~Incorporated, bea ~~delivered~~corporation toformed under the ~~Company~~laws of the Province of Ontario, (“Shares”) free and clear of all Liens from the Shareholders. The total purchase price for the Shares is $512,~~750~~800,000 (the “Purchase Price”), as toadjusted, ~~which~~plus ~~$250~~the Earnout Payment,~~000~~ isif toany be(collectively, ~~paid~~the ~~upon~~“Purchase ~~execution~~Price”) payable as follows: (i) The Company has delivered the Exclusivity Deposit in the amount of $156,902 to the ~~Asset~~Escrow ~~Purchase~~Agent ~~Agreement~~on March 4, 2022; (ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of $312,~~700~~800,000, ~~payable~~as ~~at closing~~adjusted, in immediately available funds; (iii) $~~700~~4,100,000, ~~shall~~as beadjusted, ~~financed~~ payable by ~~seller~~the ~~pursuant~~delivery toof athe ~~Secured~~Company’s ~~Promissory Note~~common ~~and~~stock, the ~~remainder~~number of which will be calculated on the ~~purchase~~basis ~~prices~~of ~~shall~~a bedeemed ~~paid~~price inper ~~shares~~common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the ~~closing~~stock ~~date.~~exchange ~~The~~upon ~~Secured~~which the Company’s ~~Promissory~~common ~~Note~~stock ~~shall~~is ~~accrue~~listed, ~~interest~~with atthe 5%last ~~per~~day ~~annum~~of ~~and~~the ~~have~~First aEarnout ~~term~~Period of(the 18date ~~months,~~that ~~commencing~~is on12 months following the ~~closing~~Closing Date) as the measurement date, ~~payable~~less ina ~~even~~15% ~~monthly installments~~discount, ~~until~~if ~~paid~~actual inNet ~~full.~~Revenue ~~The~~is ~~shares~~respect of the ~~Company’s~~First ~~common~~Earnout ~~stock~~Period tois begreater ~~issued~~than ~~shall~~or beequal into ~~such~~the anTarget ~~amount~~Net asRevenue for is the ~~quotient of~~First Earnout Period; and (iv) $14,100,000, ~~divided~~as adjusted, payable by the ~~product~~delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-~~day~~Day ~~volume~~VWAP ~~weighted~~of ~~average~~the trading price of the Company’s ~~shares~~common asstock on the stock exchange upon which the Company’s common stock is listed, with the last day of the ~~closing~~Second Earnout Period (the date ~~and~~that 85is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period. The Company can provide no assurance that it will be successful in finalizing this acquisition.

~~On May~~Results ~~18, 2022, Item 9 Labs Corp., a Delaware corporation (“Company”), and OCG Management Ontario, Inc., a corporation formed under the laws~~ of the Province of Ontario (“Purchaser”) and a wholly owned subsidiary of the Company incorporated solely for the purpose of completing the transaction, entered into a Share Purchase Agreement (the “Agreement”) with Steven Fry, Najla Guthrie, Darryl Allen, Louis Laskovski, each an individual residing in the Province of Ontario, and 2628146 Ontario Ltd., a corporation formed under the laws of the Province of Ontario, and 11949896 Canada Inc., a corporation formed under the federal laws of Canada (together, the “Shareholders”), pursuant to which Purchaser is purchasing all (but not less than all) of the issued and outstanding shares in the capital of Wild Card Cannabis Incorporated, a corporation formed under the laws of the Province of Ontario, (“Shares”) free and clear of all Liens from the Shareholders. The total purchase price for the Shares is $12,800,000 (the “Purchase Price”), as adjusted, plus the Earnout Payment, if any (collectively, the “Purchase Price”) payable as follows: (i) The Company has delivered the Exclusivity Deposit in the amount of $156,902 to the Escrow Agent on March 4, 2022; (ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of $12,800,000, as adjusted, in immediately available funds; (iii) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the First Earnout Period (the date that is 12 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the First Earnout Period is greater than or equal to the Target Net Revenue for the First Earnout Period; and (iv) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the Second Earnout Period (the date that is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period.Operations

Results of Operations

	Six months ended March 31,
	2023			2022			$ Change			% Change
Revenues, net	$	10,666,886		$	12,824,197		$	(2,157,311	)		-17	%
Cost of revenues		4,326,878			7,748,193			(3,421,315	)		-44	%
Gross profit		6,340,008			5,076,004			1,264,004			25	%
Operating expenses
Professional fees and outside services		2,013,518			1,214,166			799,352			66	%
Payroll and employee related expenses		4,392,463			5,205,950			(813,487	)		-16	%
Sales and marketing		672,971			1,053,338			(380,367	)		-36	%
Depreciation and amortization		757,364			881,612			(124,248	)		-14	%
Other operating expenses		1,385,164			1,632,835			(247,671	)		-15	%
Provision for bad debt		—			(5,000	)		5,000			100	%
Total operating expenses		9,221,480			9,982,901			(761,421	)		-8	%
Loss from operations		(2,881,472	)		(4,906,897	)		2,025,425			-41	%
Other expense, net		(3,765,678	)		(2,307,445	)		(1,458,233	)		63	%
Net loss, before income tax provision (benefit)		(6,647,150	)		(7,214,342	)		567,192			-8	%
Income tax provision (benefit)		7,359			3,324			4,035			0	%
Net loss		(6,654,509	)		(7,217,666	)		563,157			-8	%
Less: Net loss attributable to non-controlling interests		19,896			5,426			14,470			100	%
Net loss attributable to Item 9 Labs Corp.	$	(6,674,405	)	$	(7,223,092	)	$	548,687			-8	%

	Three months ended December 31,
	Three months ended March 31,
	2022			2021			$ Change			% Change
	2023			2022			$ Change			% Change
Revenues, net	$	5,~~003~~663,~~879~~007		$	6,~~186~~638,~~011~~186		$	(1975,~~182,132~~179	)		-1915	%
Cost of revenues		21,~~382~~944,~~006~~872			3,~~787~~960,~~245~~948			(12,~~405~~016,~~239~~076	)		-3751	%
Gross profit		23,~~621~~718,~~873~~135			2,~~398~~677,~~766~~238			~~223~~1,~~107~~040,897			939	%
Operating expenses
Professional fees and outside services		~~855~~1,~~660~~157,858			~~657~~556,~~445~~721			~~198~~601,~~215~~137			30108	%
Payroll and employee related expenses		2,~~189~~202,~~824~~639			23,~~150~~055,~~706~~244			39(852,~~118~~605	)		2-28	%
Sales and marketing		~~287~~385,~~949~~022			~~439~~613,~~436~~902			(~~151~~228,~~487~~880	)		-3437	%
Depreciation and amortization		~~379~~378,~~356~~008			~~439~~442,~~135~~477			(5964,~~779~~469	)		-1415	%
Other operating expenses		~~494~~890,~~549~~615			~~846~~786,~~668~~167			~~(352~~104,~~119~~448	)		~~-42~~13	%
Total operating expenses		4,207,338			4,533,390			(326,052	)		-7	%
Provision for (recovery of) bad debt		—			(5,000	)		5,000			100	%
Loss from operations		(1,585,465	)		(2,134,624	)		549,159			-26	%
Total operating expenses		5,014,142			5,449,511			(435,369	)		-8	%
Other expense, net		(1,658,368	)		(1,210,390	)		(447,978	)		37	%
Income (loss) from operations		(1,296,007	)		(2,772,273	)		1,476,266			-53	%
Net loss, before income tax provision (benefit)		(3,243,833	)		(3,345,014	)		101,181			-3	%
Other expense, net		(2,107,310	)		(1,097,055	)		(1,010,255	)		92	%
Income tax provision (benefit)		3,740			—			3,740			0	%
Net income (loss), before income tax provision (benefit)		(3,403,317	)		(3,869,328	)		466,011			-12	%
Net loss		(3,247,573	)		(3,345,014	)		97,441			-3	%
Income tax provision (benefit)		3,619			3,324			295			0	%
Less: Net loss attributable to non-controlling interests		10,111			—			10,111			100	%
Net income (loss)		(3,406,936	)		(3,872,652	)		465,716			-12	%
Net loss attributable to Item 9 Labs Corp.	$	(3,257,684	)	$	(3,345,014	)	$	87,330			-3	%
Less: Net loss attributable to non-controlling interests		9,785			5,426			4,359			100	%
Net loss attributable to Item 9 Labs Corp.	$	(3,416,721	)	$	(3,878,078	)	$	461,357			-12	%

24Revenues

~~Revenues~~The decrease in revenue for the three and six months ended March 31, 2023 was primarily due to the effects of the Arizona cannabis market stabilizing, causing price compression, as well as the Company’s addition of product lines with lower unit sales prices. The impact of the changing market conditions in Arizona was countered by an increase in the number of units sold during the three and six month periods compared to the same periods in the prior year.

The decrease in revenue for the three months ended December 31, 2022 was primarily due to the effects of the Arizona cannabis market stabilizing, causing price compression, as well as the Company’s addition of product lines with lower unit sales prices. The impact of the changing market conditions in Arizona was countered by a significant increase in the number of units sold during the quarter compared to the same quarter in the previous year.21

Cost of Revenues

Cost of revenues consist primarily of labor, materials, supplies and utilities. Cost of revenues as a percentage of revenues was 4834% and 41% for the three and six months ended ~~December~~March 31, ~~2022~~ 2023 compared to 6160% for the three and six months ended ~~December~~March 31, ~~2021~~2022. This is primarily the result of decreases in the unit costs the Company pays for materials resulting from additional competition in material suppliers. Management will remain focused on reducing costs through bulk purchasing, implementing additional efficiencies in production and making additional investments in property and equipment. ~~The Company believes that it will reduce the overall cost of revenues and cost of revenues will increase at a lower rate than revenues in future periods, which will lead to increased profit margins.~~

Gross Profit

The increase in gross profit as a percentage of revenue for the three and six months ended ~~December~~March 31, ~~2022~~2023 was due to decreases in cost of revenue being greater than the decreases in revenue. As As the Company experienced decreases in its unit sales price due to increased competition, so too did the Company’s suppliers, though the decreased costs have proven to be greater than the decreased unit sales prices. As a result, and given the production efficiencies achieved in previous quarters, the Company has been able to increase gross profit on decreased revenues. ~~With the Company’s continued efforts to increase capacity and focus on efficiencies and reducing costs, management expects gross profit to increase going forward.~~

Operating Expenses

Professional fees and outside services increased for the three and six months ended ~~December~~March 31, ~~2022~~2023 compared to the three and six months ended ~~December~~March 31, ~~2021~~ 2022 primarily due to the amount accrued for consulting services received related to the Company’s employee retention credits, ~~and~~ legal fees incurred on the pending Sessions acquisition and legal and consulting fees incurred related to the default on the Pelorus debt. The increase in consulting services was offset by a decrease in ~~stockholder~~consulting ~~administration~~ services related to cannabis licensing.

Payroll expenses ~~were~~decreased ~~consistent~~ when comparing the three and six months ended ~~December~~March 31, ~~2022~~2023 and the three and six months ended ~~December~~March 31, ~~2021~~2022. Payroll and employee related expenses increased during the six months ended March 31, 2023 as a result of an accrual for expenses incurred related to our change in Chief Executive Officer ~~and an increase in stock compensation expense~~. These additional expenses were offset by the Employee Retention Credits ("ERCs") received during the current ~~quarter~~six month period and a reduction of employee headcount. Payroll and employee related expenses decreased during the three months ended March 31, 2023 as a result of decreased stock based compensation expense and a reduction of employee headcount.

Sales and marketing expenses decreased due to a decrease of promotional items and a general decrease in spending on third party marketing vendors during the ~~quarter~~three and six months ended ~~December~~March 31, ~~2022~~ 2023.

The decrease in depreciation and amortization is due primarily to a decrease in amortization expense as a result of the intangible asset impairment recorded during the year ended September 30, 2022.

Other operating expenses decreased during the six months ended March 31, 2023 compared to the same period of the prior year primarily due to the reversal of penalties and interest on previously unpaid payroll taxes as a result of receiving the ERCs during the six months ended March 31, 2023. Other operating expenses during the three months ended ~~December~~March 31, ~~2022~~2023 were consistent with those of the same period of the prior year.

Total operating expenses as a percentage of gross profit decreased from 204% and 189% for the three and six months ended ~~December~~March 31, ~~2021~~2022 compared to ~~160~~134% and 145% for the three and six months ended ~~December~~March 31, ~~2022~~2023. Management believes this ratio will decrease for profit center segments going forward due to management’s plans to continue to decrease operating expenses and as the expectation is that revenues will grow at a higher rate than operating expenses.

Other Expense, net

Other expenses consist primarily of interest expense of $12,~~661~~107,~~853~~310 and $3,769,163 for the three and six months ended ~~December~~March 31, ~~2022~~2023 and $1,~~210~~097,~~390~~373 and $2,307,763 for the three ~~months~~ and six months ended ~~December~~March 31, ~~2021~~2022. The increase in interest expense was primarily the result of the interest expense and amortization of ~~discounts~~ discounts on the debt financing the Nevada construction. The interest and discount amortization expense related to the Nevada construction ~~debt~~ debt was capitalized into construction in progress during the ~~quarter~~first three months of the six months ended ~~December~~March 31, ~~2021~~2022. As the Nevada expansion is substantially complete, the related interest and discount amortization are recorded to interest expense for all of the six months ended March 31, 2023. In addition, the Company incurred additional interest expense on the debt financing the Nevada construction during the six months ended March 31, 2023 as a result of the debt going into default during the year ended September 30, 2022 and incurring default interest and other fees. Further, additional interest expense was incurred during the three and six months ended ~~December~~March 31, 2023 as a result of the additional debt incurred subsequent to April 1, 2022.

25Adjusted EBITDA

Management uses the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation expense, acquisition-related costs, employee retention credits and other adjustments, or “Adjusted EBITDA,” to evaluate the Company’s performance. Adjusted EBITDA is a non-GAAP measure that is also frequently used by analysts, investors and other interested parties to evaluate the market value of companies considered to be in similar businesses. The Company suggests that Adjusted EBITDA be viewed in conjunction with its reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the United States, or “US GAAP.”

~~Management uses~~The ~~the~~following ~~non-GAAP~~table ~~measurement~~reflects ofthe ~~earnings~~reconciliation ~~before interest, taxes, depreciation, amortization, stock-related compensation expense, acquisition-related~~of ~~costs,~~net ~~employee~~loss ~~retention~~to ~~credits and other adjustments, or “~~Adjusted EBITDA,” tofor ~~evaluate~~ the ~~Company’s~~three ~~performance. Adjusted EBITDA~~and issix amonths ~~non-GAAP~~ended ~~measure~~March ~~that is also frequently used by analysts~~31, ~~investors~~2023 and other interested parties to evaluate the market value of companies considered to be in similar businesses. The Company suggests that Adjusted EBITDA be viewed in conjunction with its reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the United States, or “US GAAP.”2022:

The following table reflects the reconciliation of net loss to Adjusted EBITDA for the three months ended December 31, 2022 and 2021:

	Three months ended March 31,						Six months ended March 31,
	2023			2022			2023			2022
Net loss	$	(3,406,936	)	$	(3,872,652	)	$	(6,654,509	)	$	(7,217,666	)
Depreciation and amortization		378,008			613,902			757,364			881,612
Interest expense		2,107,310			1,097,373			3,769,163			2,307,763
Income tax expense		3,619			3,324			7,359			3,324
Stock-based expense		539,460			1,363,485			1,792,650			1,870,779
Acquisition related costs		776,739			23,676			867,978			23,676
Employee retention credits		—			—			(952,805	)		—
Adjusted EBITDA	$	398,200		$	(770,892	)	$	(412,800	)	$	(2,130,512	)

	Three months ended December 31,
	2022			2021
Net loss	$	(3,247,573	)	$	(3,345,014	)
Depreciation and amortization		379,356			439,135
Interest expense		1,661,853			1,210,390
Income tax expense		3,740			—
Stock-based expense		1,053,190			507,294
Acquisition related costs		91,239			—
Employee retention credits		(952,805	)		—
Adjusted EBITDA	$	(1,011,000	)	$	(1,188,195	)

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

The Company’s primary need for liquidity is to fund working capital requirements of its business, capital expenditures, acquisitions, debt service, and for general corporate purposes. The Company’s primary source of liquidity is funds generated from revenues, financing activities and from private placements. The Company’s ability to fund its operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on its future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond the Company’s control.

The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, realization of a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company is in default on numerous financial obligations and its property in Arizona is currently in the foreclosure process. The Company operates in a new, developing industry with a variety of competitors. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

In order to continue as a going concern, the Company will need to generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows:

Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing the products it produces to dispensaries throughout the state of Arizona. The Company’s revenues have increased significantly since its inception in May 2017. Management will continue its plans to increase revenues in the Arizona market by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona. The Company believes that it will continue reducing the overall costs of revenues and costs of revenues will increase at a lower rate than revenues in future periods, which is expected to lead to increased profit margins.

Financing. To date, the Company has financed its operations primarily with loans from third parties and shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful.

26If the Company is unable to generate additional sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations, and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

If As of March 31, 2023, the Company ishad ~~unable~~$101,150 toof ~~generate~~cash and ~~additional~~cash ~~sales~~equivalents ~~growth~~and innegative ~~the~~working ~~near~~capital ~~term~~of ($43,454,926) (current assets minus current liabilities), compared with $85,637 of cash and ~~raise~~cash ~~additional~~equivalents and negative working capital of ($37,032,478) ~~there~~as of September 30, 2022. The decrease of $6,422,448 in the Company’s working capital is aprimarily ~~risk~~due ~~that~~to increases in the amount of the Company’s debt maturing within the next 12 months. The decrease ~~could~~is ~~default~~also ondue ~~additional~~to ~~obligations~~decreases in the Company’s inventory and prepaid balances and increases in the Company’s other operating liabilities. The $13,513 decrease in cash and ~~could~~cash beequivalents ~~required~~was primarily due to ~~discontinue~~the ornet ~~significantly~~cash ~~reduce~~used in operating activities offset by proceeds from the ~~scope~~issuance of debt. The Company is an early-stage growth company. It is generating cash from sales and is investing its ~~operations~~capital ifreserves noin ~~other~~current ~~means~~operations ofand ~~financing~~new ~~operations~~acquisitions that are ~~available.~~expected ~~The~~to ~~condensed~~generate ~~consolidated~~additional ~~financial~~earnings ~~statements~~in dothe ~~not~~long ~~include~~term. ~~any~~The ~~adjustments~~Company expects that ~~relating~~its tocash ~~the~~on ~~recoverability~~hand and ~~classification~~cash offlows ~~recorded~~from ~~asset~~operations, ~~amounts~~along with private and/or ~~the~~public ~~amount~~financing, ~~and~~will ~~classification~~be ofadequate ~~liabilities~~to ormeet ~~any~~its ~~other~~capital requirements ~~adjustment~~and ~~that~~operational ~~might~~needs for the next 12 months, although no assurance can be ~~necessary~~given ~~should~~that ~~the~~private ~~Company~~and/or public financing can be ~~unable~~obtained on terms acceptable to ~~continue~~the asCompany, aor ~~going~~at ~~concern~~all.

~~As of~~Cash December 31, 2022, the Company had $21,781 of cash and cash equivalents and negative working capital of ($43,728,770) (current assets minus current liabilities), compared with $85,637 of cash and cash equivalents and negative working capital of ($37,032,478) as of September 30, 2022. The decrease of $6,696,292 in the Company’s working capital is primarily due to increases in the amount of the Company’s debt maturing within the next 12 months. The decrease is also due to decreases in the Company’s inventory and prepaid balances and increases in the Company’s other operating liabilities. The $63,856 decrease in cash and cash equivalents was primarily due to the net cash used in operating activities offset by proceeds from the issuance of debt. The Company is an early-stage growth company. It is generating cash from sales and is investing its capital reserves in current operations and new acquisitions that are expected to generate additional earnings in the long term. The Company expects that its cash on hand and cash flows from operations, along with private and/or public financing, will be adequate to meet its capital requirements and operational needs for the next 12 months, although no assurance can be given that private and/or public financing can be obtained on terms acceptable to the Company, or at all.Flows

~~Cash~~The following table summarizes the sources and uses ~~Flows~~of cash for each of the periods presented:

The following table summarizes the sources and uses of cash for each of the periods presented:

	Six months ended March 31,
	2023			2022			$ Change			% Change
Net cash used in operating activities	$	(1,032,056	)	$	373,812		$	(1,405,868	)		-376	%
Net cash used in investing activities		(5,331	)		(4,012,703	)		4,007,372			-100	%
Net cash provided by financing activities		1,052,900			2,289,559			(1,236,659	)		-54	%
Net increase (decrease) in cash and cash equivalents	$	15,513		$	(1,349,332	)	$	1,364,845			-101	%

	Three months ended December 31,
	2022			2021			$ Change			% Change
Net cash used in operating activities	$	(1,334,644	)	$	(267,694	)	$	(1,066,950	)		399	%
Net cash used in investing activities		(6,825	)		(1,439,155	)		1,432,330			-100	%
Net cash provided by financing activities		1,277,613			413,100			864,513			209	%
Net increase (decrease) in cash and cash equivalents	$	(63,856	)	$	(1,293,749	)	$	1,229,893			-95	%

Operating Activities

~~Operating~~During the six months ended March 31, 2023, operating ~~Activities~~activities used $1,032,056 of cash and cash equivalents, primarily resulting from a net loss of $6,654,509 which was offset by net cash provided by operating assets and liabilities of $2,861,126. There was significant non-cash activity that contributed to the net loss totaling $2,761,327 including depreciation and amortization of $885,627, amortization of debt discount of $1,004,903, and stock-based compensation of $1,792,650. These non-cash expenses were offset by the non-cash employee retention credits of $952,805.

During the ~~three~~ six months ended ~~December~~March 31, 2022, operating activities ~~used~~provided $1373,~~334,644~~812 of cash and cash ~~equivalents~~equivalent, primarily resulting from a net loss of $37,~~247~~217,~~573~~666 which was offset by net cash provided by operating assets and liabilities of $~~833~~3,~~984~~173,658. There was significant non-cash activity that contributed to the net loss totaling $14,~~078~~516,~~945~~521 including depreciation and amortization of $~~443~~911,~~107~~576, amortization of debt discount of $~~504~~1,~~501~~728,325, and stock-based compensation of $1,~~053~~870,~~190~~779. ~~These non-cash expenses were offset by the non-cash employee retention credits of $952,805.~~

During the three months ended December 31, 2021, operating activities used $267,694 of cash and cash equivalent, primarily resulting from a net loss of $3,345,041 which was offset by net cash provided by operating assets and liabilities of $1,137,981. There was significant non-cash activity that contributed to the net loss totaling $1,939,339 including depreciation and amortization of $441,764, amortization of debt discount of $990,281, and stock based compensation of $507,294. 23

Investing Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, investing activities used $65,~~825~~331 of cash and cash equivalents, consisting entirely of ~~$6,825 in~~ purchases of property, equipment and construction in progress.

During the ~~three~~ six months ended ~~December~~March 31, ~~2021~~2022, investing activities used $14,~~439~~012,~~155~~703 of cash and cash equivalents, consisting primarily of $23,~~492~~235,~~445~~125 in purchases of property, equipment and construction in progress, ~~offset~~the bypurchase of a dispensary license in the amount of $1,~~053~~130,~~290~~872 and cash paid to acquisition escrow accounts of $381,932, offset by $794,807 of cash received from the escrow deposit accounts.

Financing Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2022~~2023, financing activities provided $1,~~277~~052,~~613~~900, consisting of $1,~~597~~585,~~500~~000 in proceeds from the issuance of debt and offset by $~~319~~532,~~887~~100 of debt payments made.

During the ~~three~~six months ended March ~~December~~ 31, ~~2021~~2022, financing activities provided $~~413~~2,~~100~~289,559, consisting of $13,~~500~~980,~~000~~762 in proceeds from the issuance of debt, $288,841 in proceeds from the issuance of stock and offset by $1,~~068~~944,~~150~~294 in debt payments made.

27Given that our cash needs are strongly driven by our growth requirements, we also intend to maintain a cash reserve for other risk contingencies that may arise.

~~Given that~~We intend to meet our cash ~~needs~~requirements ~~are~~for ~~strongly~~the ~~driven~~next 12 bymonths ~~our~~through ~~growth~~the ~~requirements,~~use of the cash we have on hand and through business operations, future equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We are also ~~intend~~in discussions with various potential capital partners to ~~maintain~~provide aadditional ~~cash~~debt ~~reserve~~capital for accretive acquisitions. We do not have any other ~~risk~~arrangements ~~contingencies~~in place to complete any private placement financings of debt and equity. There is no assurance that ~~may~~we ~~arise~~will be successful in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.

~~We intend~~Off-Balance toSheet meet our cash requirements for the next 12 months through the use of the cash we have on hand and through business operations, future equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We are also in discussions with various potential capital partners to provide additional debt capital for accretive acquisitions. We do not have any other arrangements in place to complete any private placement financings of debt and equity. There is no assurance that we will be successful in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.Arrangements

~~Off~~We are not currently a party to, or otherwise involved with, any off-~~Balance~~balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial ~~Sheet~~condition, ~~Arrangements~~changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

~~We are~~Critical ~~not~~Accounting currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.Policies

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Critical accounting policies and estimates in these condensed consolidated financial statements ~~Accounting~~are ~~Policies~~those related to revenue recognition, valuation of options, warrants and debt discounts, carrying value of intangible assets subject to amortization, infinite life intangible assets and goodwill, stock-based compensation, and income taxes. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the year ended September 30, 2022. Management believes that there have been no material changes in our critical accounting policies during the three months ended March 31, 2023.

~~Our discussion~~Recently ~~and~~Issued ~~analysis~~Accounting of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Critical accounting policies and estimates in these condensed consolidated financial statements are those related to revenue recognition, valuation of options, warrants and debt discounts, carrying value of intangible assets subject to amortization, infinite life intangible assets and goodwill, stock-based compensation, and income taxes. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the year ended September 30, 2022. Management believes that there have been no material changes in our critical accounting policies during the three months ended December 31, 2022.Pronouncements

~~Recently~~See Note 1 to our condensed consolidated financial ~~Issued~~statements, ~~Accounting~~included ~~Pronouncements~~in Part I, Item 1, Financial Information for this quarterly report on Form 10-Q.

~~See Note~~Contractual ~~1 to our condensed consolidated financial statements, included in Part I, Item 1, Financial Information for this quarterly report on Form 10-Q.~~Obligations

~~Contractual~~We are a smaller reporting company as defined by Rule ~~Obligations~~12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

~~We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.~~24

28ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~ITEM~~We 3.are ~~QUANTITATIVE~~a ~~AND~~smaller ~~QUALITATIVE~~reporting ~~DISCLOSURES~~company as ~~ABOUT~~defined ~~MARKET~~by ~~RISK~~Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

~~We are~~ITEM a4. ~~smaller~~CONTROLS ~~reporting~~AND ~~company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.~~PROCEDURES

~~ITEM~~ Evaluation 4.of ~~CONTROLS~~Disclosure ~~AND~~Controls ~~PROCEDURES~~and Procedures

Disclosure controls and procedures ~~Evaluation~~are ofcontrols and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure ~~Controls~~controls and procedures include, without limitation, controls and ~~Procedures~~procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2023.

~~Disclosure controls~~Identified ~~and~~Material procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2022.Weaknesses

~~Identified~~A material weakness in our internal ~~Material~~control ~~Weaknesses~~over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

AManagement identified the following material ~~weakness~~weaknesses induring ~~our~~its assessment of internal ~~control~~controls over financial reporting ~~is a control deficiency~~, orwhich ~~combination~~are ofprimarily ~~control~~due ~~deficiencies,~~to ~~that results~~the insize ~~more than a remote likelihood that a material misstatement~~ of the ~~financial~~Company and ~~statements~~available ~~will not be prevented or detected.~~resources:

~~Management identified~~• ~~the~~lack ~~following~~of ~~material~~properly ~~weaknesses~~controlled ~~during~~segregation ~~its~~of ~~assessment~~duties • lack of risk assessment procedures on internal ~~controls~~control ~~over~~to detect financial reporting, ~~which~~risks ~~are~~in ~~primarily due~~a totimely ~~the~~manner; ~~size~~and • lack of ~~the~~documentation ~~Company~~on policies and ~~available~~procedures ~~resources:~~that are critical to the accomplishment of financial reporting objectives.

•Changes ~~lack of properly controlled segregation of duties • lack of risk assessment procedures on internal control to detect financial reporting risks~~ in aInternal ~~timely~~Control ~~manner;~~over ~~and~~Financial ~~• lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives.~~Reporting

~~Changes~~There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended September 30, 2022, which were identified in ~~Internal~~connection with ~~Control~~our management's evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over ~~Financial~~financial ~~Reporting~~reporting.

~~There have~~Limitations ~~been~~of ~~no changes in our internal control over financial reporting subsequent to~~ the ~~fiscal~~Effectiveness ~~year~~of ~~ended September 30, 2022, which were~~Disclosure ~~identified~~Controls ~~in connection with our management's evaluation required by paragraph (d) of rules 13a-15~~ and ~~15d-15~~Internal ~~under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.~~Controls

~~Limitations~~ Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the ~~Effectiveness~~control system are met. Further, the design of ~~Disclosure~~a ~~Controls~~control system must reflect the fact that there are resource constraints, and ~~Internal~~the ~~Controls~~benefits of controls must be considered relative to their costs. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

~~Our management,~~The ~~including~~design ~~our~~of ~~Principal~~any ~~Executive~~system ~~Officer~~of ~~and Principal Financial Officer, does not expect that our disclosure~~ controls ~~and~~ ~~internal~~is ~~controls~~also ~~will~~based ~~prevent~~in ~~all~~part ~~error~~upon ~~and~~certain ~~all~~assumptions ~~fraud.~~about Athe ~~control~~likelihood ~~system,~~of nofuture ~~matter~~events, ~~how well conceived~~ and ~~operated,~~there can ~~provide~~be ~~only reasonable,~~no ~~not absolute,~~ assurance that ~~the~~any ~~objectives of the control system are met. Further, the~~ design ~~of a control system must reflect~~will ~~the~~succeed ~~fact~~in ~~that~~achieving ~~there~~our ~~are~~stated ~~resource~~goals ~~constraints,~~under ~~and~~all ~~the~~potential ~~benefits~~future ofconditions; ~~controls~~over ~~must~~time, bea ~~considered~~control ~~relative~~may tobecome ~~their~~inadequate ~~costs.~~because ~~Because~~ of ~~inherent~~changes ~~limitations~~ in ~~all control systems~~conditions, noor ~~evaluation~~the ofdegree ~~controls can provide absolute assurance that all control issues and instances~~ of ~~fraud,~~ ifcompliance ~~any,~~with ~~within~~ the ~~Company~~policies ~~have~~or ~~been~~procedures ~~detected~~may deteriorate. ~~These~~Because of inherent limitations ~~include the realities that judgments~~ in ~~decision~~a cost-~~making~~effective ~~can~~control ~~be faulty~~system, ~~and~~misstatements ~~that~~due ~~breakdowns~~to ~~can occur because of a simple~~ error or ~~mistake.~~fraud ~~Additionally,~~may ~~controls~~occur ~~can~~and not be ~~circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control~~detected.

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 25

29PART II - OTHER INFORMATION

~~PART II~~ITEM -1. ~~OTHER~~LEGAL ~~INFORMATION~~PROCEEDINGS

~~ITEM~~From time 1to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although ~~LEGAL~~the ~~PROCEEDINGS~~Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments. See Item 3. Defaults Upon Senior Securities below.

~~From time~~ITEM ~~to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business~~1A. ~~Although~~ ~~the~~RISK Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.FACTORS

~~ITEM~~We are ~~1A.~~a ~~RISK~~smaller ~~FACTORS~~reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

~~We are~~ITEM ~~a smaller reporting company as defined by Rule 12b-~~2. ofUNREGISTERED ~~the~~SALES ~~Securities~~OF ~~Exchange~~EQUITY ~~Act~~SECURITIES ofAND ~~1934~~USE ~~and~~OF ~~are not required to provide the information under this item.~~PROCEEDS

~~ITEM~~Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). ~~UNREGISTERED~~All ~~SALES~~of OFthe ~~EQUITY~~shares ~~SECURITIES~~issued ~~AND~~were ~~USE~~issued OFin ~~PROCEEDS~~transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below)1. ~~All~~Quarterly of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect. Issuances:

The Company issued 337,500 shares of common stock related to debt amendments and 1.,348,455 ~~Quarterly~~shares ~~Issuances:~~of common stock were issued for services during the three months ended March 31, 2023.

~~The Company~~2. ~~issued~~Subsequent 1,164,032 shares of common stock for the conversion of debt, 1,045,000 shares of common stock related to the issuance of new debt and 142,273 shares of common stock were issued for services during the three months ended December 31, 2022.Issuances:

2. Subsequent to ~~Issuances:~~March 31, 2023, the Company issued 67,964 shares of common stock for services.

~~Subsequent to~~ITEM ~~December~~3. ~~31,~~DEFAULTS ~~2022,~~UPON ~~the~~SENIOR ~~Company issued 785,506 shares of common stock for services.~~SECURITIES

~~ITEM~~On 3March 30, 2023, Item 9 Labs Corp., ~~DEFAULTS~~a ~~UPON~~Delaware ~~SENIOR~~corporation ~~SECURITIES~~(the “Company”), and its wholly owned subsidiary, 938287AZ, LLC (“938287AZ”), an Arizona limited liability company (collectively, the Company and 938287AZ are referred to as the “Borrower”), and the Company’s Board of Directors (the “Board”), became aware that Pelorus Fund REIT, LLC, a Delaware limited liability company (“Pelorus”) filed a Notice of Trustee’s Sale on March 16, 2023 (the “Foreclosure”) with respect to that certain Construction Loan and Security Agreement dated as of August 25, 2021 (the “Loan Agreement”) by and between 938287AZ and Pelorus (the “Pelorus Notice”) and the trust deed recorded October 29, 2021. The Company had been in discussions with Pelorus to restructure the loan and to avoid the Foreclosure, but those discussions have not yet resulted in an agreement. As of the date of the filing of this Form 10-Q, none of the Company, the Board or the Company’s management have received any formal notice from Pelorus or any regulatory bodies regarding this Foreclosure.

~~None~~The Company has taken steps to protect its interests in the property, including retaining legal counsel to represent the Company in the Foreclosure, which is set to occur June 16, 2023. The Company is currently evaluating the potential impact of the Foreclosure on its financial statements, liquidity, and operations. The Company will provide additional information as it becomes available.

~~ITEM~~The 4.Company ~~MINE~~previously disclosed ~~SAFETY~~that ~~DISCLOSURES~~the Loan Agreement was in default in a Form 10-Q filed with the SEC on February 14, 2023 and Form 10-K for year ended September 30, 2022 filed with the SEC on January 13, 2023, as well as in a Form 8-K on March 7, 2023.

~~N/A~~The foregoing description of the Loan Agreement is not complete and is qualified in its entirety by reference to the full text of the Loan Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2021, which report is incorporated herein by reference. The Company is not aware of any other foreclosure actions involving the Company or any of its subsidiaries.

ITEM 54. ~~OTHER~~MINE ~~INFORMATION~~SAFETY DISCLOSURES

N/A.

30ITEM 5. OTHER INFORMATION

~~ITEM 6~~N/A. ~~EXHIBITS~~

The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following index of exhibits, are attached hereto unless otherwise indicated as being incorporated by reference, as follows:26

Exhibit
Number	Description of Exhibit
3.01a	Articles of Incorporation dated June 15, 2010	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
3.01b	Certificate of Amendment to Articles of Incorporation dated October 22, 2012	Filed with the SEC on November 13, 2012 as part of our Current Report on Form 8-K
3.01c	Certificate of Amendment to Articles of Incorporation dated March 15, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01d	Certificate of Amendment to Articles of Incorporation dated March 19, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01e	Certificate of Amendment to Articles of Incorporation dated April 3, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01f	Certificate of Amendment to Articles of Incorporation dated October 9, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.02	Bylaws	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
31.01	Certification of Principal Executive Officer Pursuant to Rule 13a-14	Filed herewith.
31.02	Certification of Principal Financial Officer Pursuant to Rule 13a-14	Filed herewith.
32.01	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
32.02	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
101.INS*	Inline XBRL Instance Document	Filed herewith.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document	Filed herewith.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
101.LAB*	Inline XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

ITEM 6.

EXHIBITS

*Pursuant toThe ~~Regulation~~exhibits ~~S-T,~~required ~~this~~to ~~interactive~~be ~~data file is deemed not~~ filed herewith orby Item ~~part~~601 of aRegulation ~~registration~~S-K, ~~statement~~as ordescribed ~~prospectus~~in ~~for purposes of Sections 11 or 12 of~~ the ~~Securities~~following ~~Act~~index of ~~1933~~exhibits, isare ~~deemed~~attached ~~not~~hereto ~~filed~~unless ~~for~~otherwise ~~purposes~~indicated ofas ~~Section~~being 18incorporated by ~~of the Securities Exchange Act of 1934~~reference, ~~and otherwise is not subject to liability under these sections.~~as follows:

SIGNATURES

Exhibit
Number	Description of Exhibit
3.01a	Articles of Incorporation dated June 15, 2010	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
3.01b	Certificate of Amendment to Articles of Incorporation dated October 22, 2012	Filed with the SEC on November 13, 2012 as part of our Current Report on Form 8-K
3.01c	Certificate of Amendment to Articles of Incorporation dated March 15, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01d	Certificate of Amendment to Articles of Incorporation dated March 19, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01e	Certificate of Amendment to Articles of Incorporation dated April 3, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.01f	Certificate of Amendment to Articles of Incorporation dated October 9, 2018	Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
3.02	Bylaws	Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
31.01	Certification of Principal Executive Officer Pursuant to Rule 13a-14	Filed herewith.
31.02	Certification of Principal Financial Officer Pursuant to Rule 13a-14	Filed herewith.
32.01	CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
32.02	CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act	Filed herewith.
101.INS*	Inline XBRL Instance Document	Filed herewith.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document	Filed herewith.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith.
101.LAB*	Inline XBRL Taxonomy Extension Labels Linkbase Document	Filed herewith.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith.
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Pursuant to ~~the~~Regulation ~~requirements~~S-T, this interactive data file is deemed not filed or part of ~~the~~a ~~Securities~~registration ~~Exchange~~statement ~~Act~~or prospectus for purposes of ~~1934,~~Sections 11 or 12 of the ~~registrant~~Securities ~~has~~Act ~~duly~~of 1933, ~~caused~~is ~~this~~deemed ~~report~~not tofiled befor ~~signed~~purposes onof ~~its~~Section ~~behalf~~18 by of the ~~undersigned~~Securities ~~thereunto~~Exchange ~~duly~~Act ~~authorized~~of 1934, and otherwise is not subject to liability under these sections.

	Item 9 Labs Corp.
Date: February 14, 2023	By:	/s/ Michael Weinberger
	Name: Title:	Michael Weinberger Chief Executive Officer (Principal Executive Officer)

SIGNATURES

Date: February 14, 2023	By:	/s/ Robert Mikkelsen
	Name: Title:	Robert Mikkelsen Chief Financial Officer (Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Item 9 Labs Corp.

Date: May 22, 2023	By:	/s/ Douglas Bowden
	Name: Title:	Douglas Bowden Interim Chief Executive Officer (Principal Executive Officer)

Date: May 22, 2023

By:

/s/ Robert Mikkelsen

Name:

Title:

Robert Mikkelsen

Chief Financial Officer

(Principal Financial Officer)

Filing Compare · Item 9 Labs Corp.