~~2727 North 3rd Street~~2111 E. Highland Ave., Suite ~~201~~B375, Phoenix, ~~Arizona~~AZ ~~85004~~85016

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

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 August ~~15, 2022,~~21, 2023, there were ~~96,264,406~~102,362,271 shares of the issuer's common stock, $0.0001 par value per share, outstanding.

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.

		June 30,			Se`ptember 30,			June 30,			September 30,
		2022			2021			2023			2022
		(unaudited)						(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	441,662		$	1,454,460		$	183,429		$	85,637
Accounts receivable, net		591,504			1,448,280			968,016			586,270
Inventory		4,130,779			6,391,351			1,898,603			2,464,222
Prepaid expenses and other current assets		527,655			802,558			297,265			417,096
Total current assets		5,691,600			10,096,649			3,347,313			3,553,225

Property and equipment, net		26,307,212			10,877,848			24,602,289			21,019,724
Right of use asset		1,001,192			156,938			365,980			938,687
Construction escrow deposits		8,586,463			17,744,913			4,784,752			7,717,908
Deposits		86,604			600,000			44,114			86,604
Other assets		1,398,720			608,874			3,138,397			655,598
Assets held for sale								6,815,000			6,815,000
Intangible assets, net		19,222,666			18,659,095			10,852,835			11,741,487
Goodwill		58,233,386			58,064,816			58,064,816			58,233,386
Total Assets	$	120,527,843		$	116,809,133		$	112,015,496		$	110,761,619

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	5,819,455		$	3,759,818		$	6,852,306		$	6,422,196
Accrued payroll and payroll taxes		1,846,614			2,678,694			1,680,418			2,086,051
Accrued interest		2,011,369			1,391,766			8,387,582			3,070,415
Accrued expenses		1,514,448			1,169,776			2,048,325			3,328,222
Deferred revenue, current portion		214,994			119,992			174,997			219,992
Notes payable, current portion, net of discounts		24,532,509			4,536,002			29,522,607			15,924,033
Income tax payable		7,948			—			19,145			13,221
Operating lease liability, current portion		256,471			56,592			247,586			271,573
Convertible notes payable, net of discounts		3,266,179			1,277,394			4,380,000			3,750,000
Liabilities related to assets held for sale								5,500,000			5,500,000
Total current liabilities		39,469,987			14,990,034			58,812,966			40,585,703

Deferred revenue, net of current portion		345,855			655,851			413,359			335,859
Operating lease liability, net of current portion		756,604			104,406			144,867			682,752
Notes payables, net of current portion and discounts		1,448,860			14,957,399			—			7,216,710

Total liabilities		42,021,306			30,707,690			59,371,192			48,821,024

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 108,562,706 and 107,074,417 shares issued and 96,262,706 and 94,774,417 shares outstanding at June 30, 2022 and September 30, 2021, respectively		10,856			10,707
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 114,662,271 and 109,950,509 shares issued and 102,362,271 and 97,650,509 shares outstanding at June 30, 2023 and September 30, 2022								11,421			10,995
Additional paid-in capital		138,499,394			133,414,830			143,689,979			140,417,114
Accumulated deficit		(46,567,663	)		(33,874,094	)		(77,602,297	)		(65,016,698	)
Treasury stock		(13,450,000	)		(13,450,000	)		(13,450,000	)		(13,450,000	)

Total Item 9 Labs Corp. Stockholders' Equity		78,492,587			86,101,443			52,649,103			61,961,411
Non-controlling interest		13,950			—			(4,799	)		(20,816	)

Total Stockholders' Equity		78,506,537			86,101,443			52,644,304			61,940,595

Total Liabilities and Stockholders' Equity	$	120,527,843		$	116,809,133		$	112,015,496		$	110,761,619

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

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

	For the nine months ended			For the nine months ended			For the nine months ended			For the nine months ended
	June 30, 2022			June 30, 2021			June 30, 2023			June 30, 2022
Operating Activities:
Net loss	$	(12,695,252	)	$	(1,859,341	)	$	(12,569,582	)	$	(12,695,252	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		217,363			100,535			246,867			217,363
Amortization of intangible assets		1,103,301			260,066			888,652			1,103,301
Amortization of right of use asset		89,844			39,818
Amortization of right of use assets								182,946			89,844
Amortization of debt discounts		2,311,783			565,021			1,503,304			2,311,783
Loss on impairment								168,570			—
Common stock issued for services		498,983			163,236			296,000			498,983
Stock based compensation expense		2,533,535			914,016			2,372,982			2,533,535
Recovery of bad debt		(5,000	)		—			—			(5,000	)
Employee retention credits received								(952,805	)		—
Loss on disposal of fixed assets		10,841			—			137,109			10,841
Changes in operating assets and liabilities:
Accounts receivable		856,776			(1,703,092	)		(381,746	)		856,776
Inventory		2,276,205			(6,348,573	)		565,619			2,276,205
Prepaid expenses and other assets		(339,994	)		(192,292	)		137,032			(339,994	)
Deposits		(86,604	)		—			42,490			(86,604	)
Accounts payable		2,107,137			524,088			801,731			2,107,137
Accrued payroll and payroll taxes		(832,080	)		(114,703	)		547,172			(832,080	)
Income tax payable		7,948			—			5,924			7,948
Accrued interest		542,841			643,068			3,975,146			542,841
Accrued expenses		(316,760	)		147,868			1,290,276			(316,760	)
Deferred revenue		(214,994	)		22,844			32,505			(214,994	)
Operating lease liability		(82,021	)		(39,818	)		(172,111	)		(82,021	)
Net Cash Used in Operating Activities		(2,016,148	)		(6,877,259	)		(881,919	)		(2,016,148	)

Investing Activities:
Deposit on acquisition		—			(1,685,368	)
Cash paid for acquisition		(140,726	)		—			—			(140,726	)
Purchases of property, equipment and construction in progress		(2,918,584	)		(2,263,388	)		(68,176	)		(2,918,584	)
Cash received for note receivable		5,000			5,000			—			5,000
Cash received from construction escrow accounts		816,227			—			—			816,227
Cash acquired in acquisition		6,143			94,596			—			6,143
Cash paid to acquisition escrow accounts		(406,932	)		—			—			(406,932	)
Capitalized license fees		—			(2,790	)
Purchase of license		(1,130,872	)		—			—			(1,130,872	)
Net Cash Used in Investing Activities		(3,769,744	)		(3,851,950	)		(68,176	)		(3,769,744	)

Financing Activities:
Proceeds from the sale of common stock		555,911			13,298,965			—			555,911
Costs for sale of common stock		(12,733	)		—			—			(12,733	)
Payment of debt discount		(50,750	)		—			(55,000	)		(50,750	)
Proceeds from the issuance of debt		7,282,763			1,355,000			1,834,183			7,282,763
Payment of debt		(3,002,097	)		(3,712,541	)		(731,296	)		(3,002,097	)
Net Cash Provided by Financing Activities		4,773,094			10,941,424			1,047,887			4,773,094

Net Increase (Decrease) in Cash		(1,012,798	)		212,215			97,792			(1,012,798	)

Cash and cash equivalents- Beginning of Period		1,454,460			84,677
Cash and cash equivalents - Beginning of Period								85,637			1,454,460

Cash and cash equivalents - End of Period	$	441,662		$	296,892		$	183,429		$	441,662

Supplemental disclosure of cash flow information:
Interest paid in cash	$	3,855,724		$	597,930		$	995,812		$	3,855,724
Income taxes paid in cash	$	—		$	—		$	—		$	—

Supplemental disclosure of non-cash investing and financing activities:
Stock issued for acquisitions	$	65,000		$	65,000,000		$	—		$	65,000
Stock issued for acquisition of a license	$	336,000		$	—		$	93,611		$	336,000
Accrued interest transferred to debt	$	1,762		$	160,590
Warrants issued for debt and acquisition	$	574,239		$	49,648,201
Stock issued for debt	$	223,214		$	—
Stock and warrants issued for debt and acquisition							$	289,730		$	797,453
Non-controlling interest	$	15,633		$	—		$	—		$	15,633
Stock issuance costs paid in stock	$	89,645		$	—		$	—		$	89,645
Fixed assets purchased with debt	$	—		$	50,914
Debt issued for acquisition of a license	$	200,000		$	—		$	—		$	200,000
Debt proceeds used to pay debt discounts	$	80,000		$	—		$	327,817		$	80,000
Transfer of accrued interest to debt							$	1,029,837		$	1,762
Land purchased with escrow funds and deposit	$	3,000,000		$	—		$	6,719,625		$	3,000,000
Stock issued to pay accounts payable and prepay expenses	$	292,500		$	—		$	296,000		$	292,500
Operating lease right of use asset and liability	$	934,098		$	—		$	283,861		$	934,098
Cancellation of operating lease right of use asset and liability							$	673,622		$	—
Issuance of debt to repay bank overdraft							$	185,949		$	—
Beneficial conversion feature on convertible debt	$	495,047		$	428,802		$	5,000		$	495,047
Construction in progress paid with escrow funds	$	6,426,063		$	—		$	2,933,156		$	6,426,063
Stock issued for conversion of debt							$	309,579		$	—
Accrued debt discount fees	$	75,000		$	—		$	30,000		$	75,000
Debt discount amortization capitalized to construction in progress	$	2,620,476		$	—		$	1,041,448		$	2,620,476
Accrued liabilities capitalized in construction in progress	$	612,158		$	—
Amortized debt discount capitalized in construction in progress	$	2,620,476		$	—
Accounts payable and accrued liabilities capitalized in construction in progress							$	2,856,917		$	612,158
Debt proceeds used to fund other assets							$	2,500,000		$	—
Accounts payable converted debt							$	294,837		$	—

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

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

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) ~~production~~producing of cannabis and cannabis-derived products and technologies through its Item 9 Labs brand (“Cultivation”), which is currently distributed ~~though out~~throughout the State of Arizona in licensed medical and adult-use dispensaries; and (2) ~~sale of~~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,~~Rd., a dispensary ~~franchisor. The transaction was structured as a reverse triangular merger,~~franchisor, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity RdRd. has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity RdRd. retail dispensary locations in ~~twelve (12)~~more than ten (10) states. The majority of the locations are in the licensing process. We currently have ~~one franchisee~~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.

~~In March 2020,~~On July 11, 2023, a motion was filed, requesting the ~~World Health Organization categorized Coronavirus Disease 2019 ("COVID-19") as~~Superior Court of Arizona, in the County of Maricopa, to appoint a ~~pandemic,~~receiver over Item 9 Labs. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona appointed a receiver and the ~~President~~receiver was granted, effective immediately, possession, custody, and control of all the ~~United States declared~~real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the ~~COVID-19 outbreak a national emergency.~~Company has an interest. The ~~extent of~~receiver is appointed to manage, maintain and preserve the ~~impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including~~Property for the duration of this receivership in a reasonable, prudent, diligent and ~~spread~~efficient manner to maximize its value for the benefit of ~~the outbreak, its impact on our customers~~Item 9 Labs’ equity interest holders and ~~vendors, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.~~creditors.

The accompanying condensed consolidated financial statements of the Company as of June 30, ~~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, ~~2021~~2022 audited financial statements filed with the SEC on our Form 10-K on January 13, ~~2022.~~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, ~~2021~~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 June 30, ~~2022~~2023 are not necessarily indicative of the results to be expected for the year ending September 30, ~~2022.~~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. See Note 5.

Certain 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 income, net loss or accumulated deficit.

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.

Inventory is 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.

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. ~~There were no inventory reserves recorded~~

We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at annually at the balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows.

During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment and definite-lived intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment and definite-lived intangible assets at June 30, ~~2022~~2023, the occurrence of an impairment may be material to the Company’s financial position and ~~September 30, 2021.~~results of operations.

~~Cannabis licenses vary in term~~Goodwill represents the excess of the purchase price paid for ~~each jurisdiction. The Company capitalizes all costs associated with~~ the acquisition of ~~cannabis licenses in~~a business over the ~~year the license is obtained. Subsequent measurement is determined by the length~~fair value of the ~~term~~net tangible and intangible assets acquired. Indefinite life intangible assets represent licenses purchased for cultivation, processing, distribution and sale of cannabis and cannabis related products. Goodwill and indefinite life intangibles are not subject to amortization, however, annually, or whenever there is an indication that goodwill or the indefinite life intangible assets may be impaired, we evaluate qualitative factors to determine whether it is more likely than not that the fair value of the ~~license. The Company acquired licenses during~~goodwill or indefinite life intangible assets is less than its carrying amount. Our test of goodwill and indefinite life intangible assets includes assessing qualitative factors and the ~~nine~~use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the reporting unit or assets acquired.

During and subsequent to the three months ended June 30, ~~2022 that have indefinite useful lives,~~2023, the Company has noted indicators of impairment of its goodwill and intangible assets not subject to ~~annual renewals. Costs associated with maintaining licenses (annual fees) are expensed as incurred.~~amortization, including its licenses. The ~~anticipated maintenance fees are~~Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine the extent to which an impairment has occurred. Given the carrying value of the Company’s goodwill and intangible assets not ~~expected~~subject to amortization at June 30, 2023, the occurrence of an impairment will likely be material to the ~~condensed consolidated~~Company’s financial ~~statements. Licenses are included on the balance sheet under the heading Intangible assets, net at June 30, 2022~~position and ~~September 30, 2021.~~results of operations and may result in an impairment charge in excess of $50 million.

The core principle of ASC 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.

~~Substantially all~~All of the Company's cultivation revenue is associated with a customer contract that represents an obligation to provide cannabis products that are delivered at a single point in time. ~~Any costs incurred prior to the period in which the products are delivered are recorded to inventory and recognized as cost of revenues in the period in which the performance obligation is completed.~~ For the three and nine months ended June 30, 2023 and 2022, ~~and 2021, all~~96% of the Company's ~~cultivation~~net revenue was generated from performance obligations completed in the state of Arizona.

The Company recognizes revenue once the products are delivered. Revenue is considered earned upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is reasonably assured. The Company records revenue at the amount it expects to collect, 100% of the wholesale ~~sales revenue.~~sales. Beginning April 1, 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. The fees paid for operating under the contract are expensed to cost of revenues. See Note 8.

The Company's 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.

~~Through OCG, Inc., the~~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 and~~sheet. The initial franchise fee is recognized into revenue onratably over the ~~condensed consolidated statement~~term of ~~operations when (or as)~~the agreement and the consulting fee is recognized at the time the performance ~~obligations included in the agreements are~~obligation has been satisfied. ~~Deferred revenue had a balance of $560,849~~ ~~and $775,843~~ ~~at June 30, 2022 and September 30, 2021, respectively, and is included in deferred revenue on the condensed consolidated balance sheets.~~ Revenue recognized during the three months ended June 30, ~~2022~~2023 and ~~2021~~2022 that was included in deferred revenue at September 30, 2022 and 2021 was $6,250 and ~~2020 was $4,998~~ ~~and $~~0,$4,998, respectively. Revenue recognized during the nine months ended June 30, ~~2022~~2023 and ~~2021~~2022 that was included in deferred revenue at September 30, 2022 and 2021 was $67,496 and ~~2020 was $214,994~~ ~~and $~~0,$214,994, respectively.

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 June 30, ~~2022~~2023 and ~~2021~~2022 that were excluded from the diluted net loss per share calculation for the three and nine months ended June 30, ~~2022~~2023 and ~~2021~~2022 because the effect of including these potential shares was antidilutive due to the Company’s net loss.

	2022		2021		2023		2022
Potentially dilutive common share equivalents
Options		6,223,462		3,211,709		9,057,715		8,594,805
Warrants		48,069,687		41,415,000		49,370,537		49,870,537
Convertible notes		3,510,792		2,707,238		36,168,666		9,968,931
Potentially dilutive shares outstanding		57,803,941		47,333,947		94,596,918		68,434,273

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 ~~valuation~~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.

The Company also analyzes conversion options embedded with debt to determine if the conversion options are required to be bifurcated and accounted for at fair value at each reporting period or to determine if there is a beneficial conversion feature. At June 30, ~~2022~~2023 and September 30, ~~2021,~~2022, none of the conversion options embedded in the Company’s debt were required to be bifurcated.

The Company 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.

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 ~~performances.~~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 nine months ended June 30, ~~2022~~2023 and ~~2021,~~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”).

The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties, if placed into service, is discontinued at the time they are classified as held for sale.

During the nine months ended June 30, 2023, the Company received $952,805 of tax credits in accordance with the Employer Retention Credit (“ERC”) program, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended. The ~~Company allocates~~Company’s policy is to account for the ~~purchase price~~ERC as a grant using guidance analogous to government grants found in IAS 20, Accounting for Government Grants and Disclosure of ~~an acquired business~~Government Assistance. In accordance with this guidance, the ERC is recognized as a reduction to ~~the tangible~~Payroll and ~~intangible assets acquired and liabilities assumed based upon their estimated fair values~~employee related expenses on the acquisition date. Any excess of the purchase price over the fair value of the net assets acquired is recorded as goodwill. The purchase price allocation process requires management to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets. Direct transaction costs associated with the business combination are expensed as incurred. The allocation of the consideration transferred in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date. The Company includes the resultsstatement of operations ofwhen there is reasonable assurance that the ~~business that it has acquired in its consolidated results prospectively from~~Company will receive the ~~date of acquisition.~~ERC.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognized in profit or loss.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities on our condensed consolidated balance sheets. We currently do not have any material finance lease arrangements.

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.

When we 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.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments -– 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.

In August 2020, the FASB 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 October 2021, the FASB 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.

There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us.

The accompanying condensed consolidated financial statements have been prepared ~~assuming the~~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~~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~~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 substantially all financial obligations, its property in Arizona is currently in the foreclosure process and a receiver was appointed to the Company by the Superior Court of Arizona. These factors raise substantial doubt about the ~~Company's~~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~~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 ~~its~~the products it produces to dispensaries throughout the state of Arizona. The ~~Company's~~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, with construction of a cultivation and processing facility nearing completion in Nevada. The Company believes that it will reduce the overall costs of revenues and costs of revenues will increase at a lower rate than revenues in future periods, which will lead to increased profit margins.Arizona.

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~~Company’s overall efforts will be successful.

If 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.

Inventory consisted of the following at June 30, ~~2022~~2023 and September 30, ~~2021.~~2022.

	June 30,		September 30,		June 30,		September 30,
	2022		2021		2023		2022
Raw materials and work in process	$	1,817,094	$	4,291,095	$	923,976	$	1,209,892
Finished goods		1,596,924		1,052,375		636,240		835,420
Packaging and other		716,761		1,047,881		338,387		418,910
	$	4,130,779	$	6,391,351	$	1,898,603	$	2,464,222

In January 2022, the Company signed a Co-Management Agreement with a dispensary in Oklahoma for a term of three years. As part 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. The purchase price was $~~130,000, payable at $32,500~~ ~~on the effective date and $32,500~~ ~~each 30, 60 and 90 days after the effective date. In addition, the Company will pay $1,667~~ ~~per month for 35 months. Finally, the Company paid the seller $65,000~~ ~~in the Company’s common stock at a 10% discount to the stock’s 10-day volume weighted average. The Company has issued~~ ~~69,892~~ ~~shares of common stock related to the Co-Management Agreement. The accrued purchase price balance is $49,274~~ ~~at June 30, 2022 and is included in accrued expenses on the condensed consolidated balance sheet.~~

~~As of June 30, 2022, the consideration paid or accrued for this acquisition was as follows:~~

~~The following table summarizes the allocation of the purchase price to the estimated fair values of the assets acquired as of the transaction date:~~

On October 6, 2021, the Company entered into an Asset Purchase Agreement with Nebrina Adams County LLC to purchase certain assets, which include licenses, a lease and certain personal property to operate a licensed recreational cannabis dispensary (the “Adams County Acquisition”). The purchase price is $~~1,651,789~~ ~~comprised of $1.0~~ ~~million of cash, a $200,000~~ ~~note, and~~ ~~300,000~~ ~~shares of the Company’s common stock, valued at $1.12~~ per share. The note has an interest rate of 5% per annum and a term of 18 months and payable in six installments on the last day of each three-month period following the Closing Date. The Adams County Acquisition closed on March 2, 2022. The acquisition is not considered a business combination under ASC 805, ~~Business Combinations~~~~, as a substantive process was not acquired. Substantially all of the consideration paid was allocated to the licenses purchased.~~

~~As of June 30, 2022, the consideration paid in this asset acquisition was as follows:~~

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~~,$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 (the "Herbal 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%.

~~(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 (the "Herbal 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%.~~

has been paid. At June 30, ~~2022, the $250,000~~ ~~down payment was paid and is included in Other Assets on the condensed consolidated balance sheet. At June 30, 2022,~~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 nine months ended June 30, ~~2022. The~~2023. Given the current capital constraints of the Company ~~can provide no assurance~~and the market as a whole, it is unlikely that itthis acquisition will be ~~successful~~closed. As such, the $250,000 down payment was expensed and is included in ~~finalizing this acquisition.~~Other operating expenses on the unaudited condensed consolidated statements of operations for the three and nine months ended June 30, 2023.

On May 18, 2022, the Company and its wholly owned subsidiary, OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario (“Purchaser”) solely for the purpose of completing this transaction, entered into a Share Purchase Agreement pursuant to which the 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 free and clear of all Liens from the Shareholders.

The total purchase price for the Shares is ~~Twelve Million Eight Hundred Thousand Dollars ($12,800,000.00~~ ~~USD)~~$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~~

	(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.

~~(ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of Twelve Million Eight Hundred Thousand Dollars ($12,800,000.00~~ ~~USD), as adjusted, in immediately available funds;~~

~~(iii) Four Million One Hundred Thousand Dollars ($4,100,000.00~~), 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) Four Million One Hundred Thousand Dollars ($4,100,000.00~~), 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.

~~At June 30, 2022, the $156,902~~The $156,902 Exclusivity Deposit has been ~~paid and~~paid. In addition, at June 30, 2023, the Company previously 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~~assets on the condensed consolidated balance ~~sheet. At~~sheet at June 30, ~~2022,~~2023. On May 25, 2023, this acquisition ~~has not yet been finalized. As such,~~was terminated by the ~~effects~~sellers as a consequence of ~~this acquisition, which is expected~~the Company’s failure to provide evidence that it had sufficient cash on hand or other sources of immediately available funds to make payment of all amount to be ~~accounted for~~paid under ~~ASC 805,~~ ~~Business Combinations~~, ~~have not been~~the agreement on the closing date, including the purchase price. As a result of the cancellation, the Company has accrued the termination fee in the amount of $543,098 and expensed the $156,902 Exclusivity Deposit. The termination fee and the Exclusivity Deposit expenses are included in Other operating expenses on the ~~Company’s~~unaudited condensed consolidated ~~balance sheet or~~ statement of operations ~~as of and~~ for the three and nine months ended June 30, ~~2022. The Company can provide no assurance that it will be successful in finalizing this acquisition.~~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 (see Note 4).~~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. This dispensary was permanently closed in April 2023.

The terms of the Co-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.

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

The following table presents the carrying values of the assets and liabilities of the entity that is a VIE and consolidated by the Company at June 30, 2023 and September 30, 2022.

	June 30,		June 30,		September 30,
Assets	2022		2023		2022
Current assets
Inventory	$	27,773	$	—	$	26,909
Total assets	$	27,773	$	—	$	26,909

Liabilities
Current liabilities
Income tax payable	$	7,948	$	19,145	$	13,221
Total liabilities	$	7,948	$	19,145	$	13,221

The following table presents the operations (after intercompany eliminations) of the entity that is a VIE and consolidated by the Company for the three and nine months ended June 30, ~~2022.~~2023.

~~Goodwill and identifiable intangible assets, including licenses, consist of the following as of June 30, 2022 and September 30, 2021:~~

~~As of June 30, 2022, the cultivation and processing licenses from the state of Nevada, included above, have not been transferred to the Company as the transfer is awaiting regulatory approval.~~

During the three months ended June 30, 2022, the Company has noted indicators of the possible impairment of its goodwill and intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2022 and determine if any impairment has occurred. Given the carrying value of the Company’s goodwill and intangible assets at June 30, 2022, the occurrence of an impairment may be material to the Company’s financial position and results of operations.

The following represents a summary of our property and equipment as of June 30, ~~2022~~2023 and September 30, ~~2021:~~2022:

	June 30,			September 30,			June 30,			September 30,
	2022			2021			2023			2022
Cultivation and manufacturing equipment	$	551,045		$	506,271		$	619,670		$	612,137
Computer equipment and software		266,427			266,427			270,795			270,795
Leasehold improvements		49,667			—			14,121			63,788
Buildings and improvements		2,811,340			2,785,781			2,811,340			2,811,340
		3,678,479			3,558,479			3,715,926			3,758,060
Accumulated Depreciation		(696,052	)		(479,320	)		(1,004,307	)		(777,473	)
		2,982,427			3,079,159			2,711,619			2,980,587
Land		3,455,563			380,584			3,455,563			3,455,563
Construction on progress		19,869,222			7,418,105			18,435,107			14,583,574
Property and Equipment, Net	$	26,307,212		$	10,877,848		$	24,602,289		$	21,019,724

During the nine months ended June 30, 2022, the Company completed the purchase of 44 acres of land from a related party for $~~3.0~~$3.0 million plus expenses. The land-owner is one of the original members of BSSD and a current employee of the Company.

Construction in progress relates to multiple capital projects ongoing during the ~~three and~~ nine months ended June 30, ~~2022,~~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. Given the status and the continued delays of the projects, the Company has ceased capitalizing interest and fees on the debt that is directly related to the financing of the Company’s projects beginning on April 1, 2023.

Depreciation expense for the three months ended June 30, 2023 and 2022 was $80,552 and ~~2021 was $71,285~~ ~~and $35,965~~,$74,710, respectively. Depreciation expense for the nine months ended June 30, 2023 and 2022 was $246,867 and ~~2021 was $217,363~~ ~~and $100,535~~,$146,078, respectively.

During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.

On March 23, 2020 the Company borrowed proceeds from a related party, Viridis I9 Capital LLC (“Viridis”), in the amount of $1.1 million. 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. The ~~lender has granted~~Company is not in compliance with the terms of the Viridis note. The convertible Viridis note included a ~~payment forbearance~~provision for the ~~note~~issuance of 5,000,000 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $0.75 and ~~all unpaid~~the warrants have a term of 5 years.

The outstanding principal and accrued interest of C-3 was converted into 5,714 shares of the Company’s common stock during the nine months ended June 30, 2023.

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. The Company is not in compliance with the terms of these notes.

This note was 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, 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 Company is not in compliance with the terms of this note.

This note was amended effective March 31, 2023 to, 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) and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at ~~the default interest rate of 15% per annum, will be paid at maturity, which has been postponed to a date that has not yet been determined. At~~ June 30, ~~2022~~2023 in the ~~Viridis note was~~amount of $30,000. The Company is not in ~~default. The Viridis note remains in default as~~compliance with the terms of this ~~filing, though the parties are negotiating a long-term arrangement.~~note.

On October ~~1, 2021,~~24, 2022, the Company entered into a ~~convertible~~Secured Convertible Promissory Note in the amount of $250,000, which is payable at maturity on October 24, 2024. Interest on the note ~~agreement. Up to fifty percent (50%)~~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. The outstanding principal and ~~unpaid principal amount is~~any accrued interest are convertible into ~~common stock. The note included warrants to purchase a total of 825,000~~ shares of the Company’s common stock ~~for $3~~at $0.31 per ~~share, with a 4 year term. Further, the~~share. The Company issued ~~67,365~~75,000 shares of its common stock, valued at $15,000, as part of the note agreement. The debt and shares of common stock valued at $112,500 as an inducement to the lenders to enter into the note agreements. The debt included a beneficial conversion feature after consideration of the relative fair values of the warrants and shares of common stock. The debt, shares of common stock and warrants were recorded at their relative fair ~~values, along with the beneficial conversion feature.~~values. The resulting discount of ~~$597,606 and an additional $75,000 discount related to a one-time interest charge of 10% of the original principal amount,~~$15,000 is amortized to interest expense over the term of the debt. The ~~one-time interest charge was accrued at June 30, 2022.~~Company is not in compliance with the terms of this note.

On ~~October 29, 2021,~~December 13, 2022, the Company entered into a ~~convertible~~Secured Convertible Promissory Note in the amount of $50,000, with a member of its board of directors. The note ~~agreement.~~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. The outstanding ~~and unpaid~~ principal and any accrued interest is convertible ~~in whole,~~ into shares of the Company’s common ~~stock.~~stock at $0.25 per share. The ~~notes included warrants to purchase a total of 750,000~~Company issued 10,000 shares of ~~the Company’s common stock for $3 per share, with a 2 year term. Further, the Company issued 75,000 shares of~~its common stock, valued at ~~$116,250~~$2,500, as ~~an inducement to the lender to enter into the note agreement. The debt included a beneficial conversion feature after consideration~~part of the relative fair values of the warrants and shares of common stock. The debt, shares of common stock and warrants were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $561,272, which also included debt issuance costs of $44,582, is amortized to interest expense over the term of the debt. This convertible note is currently due on demand and interest is paid monthly.

On February 21, 2022, the Company entered into a convertible note agreement. The outstanding and unpaid principal and accrued interest is convertible, in whole, into shares of the Company’s common stock. The Company issued 25,000 shares of common stock, valued at $25,000 as an inducement to the lender to enter into thethis 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 ~~$50,000~~$5,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.

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. 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. The Company is not in compliance with the terms of this note.

The future minimum payments of the Company’s convertible debt obligations as of June 30, ~~2022~~2023 are as follows. The unamortized discount will be amortized through ~~September 2022.~~December 2024.

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 5-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 2^ndposition. At that time, the loan was amended to include 6% annualized interest.

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. The ~~lender has granted a payment forbearance for~~Company is not in compliance with the ~~note and all unpaid principal and interest, accrued at the default interest rate~~terms of ~~12% per annum, will be added to the balloon payment at maturity.~~

~~In August 2021,~~ the Viridis AZ and Viridis NV debt was modified to subordinate these notes to the Pelorus Notes (see (q) and (r)). As of the date of these condensed consolidated financial statements, the terms of this modification have not been finalized. Based on the expected modification terms, this modification was accounted for as an extinguishment of the debt during the year ended September 30, 2021.note.

The 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. The ~~lender has granted a payment forbearance for~~Company is not in compliance with the ~~note and all unpaid principal and interest, accrued at the default interest rate~~terms of ~~18% per annum, will be added to the balloon payment at maturity.~~this note.

~~In August 2021,~~The Company is not in compliance with the ~~Company executed on a short-term financing arrangement. The proceeds~~terms of $2.5 million are being utilized to further expand the production capabilities of the operations in Arizona and to complete the Nevada facility. Payments of $64,762 are due weekly until $3.264 million is repaid. This results in an effective interest rate of approximately 36%.this note.

On January 26, 2022, the Company executed a second short-term financing arrangement. The proceeds of $2.5 million were used to repay the first short-term financing arrangement, discussed above, in the amount of approximately $1.839 million, and the remainder of the proceeds was used for working capital purposes. Payments of $66,468 are due weekly until $3.35 million has been repaid. This results in an effective interest rate of 36%. The repayment of the first short-term financing was accounted for as an extinguishment. As such, all previously unamortized discount in the amount of $46,588 and imputed interest in the amount of $483,840 was capitalized to construction in progress during January 2022. Fees paid for the second short-term financing arrangement in the amount of $91,000 have been recorded as a discount and will be amortized to interest expense over the term of the arrangement. See Note 14.

As part of the OCG transaction in March 2021, the Company assumed the 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. The Company is not in compliance with the terms of these notes. One of these officers is a director and officer of the Company. See Note 10.

In February 2021, the Company and Stockbridge Enterprises, a related party, under a ~~trouble~~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), $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 ~~are~~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 ~~six months~~year ended ~~March 31,~~September 30, 2022.

Effective March 31, 2022, the debt was amended to extend the maturity date to June 30, 2022, interest payments ~~are~~were due on April 1, May 1 and June 1, 2022. Principal payments in the amount of $50,000 ~~are~~were due on April 15, May 15 and June 15, 2022 and a final balloon payment of outstanding principal and interest in the amount of $223,972 iswas due on June 30, 2022. On January 20, 2023, the Company and Stockbridge Enterprises, a related party, entered into the third amendment of the outstanding 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. This note is ~~currently~~in default.

The Company entered into two notes payable with Pelorus Fund REIT, 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 ~~demand~~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.

On March 30, 2023, the Company and the Company’s Board of Directors became aware that Pelorus Fund REIT, LLC (“Pelorus”) filed a Notice of Trustee’s Sale on March 16, 2023 with respect to the Construction Loan and Security Agreement dated as of August 25, 2021 by and between 938287AZ and Pelorus and the trust deed recorded October 29, 2021.

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 ~~paid monthly.~~set to occur August 29, 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.

On September 30, 2021, the Company borrowed $500,000 from Viridis Group I9 Capital LLC, a related party. The proceeds of the debt were used to make a payment on the then outstanding unpaid payroll tax liability. The debt is collateralized by restricted common stock in the amount of twice the balance of the debt. It is anticipated that the note will include warrants to purchase a total of 500,000 shares of the Company’s common stock for $0.60 per share, with a five-year term. As of the date of these condensed consolidated financial statements, the terms of these warrants have not been finalized. The debt and ~~anticipated~~ warrants were recorded at their relative fair values. The resulting discount isin the amount of $284,534 was amortized to interest expense over the term of the debt. ~~The lender has granted a payment forbearance for~~During the note and all unpaid principal and interest, accrued at the default interest rate of 18% per annum beginning January 1, 2022, will be paid at maturity, which has been postponed to a date that has not yet been determined.

Prior to the acquisition, OCG entered into a settlement agreement with its former landlord, which included a note agreement for $500,000. During March 2022, this note agreement was modified to extend the maturity date to July 19, 2022 and add an interest rate of 18% per annum. The modified note also calls for principal payments of $75,000 on the effective date of the note, $75,000 on April 10, 2022, $100,000 on May 22, 2022 and $250,000 at maturity, plus accrued and unpaid interest. The principal balance of this note plus accrued and unpaid interest was paid subsequent tonine months ended June 30, ~~2022.~~2023, this debt and related accrued interest were combined with other Viridis outstanding debt and related accrued interest into one Unsecured Promissory Note. See (w) below.

~~In February~~On November 2, 2022, the Company ~~executed on~~entered into a third short-term financing arrangement ~~for~~with Lendspark. The proceeds of ~~$750,000.~~$0.58 million were used to repay the previous Lendspark short-term financing. Payments of ~~$20,400~~$7,967 are due weekly until ~~approximately $1.02~~$0.725 million ishas been repaid. This results in an effective interest rate of ~~approximately 36%~~25%. Fees in the amount of ~~$48,765~~$12,000 have been recorded as a discount and are being amortized to interest expense over the term of the arrangement. ~~See Note 14.~~The Company is not in compliance with the terms of this note.

~~In February~~Effective December 1, 2022, the Company ~~executed on~~entered into an Unsecured Promissory Note with Viridis Group Holdings, LLC, a ~~third~~related party. The purpose of the Unsecured Promissory Note was to agree upon the terms for the short term loans that this related party had previously provided to the Company. Including interest accrued from the date of the short-term ~~financing arrangement with Upwise Capital for proceeds~~loans to the effective date of ~~$250,000. Payments~~the agreement, the principal amount of ~~$6,746 are due weekly until $340,000~~the Unsecured Promissory Note is ~~repaid. This results in an effective interest rate of approximately 36%. Fees~~$6,203,930. Interest only payments in the amount $82,396 will begin on May 21, 2023 with a final balloon payment of ~~$16,255 have been recorded as a discount~~all outstanding principal and ~~are being amortized~~interest to ~~interest expense over~~be paid at maturity on May 21, 2024. The Company is not in compliance with the ~~term~~terms of ~~the arrangement. See Note 14.~~this note.

During the nine months ended June 30, 2022, the Company received several short-term working capital loans from Viridis, a related party, in the amount of $3,702,000. The terms of these short term loans are still being determined, however, an interest rate of 15% has been estimated.

On March 10, 2022, the Company entered into a short-term promissory note for $250,000. The short-term promissory note iswas 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, valued at $40,000. This ~~convertible~~ note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) above and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is ~~currently due on demand and~~being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is ~~paid monthly.~~not in compliance with the terms of this note.

Effective with the close of the Adams County acquisition, ~~(see Note 4),~~ the Company entered into a note for $200,000 with the seller as part of the purchase price. The note is payable in six installments on the last day of each three-month period following the Closing Date. This note is in default.

On October 28, 2022, the Company entered into a Secured Short 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. During the nine months ended June 30, 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. The Company is not in compliance with the terms of this note.

On November 2, 2022, the Company entered into a short-term financing arrangement with Lendspark. The Company received proceeds of $750,000. Payments of $1,720 were paid daily for the first three months, and were extended through May 19, 2023, and then payments of $19,658 are to be paid daily until a total of $862,500 has been repaid. The Company is not in compliance with the terms of this note.

On October 26, 2022, the Company entered into a Secured Short Term Promissory Note with Viridis Group I9 Capital LLC, a related party, in the amount of $500,000. The note was due on November 16, 2022 and carried an interest rate of $1.94 per day per $1,000 outstanding. In addition, the note required a principal payment of $150,000 on November 4, 2022. The Secured Short Term Promissory Note is in default.

On November 3, 2022, the Company entered into a short-term promissory note in the amount of $500,000. Interest only payments are due monthly and all principal and any unpaid interest are due at maturity. The Company issued 300,000 shares of its common stock, valued at $60,000, 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 $60,000 is amortized to interest expense over the term of the debt. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) and (x) above, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.

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 matured on December 20, 2022. This note is in default.

On February 17, 2023, the Company converted outstanding accounts payable owed to a single vendor to a note payable in the amount of $256,415. Principal and interest payments in the amount of $10,000 are due monthly. The Company is not in compliance with the terms of this note.

In April 2023, the Company received $250,000 as part of an anticipated promissory note, which as of the date of this Form 10-Q has not been finalized. It is currently anticipated that this note will require weekly interest payment with all principal and accrued but unpaid interest due at maturity. The Company is not in compliance with the terms of this note.

On June 22, 2023, the Company entered into a Business Loan Agreement and Promissory Note with Illinois National Bank (“INB”). The proceeds from the note were used to pay the bank overdrafts that the Company had with INB. Subsequent to June 30, 2023, the Company was in default on this note.

The future minimum payments of the Company’s notes payable obligations as of ~~March 31, 2022~~June 30, 2023 are as follows. The unamortized discount will be amortized through ~~November 2023.~~July 2024.

Year ended
June 30,	June 30,	Amount			Amount
2024					$	35,182,377
Less: liabilities related to assets held for sale						(5,500,000	)
Less: imputed interest						(159,770	)
	2023	$	27,563,901		$	29,522,607
	2024		1,862,175
	2025		—
			29,426,076
	Less: unamortized discount		(2,886,822	)
	Less: imputed interest		(557,885	)
			25,981,369
	Less: current portion		(24,532,509	)
		$	1,448,860

A summary of interest expense for the three and nine months ended June 30, ~~2022~~2023 and ~~2021~~2022 is as follows.

For the ~~three and~~ nine months ended June 30, 2023 and 2022, 96% and ~~2021, substantially all~~98%, 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 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. ~~One~~Three of our license holder’s customers that the Company’s products are distributed to ~~accounts~~account for ~~33%~~approximately 49%, 11% and 9%, respectively, of our cultivation revenue for the nine months ended June 30, ~~2022.~~2023. Should our products no longer be distributed to ~~this customer~~these customers of our license holder, it would have a material adverse effect on our operations.

Effective June 29, 2023, the Company entered into a Contractor and License Agreement. The term of this agreement is for a term of three years and continue through June 30, 2026. This agreement may be extended for one additional three year period, provided that no event of default has occurred. Provisions of the agreement require a six month written notice to terminate except in certain circumstances, in which case the agreement can be immediately terminated.

The production and possession of cannabis is prohibited on a national level by the Controlled Substances Act, though the state of Arizona allows these activities to be performed at licensed facilities such as BSSD. If the federal government decides to change its policy on the enforcement of the Controlled Substances Act, it would have a material adverse effect on our business.

The Company entered into a 60 month lease with VGI Citadel LLC, a related party, to rent office space for its corporate headquarters which began in June 2019. The monthly lease payments were $~~6,478~~$6,478 for the first twelve months and 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~~,$6,653, $6,828, $7,003, and $~~7,178~~$7,178 for years two through five, respectively. Rent expense for the three months ended June 30, ~~2022~~2023 and ~~2021~~2022 on this lease was $~~20,782~~nil and $~~20,617~~,$20,782, respectively. Rent expense for the nine months ended June 30, ~~2022~~2023 and ~~2021~~2022 on this lease was $~~64,939~~$6,348 and $~~61,454~~,$64,939, respectively. Interest was imputed using a discount rate of 20%. The lease does not include renewal options.

The Company and VGI Citadel LLC entered into an Agreement to Terminate Lease for its corporate offices which called for the termination of the lease with VGI Citadel LLC, a related party, effective December 20, 2022.

In February 2022, the Company assumed a lease to rent approximately 3,100 square feet of retail space in Oklahoma City, Oklahoma as part of the Oklahoma City ~~acquisition disclosed in Note 4.~~acquisition. The lease calls for base rent payments of $21 per square foot ($~~5,483~~)5,483), plus a prorated share of taxes, insurance and common area maintenance expenses, per month and increasing each year by 3% through the end of the lease term on February 28, 2029. The lease may be extended for two additional 5 year periods. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $19,975 and $22,129, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $~~22,129~~$64,616 and $~~36,406~~,$36,406, respectively. ~~There was no rent expense on this lease during the three and nine months ended June 30, 2021.~~ Interest was imputed using a discount rate of 18%. During the nine months ended June 30, 2023, the Company has closed this dispensary and the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet.

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 disclosed in Note 4.~~acquisition. The lease calls for base rent payments of $~~15,450~~,$15,450, plus a prorated share of operating costs of the building, per month and escalate each year to $~~15,913~~$15,913 in the final year which ends on February 1, 2024. The lease may be extended for one additional 3 year period. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $49,604 and $52,822, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $~~52,822~~$150,917 and $~~68,870~~,$68,870, respectively. ~~There was no rent expense on this lease during the three and nine months ended June 30, 2021.~~ Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

In September 2021, 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 of $~~6,604~~,$6,604, plus taxes and operating expenses, per month for the first year and escalate each year to $~~7,886~~$7,886 per month in year seven. The lease may be extended for two terms of 5 years each. The commencement of this lease iswas contingent upon the issuance and receipt of a license and city approval. The agreement will terminate if the contingency is not met. At June 30, ~~2022,~~2023, the contingency ~~has~~was not ~~been~~ met ~~however, control over~~and the ~~use of the leased premises has been received by the Company.~~lease was terminated. As such, the Company has ~~recorded~~removed the remaining balance of the right of use asset and liability tofrom the condensed consolidated balance sheet. Rent expense for the three and nine months ended June 30, ~~2022~~2023 on this lease was $~~21,781~~ ~~and $48,197, respectively. There was no rent expense on this lease during the three and nine months ended June 30, 2021.~~$22,677. 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~~$6,354 and escalating each year to $~~7,295~~$7,295 in year five. Commencement of the lease iswas contingent upon the Company receiving an approved retail license within 120 days from October 22, 2021. The agreement ~~will~~was to terminate if the contingency iswas not met. ~~As of June 30,~~The contingency was met during the three months ended December 31, 2022 ~~the contingency has not been met~~ and the Company ~~is currently considering its options in regards to this agreement. The future minimum rental payments under this lease have not been included in~~had recorded the ~~Company’s~~ right of use asset and liability to the condensed consolidated balance sheet at March 31, 2023. During the three months ended June 30, 2023, the agreement was terminated and the Company removed the ROU asset and liability from the condensed consolidated balance sheet at June 30, ~~2022 or~~2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $18,266 and $59,939, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

The Company believes it is probable that a break-up fee will be payable related to this Denver, Colorado location. However, the amount of the break-up fee cannot currently be reasonably estimated. The Company believes that the break-up fee will be in the range of $50,000 - $250,000.

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 June 30, 2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $32,471 and $45,562, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

As of June 30, ~~2022~~2023 and September 30, ~~2021,~~2022, the Company has accrued unpaid payroll taxes and estimated penalties and interest of approximately $~~1,350,000~~$1,380,000 and $~~2,400,000~~,$1,450,000, respectively, and is included in accrued payroll and payroll taxes in the accompanying condensed consolidated balance sheets. ~~The Company is making monthly payments of $94,278, beginning March 1, 2022, to pay this liability. Further, during~~During the ~~three~~nine months ended June 30, ~~2022,~~2023, the Company received approximately $~~294,000~~$953,000 of Employee Retention Credits ("ERCs") that were used to reduce the unpaid payroll ~~taxes~~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 June 30, 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 $119,000.

There are no material pending legal proceedings, other than the Foreclosure discussed in Note 7 (q, r) above and various legal actions from creditors and vendors, 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 discussed in Note 7,6, the Company completed the purchase of 44 acres of land from a related party for $~~3.0~~$3.0 million plus expenses. The land-owner is one of the original members of BSSD and a ~~current~~former employee of the Company.

As discussed in Note 8,7, the Company has entered into various loan agreements with Viridis or its related entities. ~~Two members~~A member of Viridis ~~serve~~served on the Company’s board of ~~directors and one of these members also serves as the Company’s Chief Executive Officer.~~directors.

As discussed in Note 8,7, the Company has a loan agreement with Stockbridge Enterprises. Stockbridge Enterprises holds more than 5% of the Company’s common stock.

As discussed in Note ~~10,~~7, the Company has a convertible loan agreement with a former member of the Company’s board of directors.

As discussed in Note 7, as part of the OCG transaction in March 2021, the Company assumed the debt that OCG, Inc. owed to its officers. One of these officers is a former director and former officer of the Company. This officer’s 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 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.

As discussed in Note 9, the Company previously had a lease agreement with VGI Capital LLC. ~~Two members~~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 ~~serve~~served on the Company’s board of ~~directors and one of these members also serves as the Company’s Chief Executive Officer.~~directors.

During the ~~three~~nine months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company purchased cultivation supplies from a related party in the amount of $0$0 and $~~13,868~~,$31,708, respectively. ~~During~~No purchases were made from this related party during the ~~nine~~three months ended June 30, ~~2022~~2023 and ~~2021, the Company purchased cultivation supplies from a related party in the amount of $31,708~~ ~~and $39,397, respectively.~~2022. This related party is owned by the parent of a stockholder that holds more than 5% of the Company’s common stock.

Included in our accounts payable at June 30, ~~2022~~2023 and September 30, ~~2021~~2022 is approximately $~~231,000~~,$148,000, and $~~138,000~~,$243,000, respectively in amounts due to related parties. In addition, at June 30, 2023, $430,833 was accrued on the condensed consolidated balance sheet related to the severance agreements for our two former Chief Executive Officers and our former Chief Financial Officer.

In February 2023, the Company entered into an Executive Employment Agreement (“Agreement”) with its Chief Operating Officer. The Agreement is for a period of two years and contains provisions customary with similar agreements including a six month severance and non-competition period upon a termination without cause. Compensation under the Agreement provides for an annual salary of $225,000, a signing bonus of $50,000 paid in the Company’s common stock and a transaction bonus in the event that the Company closes a transaction in which there is a Change of Control. During February 2023, 319,900 shares of the Company’s common stock were issued for payment of the signing bonus.

In May 2023, the Company entered into a Severance Agreement and Release of Claims with an employee who is also a greater than 5% stockholder of the Company. The severance agreement calls for payments totaling $17,538 and the continuation of health benefits until March 2024.

On May 16, 2023, the Company entered into a Separation Agreement 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 VWAP. 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.

On June 30, 2023, the Company entered into a Separation Agreement and General Release (the “Agreement”) with the Company’s Chief Financial Officer, Robert Mikkelsen. The Agreement provides for twenty-four (24) equal biweekly installments of $5,000 and payment of Mr. Mikkelsen’s previously unreimbursed expenses. Further, Mr. Mikkelsen is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Mikkelsen has been paid in full under the Agreement. Mr. Mikkelsen 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 VWAP. These options vest over a two (2) year period and have a term of five (5) years. Mr. Mikkelsen’s options to purchase the Company’s common stock will become fully vested. In exchange for the cancellation of one-half of Mr. Mikkelsen’s outstanding stock options, the Company granted 456,088 shares of common stock. Finally, this agreement includes a transaction bonus upon the Company’s completion of a transaction resulting in a net positive change of control.

During the 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 assets held for sale are recorded at fair value less cost to sell. 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.

Prior to the three months ended June 30, 2022, the Company began offering up to 28,000,000 units of the Company for $1.40 per Unit on a “best-efforts/no minimum” basis pursuant to Regulation A of Section 3(6) of the Securities Act of 1933, as amended, for Tier 2 offerings. Each Unit is comprised of one share of common stock and one-half of one warrant to purchase a share of common stock. Only whole warrants are exercisable. Each whole warrant entitles the holder to purchase one share of common stock for $2.00 per share, subject to certain adjustments, from the date of issuance until the second anniversary of the date of issuance and is redeemable by the Company under certain conditions. Effective May 4, 2022, the Company repriced the offering to $1.12 per Unit and the exercise price of the warrant was reduced to $1.75 per share. The Company has incurred approximately $922,000 in fees related to this offering. These fees are included in Other assets on the condensed consolidated balance sheet at June 30, 2022 and will be netted against the proceeds received in the offering.

The following table summarizes the Company’s warrant activity for the nine months ended June 30, ~~2022:~~2023:

The following range of assumptions were used to estimate the fair value of warrants issued during the nine months ended June 30, ~~2022,~~2023, using the Black-Scholes option-pricing ~~model, excluding the 234,943 whole warrants issued as part of the Company’s unit offering.~~model.

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 June 30, ~~2022~~2023 ranges from vesting immediately to three years.

The following table summarizes the Company’s stock option activity for the nine months ended June 30, ~~2022:~~2023:

The following range of assumptions were used to estimate the fair value of stock options granted during the nine months ended June 30, ~~2022,~~2023, using the Black-Scholes option-pricing model.

During the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized compensation expense of $~~934,681~~$860,332 and $~~304,672~~,$934,681, respectively. During the nine months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized compensation expense of $~~2,533,535~~$2,372,982 and $~~914,016~~,$2,533,535, respectively. At June 30, ~~2022,~~2023, there was $~~2,299,311~~$996,988 of total unrecognized compensation cost. This unrecognized cost is expected to be recognized over the weighted average vesting period of approximately 1 year.

The Company has identified two 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 and nine months ended June 30, ~~2022~~2023 and ~~2021. The Company acquired the Franchising segment at the closing of the acquisition of OCG, Inc. effective March 19, 2021.~~2022.

														Cultivation		Franchising			Corporate			Total
Nine months ended June 30, 2023													Nine months ended June 30, 2023
Revenues from external customers														$	15,124,870	$	221,822		$	342,569		$	15,689,261
Operating income (loss)															6,304,567		(2,078,880	)		(10,073,205	)		(5,847,518	)
Interest expense															1,060,873		6,103			5,652,649			6,719,625
Depreciation and amortization															80,307		894,805			160,407			1,135,519
Additions to property, equipment and construction in progress															—		—			3,829,432			3,829,432

Three months ended June 30, 2023
Revenues from external customers														$	4,823,366	$	60,837		$	138,172		$	5,022,375
Operating income (loss)															1,863,500		(707,362	)		(4,122,184	)		(2,966,046	)
Interest expense															344,479		—			2,605,983			2,950,462
Depreciation and amortization															26,767		300,740			50,648			378,155

At June 30, 2023
Property, equipment and construction in progress, net														$	223,841	$	13,813		$	24,364,635		$	24,602,289
Total assets (after intercompany eliminations)															3,229,417		66,709,346			42,076,733			112,015,496
		Cultivation		Franchising			Corporate			Total
Nine months ended June 30, 2022	Nine months ended June 30, 2022
Revenues from external customers		$	17,360,844	$	280,529		$	114,146		$	17,755,519			$	17,360,844	$	280,529		$	114,146		$	17,755,519
Operating income (loss)			3,993,350		(2,705,153	)		(10,042,901	)		(8,754,704	)			3,993,350		(2,705,153	)		(10,042,901	)		(8,754,704	)
Interest expense			460,524		79,993			3,392,401			3,932,918				460,524		79,993			3,392,401			3,932,918
Depreciation and amortization			90,362		901,675			328,627			1,320,664				90,362		901,675			328,627			1,320,664
Additions to property, equipment and construction in progress			25,623		—			15,631,945			15,657,568				25,623		—			15,631,945			15,657,568

Three months ended June 30, 2022
Revenues from external customers		$	4,861,737	$	22,031		$	47,554		$	4,931,322			$	4,861,737	$	22,031		$	47,554		$	4,931,322
Operating income (loss)			983,533		(1,001,768	)		(3,829,572	)		(3,847,807	)			983,533		(1,001,768	)		(3,829,572	)		(3,847,807	)
Interest expense			303,462		36,777			1,284,916			1,625,155				303,462		36,777			1,284,916			1,625,155
Depreciation and amortization			27,830		300,150			111,072			439,052				27,830		300,150			111,072			439,052

At June 30, 2022
Property, equipment and construction in progress, net		$	421,757	$	20,899		$	25,864,556		$	26,307,212			$	421,757	$	20,899		$	25,864,556		$	26,307,212
Total assets (after intercompany eliminations)			5,102,841		68,217,019			47,207,983			120,527,843				5,102,841		68,217,019			47,207,983			120,527,843

Three and nine months ended June 30, 2021
Revenues from external customers		$	6,585,396	$	78,418		$	29,247		$	6,693,061
Operating income (loss)			2,315,224		(484,351	)		(2,078,147	)		(247,274	)
Interest expense			123,286		112,419			393,560			629,265
Depreciation and amortization			16,530		5,633			89,996			112,159

At June 30, 2021
Property, equipment and construction in progress, net		$	1,526,319	$	34,990		$	7,852,680		$	9,413,989
Total assets (after intercompany eliminations)			12,313,816		118,976,427			18,633,128			149,923,371

~~The Company’s North Denver dispensary location began operations on~~On July 11, ~~2022, making it~~2023, a motion was filed, requesting the ~~Company’s first corporate-owned shop~~Superior Court of Arizona, in ~~Colorado under~~ the ~~Company’s cannabis dispensary brand, Unity Rd.~~

County of Maricopa, to appoint a receiver over Item 9 Labs. The Company ~~has sold 1,700 units under its offering pursuant~~stipulated and agreed to ~~Regulation A of Section 3(6) of~~ the ~~Securities Act of 1933, as amended, for Tier 2 offerings for total proceeds of $1,904 subsequent to June 30, 2022.~~

~~The Company received short-term loans in the aggregate amount of $1,370,000 from Viridis, a related party. The terms of these short-term loans are being determined as of the date of the filing.~~

receiver appointment. On July ~~20, 2022,~~14, 2023, the Superior Court of Arizona appointed a receiver and the receiver was granted, effective immediately, possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the Company ~~entered into short-term financing arrangement with Capybara Capital.~~has an interest. The ~~proceeds~~receiver is appointed to manage, maintain and preserve the Property for the duration of ~~$0.5 million were used~~this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for ~~working capital purposes. Payments~~the benefit of ~~$18,889 are due weekly until $0.68 million has been repaid. This results in an effective~~Item 9 Labs’ equity interest ~~rate of 36%.~~holders and creditors.

On July 22, 2022, the Company entered into a short-term financing arrangement with Upwise Capital. The proceeds of $1.954 million were used to repay the second short-term financing arrangement (see (l) in Note 8 above) and the Upwise Capital 2 financing arrangement (see (v) in Note 8 above). Payments of $55,552 are due weekly until $2.598 million has been repaid. This results in an effective interest rate of 33%.

On July 22, 2022, the Company entered into a short-term financing arrangement with Lendspark. The proceeds of $0.65 million were used to repay the previous Lendspark short-term financing (see (u) in Note 8 above) in the amount of $0.591 million, and the remainder of the proceeds, approximately $0.05 million was used for working capital purposes. Payments of $17,680 are due weekly until $0.884 million has been repaid. This results in an effective interest rate of 36%.

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 10-Q and the audited financial statements and notes thereto as of and for the year ended September 30, ~~2021~~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, ~~2021,~~2022, filed with the Securities and Exchange Commission (the "SEC") on January 13, ~~2022.~~2023.

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.

Item 9 Labs ~~produces~~Corp. (OTC: 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.

The award-winning Item Nine Labs brand seeks to offer best-in-class products and user experience across several cannabis categories. The product catalog includes an extensive range of premium cannabis products comprised of responsibly cultivated flower, Orion vape technology, concentrates and ~~cannabis related products in a rapidly growing market.~~more. The ~~Company currently offers over seventy-five (75) active cannabis strains and~~highly regarded brand has received more than ~~one hundred fifty (150) differentiated~~thirty-five (35) wins and podium placements in Arizona marijuana competitions, including Cannabis Cup, Errl Cup and 710 Degree Cup, across its suite of high-quality cannabis ~~vape~~products. Item Nine Labs has delivered over 3 million packaged goods in its history, and over 290,000 units during the quarter ended June 30, 2023.

With its national Unity Rd. retail dispensary franchise brand, the Company believes it offers a unique value proposition through both the sale of Item Nine Labs products ~~as well as premium concentrates~~ and ~~Orion vape technologies. The Company’s product offerings will continue~~its Unity Rd dispensary franchise model. Easing barriers to ~~grow as they develop~~entry, the franchise approach seeks to provide an opportunity for both new ~~products~~and existing dispensary owners to ~~meet~~leverage the ~~needs~~knowledge, resources, and ongoing support needed to compliantly thrive in their state. With many years of experience in the legal cannabis industry and franchising, Unity Rd.’s standard operating procedures guide franchise partners through every operational function of the end users. The Company makes its products available to consumers through licensed dispensaries in Arizona. Item 9 Labs’ products are now carried in more than 80 dispensaries throughout the state of Arizona.

The Company believes its past and future success is dependent upon its ongoing ability to understand the needs and desires of the consumers, and the Company develops and offers products that meet those needs.

The Company’s objective is to leverage its assets (tangible and intangible) to fuel the growth of its share of the Arizona cannabis market, as well as expand the geographical reach of its products into markets outside of Arizona, with the ultimate goal of providing comfortable cannabis health solutions to a larger population in a manner that will create value for the Company’s shareholders.

In March 2020, the World Health Organization categorized Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The extent of the impact of the COVID-19 outbreak on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on its customers and vendors, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time.

~~In March 2021, the Company closed on the acquisition of OCG, Inc., dba~~business. Unity Rd.~~, a cannabis dispensary franchisor. The transaction was structured as a reverse triangular merger, 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 RdRd. retail dispensary locations in ~~twelve (12)~~more than ten (10) states. The majority of the locations are in the licensing process. The Company makes its best efforts to obtain these dispensary licenses, though it can make no assurances that the licenses will be awarded. We currently have ~~one franchisee~~two franchisees operating in Hartford, South Dakota and Boulder, Colorado. ~~Unity Rd. will assist in providing distribution for Item 9 Labs products to be sold across~~Additionally, the ~~United States and internationally to its franchisees for public resale, while keeping dispensaries locally~~Company has one (1) dispensary owned and ~~operated. As Unity Rd. dispensaries expand in its market penetration, Item 9 Labs aims to offer its products in those locations~~operated by ~~expanding the distribution footprint of its premium product offerings to new states.~~

The Company’s Arizona cannabis operations have expanded in recent years, with the addition of a 2nd nearly 10,000 square foot facility in the 4th quarter of fiscal year 2019, more than doubling the Company’s cultivation and processing space for Arizona. As the Company methodically expanded its operational capacity by more than 100% in fiscal year 2020, it was also able to significantly increase efficiencies within the cultivation and processing operations. The increased efficiencies have been offset in the current period by certain supply shortages and repair and maintenance delays resulting in longer production lead times.

The Arizona expansion has continued in fiscal year 2022 and is expected to continue thereafter. The Company has tripled production since October 1, 2020, while beginning construction on phase 1 of its construction plan to build additional cultivation space. Phase 1 plans total over 60,000 square feet of additional cultivation and processing space, and the planned remaining five phases would add over 560,000 square feet of cultivation and processing space. By the conclusion of the master site development, the Company anticipates a total of more than 640,000 square feet of cultivation and processing space; there is no assurance the Company can complete these construction projects as planned.

The Company estimates that phase 1 of its construction plan will be completed during the third quarter of its fiscal year 2023. The extension of time to complete phase 1 of its construction plan is primarily due to delays in obtaining the necessary construction permits and supply chain shortages of construction materials. Further, given the current level of inflation and the supply chain shortages, the Company estimates that costs will exceed original estimates by 25%-30%. The needed permits were obtained subsequent to June 30, 2022. The Company may experience additional construction delays. The Company can provide no assurance that it will be able to obtain the financing needed to pay the additional construction costs.

Item 9 Labs Corp. has continued its expansion plans into other states as well as the Company acquired (pending regulatory approval) cultivation and processing licenses in Nye County, Nevada which will be paired with their Nevada facility. In fiscal 2019, the Company broke ground on their 20,000 square foot cultivation and processing facility in Nevada. The facility is now approximately 98% complete. Construction recommenced, after a pause due to Covid-19, in August 2021. The Company aims to commence operations in Nevada in early fiscal year 2023.

On October 6, 2021, the Company entered into an Asset Purchase Agreement (“APA”) to acquire an existing dispensary license and storefront from Nebrina Adams County LLC, a Colorado limited liability company (“Seller”) in Adams County, CO. The total purchase price was $1,536,000, as to which $1,000,000 was paid to an escrow account upon conditional approvals of the change of ownership from state and local licensing authorities concerning the transfer of ownership. At closing, that amount was released to the Seller along with an 18-month promissory note in the principal amount of $200,000 and the balance payable in 300,000 shares of Company common stock, valued at $336,000. The Company obtained financing to consummate this transaction. On March 2, 2022, the Company received the necessary regulatory approvals and completed this transaction. The existing dispensary license had never been operational. This dispensary, known as the Company’s North Denver location, began operations on July 11, 2022, making it the Company’s first corporate-owned shop in Colorado under the Company’s cannabis dispensary brand, Unity Rd.

This license acquisition is part of an overarching acquisition strategy that is intended to accelerate national expansion by creating turnkey investment opportunities for Unity Rd. franchisees. The Company plans to convert acquired dispensaries into Unity Rd. shops, operate them internally and sell them to an existing or future franchise partner. This offers an expedited solution for entrepreneurs seeking immediate entry into cannabis. The Company is targeting numerous similar transactions in the next 12 months to gain a deeper market penetration in select markets. Subsequently and/or concurrently, the Company plans to introduce the Item 9 Labs suite of products to the same markets through the acquisition of cultivation and production licenses or through joint ventures with qualified local, licensed operators.

On March 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC, a Colorado limited liability company, pursuant to which the Company is purchasing certain assets. Effective upon the completion of the sale, which has not occurred as of the date of this filing, the licenses, contracts and certain personal property to operate a licensed medicinal and recreational cannabis dispensary will be delivered to the Company. The total purchase price is $5,750,000, as to which $250,000 is to be paid upon execution of the Asset Purchase Agreement, $3,700,000 payable at closing, $700,000 shall be financed by seller pursuant to a Secured Promissory Note and the remainder of the purchase prices shall be paid in shares of the Company’s common stock on the closing date. The Secured Promissory Note shall accrue interest at 5% per annum and have a term of 18 months, commencing on the closing date, payable in even monthly installments until paid in full. The shares of the Company’s common stock to be issued shall be in such an amount 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 Company can provide no assurance that it will be successful in finalizing this acquisition.

~~On May 18, 2022, the Company and~~ its wholly owned subsidiary OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario (“Purchaser”) solely for the purpose of completing this transaction, entered into a Share Purchase Agreement pursuant to which the 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 free and clear of all Liens from the Shareholders. The Company can provide no assurance that it will be successful in finalizing this acquisition.North Denver, CO.

~~The total purchase price for the Shares is Twelve Million Eight Hundred Thousand Dollars ($12,800,000.00 USD) (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 Twelve Million Eight Hundred Thousand Dollars ($12,800,000.00 USD), as adjusted, in immediately available funds;

(iii) Four Million One Hundred Thousand Dollars ($4,100,000.00), 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) Four Million One Hundred Thousand Dollars ($4,100,000.00), 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.

	Nine months ended June 30,												Nine months ended June 30,
	2022			2021			$ Change			% Change			2023			2022			$ Change			% Change
Revenues, net	$	17,755,519		$	15,843,256		$	1,912,263			12	%	$	15,689,261		$	17,755,519		$	(2,066,258	)		-12	%
Cost of revenues		11,089,560			8,531,623			2,557,937			30	%		6,530,438			11,089,560			(4,559,122	)		-41	%
Gross profit		6,665,959			7,311,633			(645,674	)		-9	%		9,158,823			6,665,959			2,492,864			37	%
Operating expenses
Professional fees and outside services		2,207,618			1,350,196			857,422			64	%		2,392,382			2,207,618			184,764			8	%
Payroll and employee related expenses		7,889,672			4,014,819			3,874,853			97	%		7,045,596			7,889,672			(844,076	)		-11	%
Sales and marketing		1,260,551			389,819			870,732			223	%		995,164			1,260,551			(265,387	)		-21	%
Depreciation and amortization		1,320,664			360,601			960,063			266	%		1,135,519			1,320,664			(185,145	)		-14	%
Other operating expenses		2,747,158			1,292,154			1,455,004			113	%		3,269,109			2,747,158			521,951			19	%
Loss on impairment														168,571			—			168,571			100	%
Provision for bad debt		(5,000	)		—			(5,000	)		100	%		—			(5,000	)		5,000			100	%
Total operating expenses		15,420,663			7,407,589			8,013,074			108	%		15,006,341			15,420,663			(414,322	)		-3	%
Income (loss) from operations		(8,754,704	)		(95,956	)		(8,658,748	)		9024	%
Loss from operations														(5,847,518	)		(8,754,704	)		2,907,186			-33	%
Other expense, net		(3,932,600	)		(1,763,385	)		(2,169,215	)		123	%		(6,716,140	)		(3,932,600	)		(2,783,540	)		71	%
Net loss, before income tax provision (benefit)		(12,687,304	)		(1,859,341	)		(10,827,963	)		582	%		(12,563,658	)		(12,687,304	)		123,646			-1	%
Income tax provision (benefit)		7,948			—			7,948			0	%		5,924			7,948			(2,024	)		0	%
Net loss		(12,695,252	)		(1,859,341	)		(10,835,911	)		583	%		(12,569,582	)		(12,695,252	)		125,670			-1	%
Less: Net loss attributable to non-controlling interests		(1,683	)		—			(1,683	)		100	%		16,017			(1,683	)		17,700			100	%
Net loss attributable to Item 9 Labs Corp.	$	(12,693,569	)	$	(1,859,341	)	$	(10,834,228	)		583	%	$	(12,585,599	)	$	(12,693,569	)	$	107,970			-1	%

The increase in revenue for the nine months ended June 30, 2022 was primarily due to a change in certain processes and procedures in the Company’s lab during the year ended September 30, 2021. That is, during fiscal year 2021, the Company purchased equipment to automate certain manual processes. The purchase of this equipment made certain processes, such as the filling of cartridges, more efficient, which allowed for increased output. In order to support this increased output, the Company purchases certain inventory materials from third party vendors that it had previously produced itself. Further, during fiscal year 2021, the Company added and reorganized post-production space to more efficiently package its products for sale. These improvements for the nine months ended June 30, 2022 were offset by the following events during the quarter ended June 30, 2022.

The decrease in revenue for the three and nine months ended June 30, ~~2022~~2023 was primarily due to the effects of ~~additional competition entering~~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 ~~that were not as significant~~conditions in Arizona was countered by an increase in the number of units sold during the three and nine month periods compared to the same ~~three month period of~~periods in the prior year. ~~This additional competition resulted in a decrease in units sold and a decrease in unit sales prices.~~ Further, during the three months ended June 30, ~~2022,~~2023, the ~~Company experienced supply chain issues that caused a~~ decrease in ~~new orders for~~revenue in cannabis product sales was offset by revenues generated at the Company’s ~~products and delays in fulfilling existing orders.~~

Cost of revenues consist primarily of labor, materials, supplies and utilities. Cost of revenues as a percentage of revenues was 43% and 41% for the three and nine months ended June 30, 2023 compared to 68% and 62% for the three and nine months ended June 30, ~~2022 compared to 57% and 54%~~2022. This is primarily the result of decreases in the unit costs the Company pays for ~~the three and nine months ended June 30, 2021. The Company was able to increase operational efficiency throughout fiscal year 2021. However, the cost of the purchased inventory~~ materials ~~discussed above and increases~~resulting from additional competition in other costs, such as product testing, primarily negated these efficiency gains. Further, cost of revenues as a percentage of revenues decreased due to the reduction in unit sales prices during the quarter.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.~~

The ~~decrease~~increase in gross profit as a percentage of revenue for the three and nine months ended June 30, ~~2022~~2023 was due to ~~increases~~decreases in cost of revenue ~~offset by~~being greater than the decreases in revenue. As the Company experienced decreases in its unit sales price ~~reduction as~~due to increased competition, ~~rises~~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 ~~by increases~~given the production efficiencies achieved in ~~purchased inventory materials and other costs. Further,~~previous quarters, the ~~decrease in~~Company has been able to increase gross profit ~~as a percentage of revenue of the three months ended June 30, 2022 also~~on decreased due to the decrease in the number of units sold as a result of the increased competition and the supply chain issues experienced. With the Company’s continued efforts to increase capacity and focus on efficiencies and reducing costs, management expects gross profit to increase going forward.revenues.

Professional fees and outside services ~~increased~~ for the nine months ended June 30, 2023 were consistent with the nine months ended June 30, 2022. The consistency was due to increases during the first six months of fiscal year 2023 in the amount accrued for consulting services received related to the Company’s employee retention credits, legal fees incurred on the pending Sessions acquisition and legal and consulting fees incurred related to the default on the Pelorus debt. These increases during the first six months of fiscal year 2023 were offset in the third quarter of fiscal year 2023 by the decreases in consulting and legal expenses discussed below.

Professional fees and outside services decreased for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to a significant decrease in legal fees and the use of consultants during the current three month period. The decrease in legal expenses was the result of the termination of the Sessions acquisition during the quarter. The decrease in consulting expenses was the result of a reduction of expenses incurred for investor and public relations services.

Payroll and employee related expenses decreased when comparing the nine months ended June 30, 2023 and the nine months ended June 30, 2022. The decrease was primarily due to a decrease in salaries and benefits due to a reduction in employee headcount and the Employee Retention Credits (“ERCs”) received during the first six months of fiscal year 2023. Further, the Company recorded less expense during the nine months ended June 30, 2023 related to employee stock based compensation.

Payroll expenses and employee related expenses for the three months ended June 30, 2023 were consistent with the three months ended June 30, 2022. The reductions in payroll expenses and employee related expenses during the first six months of fiscal year 2023 were offset in the three months ended June 30, 2023 as a result of the accrual of expenses incurred related to separation agreements entered into with the resignation of our Chief Executive Officer and Chief Financial Officer, along with our Chief Legal Officer and various other employees. These additional expenses were offset by the reduction of employee headcount.

Sales and marketing expenses decreased for the nine months ended June 30, 2023 compared to the nine months ended June 30, ~~2021 primarily~~2022 due to an overall decrease of promotional items and a general decrease in spending on third party marketing vendors. Sales and marketing expenses increased for the ~~amortization of prepaid consulting agreements that were entered into subsequent to~~three months ended June 30, ~~2021~~2023 compared to the three months ended June 30, 2022 due to an increase in promotional items, offset by the general decrease in overall spending for sales and ~~additional~~marketing.

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 ~~incurred for corporate advisory services, and investor and public relations services. Further, the Company incurred significant legal expenses~~increased during the three and nine months ended June 30, ~~2022 related~~2023 compared to ~~entering into~~ the ~~Share Purchase Agreement for the purchase of all~~same period of the ~~issued and outstanding shares of Wild Card Cannabis, Incorporated, a corporation formed under the laws of the Province of Ontario, Canada.~~

~~The increase in payroll expenses was~~prior year primarily due to the ~~amortization~~accrual of ~~stock-based compensation expense for stock options granted subsequent to June 30, 2021. Further, payroll expenses increased due to an increase in employee headcount during fiscal year 2021~~the Session’s acquisition break-up fee and the ~~nine months ended June 30, 2022,~~write-off of both The Herbal Cure and Sessions acquisition deposits totaling approximately $950,000. These accruals were offset by the reversal of penalties and interest on previously unpaid payroll taxes as a result of ~~increased hiring of employees. The increase was offset by approximately $294,000 of Employee Retention Credits ("ERCs") received by~~receiving the ~~Company.~~

~~Sales and marketing expenses increased due to increased spending on promotional items and marketing and branding initiatives~~ERCs during the nine months ended June 30, ~~2022. The decrease in sales and marketing expenses decreased slightly~~2023.

Loss on impairment increased for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022 ~~compared~~due to ~~June 30, 2021 as a result~~the impairment of the ~~decrease in promotional items during the quarter.~~

~~The increase in depreciation and amortization is due primarily~~goodwill related to the ~~scheduled amortization of intangible assets acquired~~Company’s dispensary in ~~the OCG Inc. acquisition~~Oklahoma City, Oklahoma. The Company closed this dispensary in ~~March 2021.~~

Other operating expenses increased primarily due to increases in insurance expenses, facility expenses, such as rent expense, travel related expenses, and additional IT support for the increase in employees.April 2023.

Total operating expenses as a percentage of gross profit ~~increased~~decreased from ~~109% and 101% for the three and nine months ended June 30, 2021, respectively, to~~ 342% and 231% for the three and nine months ended June 30, 2022 ~~respectively.~~compared to 201% and 163% for the three and nine months ended June 30, 2023. Management believes this ratio will decrease for ~~the Cultivation segment~~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, however, management believes that operating expenses will outpace revenues for the Franchising and Corporate segments as the Franchising and Corporate segments continue to perform on growth initiatives.expenses.

Other expenses consist primarily of interest expense of $2,950,462 and $6,719,625 for the three and nine months ended June 30, 2023 and $1,625,155 and $3,932,918 for the three and nine months ended June 30, ~~2022, respectively,~~2022. The increase in interest expense was the result of 1.) the interest expense and ~~$629,265~~amortization of discounts on the debt financing the Nevada construction and ~~$1,806,019~~Arizona expansion. The interest and discount amortization expense related to the Nevada construction debt was capitalized into construction in progress during the first three months of the nine months ended June 30, 2022. The interest and discount amortization expense related to the Arizona expansion was capitalized into construction in progress during the nine months ended June 30, 2022. As the Nevada expansion is substantially complete, the related interest and discount amortization are recorded to interest expense for all of the nine months ended June 30, 2023. Given the status and delays of the Arizona expansion, the Company ceased capitalizing the related interest and discount amortization during the three months ended June 30, 2023. In addition, the Company incurred additional interest expense on the debt financing the Nevada construction and Arizona expansion during the three and nine months ended June 30, ~~2021, respectively. The increase in interest expense was primarily the~~2023 as a result of the ~~continued~~debt going into default during the year ended September 30, 2022 and incurring default interest and other fees. Further, interest expense increased as the Company incurred an acceleration of the amortization of debt discounts ~~for debt outstanding at~~as a result of various note agreements going into default. Finally, additional interest expense was incurred during the three and nine months ended June 30, ~~2021 and~~2023 as a result of the additional ~~interest and amortization of debt discounts for~~ debt incurred subsequent to ~~June 30, 2021. This increase in interest expense was offset by debt and amortization of debt discounts that were capitalized to construction in progress related to the Company’s capital projects.~~July 1, 2022.

Management uses the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation expense, acquisition-related costs, impairment charges, severance agreement expenses, 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.”

The following table reflects the reconciliation of net ~~income (loss)~~loss to Adjusted EBITDA for the three and nine months ended June 30, ~~2022~~2023 and ~~2021:~~2022:

	Three months ended June 30,						Nine months ended June 30,						Three months ended June 30,						Nine months ended June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net loss	$	(5,477,586	)	$	(833,905	)	$	(12,695,252	)	$	(1,859,341	)	$	(5,915,073	)	$	(5,477,586	)	$	(12,569,582	)	$	(12,695,252	)
Depreciation and amortization		439,052			112,159			1,320,664			360,601			378,155			439,052			1,135,519			1,320,664
Loss on impairment														168,571			—			168,571			—
Interest expense		1,625,155			629,265			3,932,918			1,806,019			2,950,462			1,625,155			6,719,625			3,932,918
Income tax expense		4,624			—			7,948			—
Income tax expense (benefit)														(1,435	)		4,624			5,924			7,948
Stock-based expense		1,161,739			304,672			3,032,518			1,077,252			876,332			1,161,739			2,668,982			3,032,518
Acquisition related costs		479,904			5,804			499,904			272,541			1,062,168			479,904			1,930,146			499,904
Severance agreements														527,000			94,500			770,750			94,500
Employee retention credits														—			—			(952,805	)		—
Adjusted EBITDA	$	(1,767,112	)	$	217,995		$	(3,901,300	)	$	1,657,072		$	46,180		$	(1,672,612	)	$	(122,870	)	$	(3,806,800	)

The approximately $5.6 million change from prior year is due to the addition of the franchise business, as well as significant investments in human capital and infrastructure to prepare for anticipated growth.

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.

Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing ~~its~~the products it produces to dispensaries throughout the state of Arizona. The ~~Company's~~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, with construction of a cultivation and processing facility nearing completion in Nevada.~~Arizona. The Company believes that it will continue reducing the overall ~~cost~~costs of revenues and ~~cost~~costs of revenues will increase at a lower rate than revenues in future periods, which ~~will~~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 ~~continue to~~ 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~~Company’s overall efforts will be successful.

If 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.

As of June 30, ~~2022,~~2023, the Company had ~~$441,662~~$183,429 of cash and cash equivalents and negative working capital of ($~~33,778,387)~~55,465,653) (current assets minus current liabilities), compared with ~~$1,454,460~~$85,637 of cash and cash equivalents and negative working capital of ($~~4,893,385)~~37,032,478) as of September 30, ~~2021.~~2022. The decrease of ~~$28,885,002~~$18,433,175 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 ~~cash, accounts receivable,~~ inventory and prepaid balances and increases in the Company’s ~~accounts payable and~~ other operating ~~liabilities and the current portion of operating lease~~ liabilities. The ~~$1,012,798 decrease~~$97,798 increase in cash and cash equivalents was primarily due to the net cash used in operating activities ~~purchases~~offset by proceeds from the issuance of ~~property, equipment and construction in progress related to the Company’s capital projects, and the Company’s acquisition of a dispensary license in Colorado.~~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.

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

	Nine months ended June 30,												Nine months ended June 30,
	2022			2021			$ Change			% Change			2023			2022			$ Change			% Change
Net cash used in operating activities	$	(2,016,148	)	$	(6,877,259	)	$	4,861,111			-71	%	$	(881,919	)	$	(2,016,148	)	$	1,134,229			-56	%
Net cash used in investing activities		(3,769,744	)		(3,851,950	)		82,206			-2	%		(68,176	)		(3,769,744	)		3,701,568			-98	%
Net cash provided by financing activities		4,773,094			10,941,424			(6,168,330	)		-56	%		1,047,887			4,773,094			(3,725,207	)		-78	%
Net increase (decrease) in cash and cash equivalents	$	(1,012,798	)	$	212,215		$	(1,225,013	)		-577	%	$	97,792		$	(1,012,798	)	$	1,110,590			-110	%

During the nine months ended June 30, 2023, operating activities used $881,919 of cash and cash equivalents, primarily resulting from a net loss of $12,569,582 which was offset by net cash provided by operating assets and liabilities of $6,028,342. There was significant non-cash activity that contributed to the net loss totaling $4,843,625 including depreciation and amortization of $1,318,465, amortization of debt discount of $1,503,304, stock-based compensation of $2,668,982, loss on disposal fixed assets of $137,109 and a loss on impairment of $168,570. These non-cash expenses were offset by the non-cash employee retention credits of $952,805.

During the nine months ended June 30, 2022, operating activities used $2,016,148 of cash and cash equivalents, primarily resulting from a net loss of $12,695,252 which was offset by net cash provided by operating assets and liabilities of $3,918,454. There was significant non-cash activity that contributed to the net loss totaling $6,760,650 including depreciation and amortization of $1,410,508, amortization of debt discount of $2,311,783, and stock-based compensation of $3,032,518.

During the nine months ended June 30, ~~2021, operating~~2023, investing activities used ~~$6,877,259~~$68,176 of cash ~~primarily resulting from a net loss~~and cash equivalents, consisting entirely of ~~$1,859,341which was extended by net cash used~~purchases of property, equipment and construction in operating assets and liabilities of $7,060,610. There was significant non-cash activity that contributed to the net loss totaling $2,042,692 including depreciation and amortization of $400,419, amortization of debt discount of $565,021, and stock based compensation of $1,077,252. With the increase in revenues, the Company's receivables increased $1,703,092, deferred costs increased $6,348,573 and prepaid expenses increased $192,292, offset by an increase in current liabilities of $1,183,347.progress.

During the nine months ended June 30, 2022, investing activities used $3,769,744 of cash and cash equivalents, consisting primarily of $2,918,584 in purchases of property, equipment and construction in progress, the purchase of a dispensary license in the amount of $1,130,872, cash payments for acquisitions of $140,726 and cash paid to acquisition escrow accounts of $406,932, offset by $816,227 of cash received from the escrow deposit accounts.

During the nine months ended June 30, ~~2021, investing~~2023, financing activities ~~used $3,851,950~~provided $1,047,887, consisting of ~~cash, consisting primarily~~$1,834,183 in proceeds from the issuance of ~~$2,263,388 in purchase~~debt and offset by $731,296 of ~~property~~debt payments made and ~~equipment and $1,685,368~~payments made for debt discounts of ~~deposits paid on an acquisition.~~$55,000.

During the nine months ended June 30, 2022, financing activities provided $4,773,094, consisting of $7,282,763 in proceeds from the issuance of debt, $555,911 in proceeds from the issuance of stock and offset by $3,002,097 of debt payments made.

During the nine months ended June 30, 2021, financing activities provided $10,941,424, consisting of $13,298,965 in proceeds from the issuance of stock and proceeds from the issuance of convertible debt of $1,355,000 and offset by $3,712,541 in debt payments made.

Given 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.

We intend to 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 ~~have filed an offering document on Form 1-A with the Securities and Exchange Commission in order to sell units comprising of one share of common stock and one-half of one warrant. 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 completing the offering on Form 1-A, or~~ in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.

We are not 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.

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 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, ~~2021.~~2022. Management believes that there have been no material changes in our critical accounting policies during the three months ended June 30, ~~2022.~~2023.

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

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.

Disclosure controls and 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 June 30, ~~2022.~~2023.

A material weakness in our internal control 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.

Management identified the following material weaknesses during its assessment of internal controls over financial reporting, which are primarily due to the size of the Company and available resources:

There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended September 30, ~~2021,~~2022, which were identified in connection with 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 reporting.

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

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 control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the 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.

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.

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the 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.

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.

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). All 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.

The Company issued ~~29,965~~674,052 shares of common stock for services during the three months ended June 30, ~~2022.~~2023.

Subsequent to June 30, ~~2022, there have been~~2023, no ~~issuances~~shares of ~~unregistered equity securities.~~common stock were issued.

On March 30, 2023, Item 9 Labs Corp., a Delaware corporation (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.

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 August 29, 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.

The Company previously disclosed that 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.

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.

~~None.~~ Viridis Group Holdings, LLC and Viridis Group I9 Capital LLC vs Item 9 Labs Corp

As disclosed on Form 8-K filed July 20, 2023, on July 11, 2023, Viridis Group Holdings, LLC (“VGH”) and Viridis Group I9 Capital LLC (“VI9”) collectively filed a motion, requesting the Superior Court of Arizona (“Court”), in the County of Maricopa, to appoint a receiver over Item 9 Labs Corp., a Delaware Corporation. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona, in the County of Maricopa appointed Jeremiah Foster, Resolute Commercial (“Receiver”). Effective immediately, the Receiver was granted possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs Corp. (“Item 9”, or the “Receivership Entity”), or in which the Receivership Entity has an interest. The Receiver is authorized and is entitled to exercise all of the Receivership Entity’s rights in any and all Property in which the Receivership Entity has an interest. The Receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of the Receivership Entity’s equity interest holders and creditors.

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:

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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.

		Page
Part I - Financial Information

Item 1.	Financial Statements	F-1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31	32
Item 4.	Controls and Procedures	31	32

Part II - Other Information		33

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33	34
Item 5.	Other Information	33	34
Item 6.	Exhibits	34

Signatures		35

Certifications

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

Tangible assets acquired

Cash	$	6,143
Fixed assets		80,287
Tangible net assets acquired		86,430
Goodwill		168,570

Consideration paid	$	255,000

	Gross Carrying		Accumulated		Accumulated
	Amount		Amortization		Impairment		Net
June 30, 2022
Finite lived intangible assets:
Trade names and trademarks	$	8,570,848	$	1,140,172	$	—	$	7,430,676
Customer relationships		290,000		290,000		—		—
Websites and other intellectual property		2,470,000		1,144,470		955,223		370,307
Franchise and consulting agreements		3,970,000		919,170		—		3,050,830
Total finite lived intangible assets		15,300,848		3,493,812		955,223		10,851,813
Indefinite lived intangible assets:
Licenses		8,370,853		—		—		8,370,853
Total intangible assets	$	23,671,701	$	3,493,812	$	955,223	$	19,222,666

	Gross Carrying		Accumulated		Accumulated
		Amount		Amortization		Impairment		Net
September 30, 2021
Finite lived intangible assets:
Trade names and trademarks	$	8,570,848	$	497,356	$	—	$	8,073,492
Customer relationships		290,000		290,000		—		—
Websites and other intellectual property		2,470,000		946,488		955,223		568,289
Franchise and consulting agreements		3,970,000		656,667		—		3,313,333
Total finite lived intangible assets		15,300,848		2,390,511		955,223		11,955,114
Indefinite lived intangible assets:
Licenses		6,703,981		—		—		6,703,981
Total intangible assets	$	22,004,829	$	2,390,511	$	955,223	$	18,659,095

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

	For the three months ended			For the three months ended			For the nine months ended			For the nine months ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Revenues, net	$	4,931,322		$	6,693,061		$	17,755,519		$	15,843,256
Cost of revenues		3,341,367			3,802,447			11,089,560			8,531,623
Gross profit		1,589,955			2,890,614			6,665,959			7,311,633

Operating expenses
Professional fees and outside services		993,452			442,483			2,207,618			1,350,196
Payroll and employee related expenses		2,683,722			1,592,673			7,889,672			4,014,819
Sales and marketing		207,213			262,473			1,260,551			389,819
Depreciation and amortization		439,052			112,159			1,320,664			360,601
Other operating expenses		1,114,323			728,100			2,747,158			1,292,154
Provision for (recovery of) bad debt		—			—			(5,000	)		—
Total expenses		5,437,762			3,137,888			15,420,663			7,407,589

Loss from operations		(3,847,807	)		(247,274	)		(8,754,704	)		(95,956	)

Other income (expense)
Interest expense		(1,625,155	)		(629,265	)		(3,932,918	)		(1,806,019	)
Other income		—			42,634			318			42,634
Total other income (expense), net		(1,625,155	)		(586,631	)		(3,932,600	)		(1,763,385	)

Net loss, before income tax provision (benefit)		(5,472,962	)		(833,905	)		(12,687,304	)		(1,859,341	)

Income tax provision (benefit)		4,624			—			7,948			—

Net loss		(5,477,586	)		(833,905	)		(12,695,252	)		(1,859,341	)
Less: Net loss attributable to non-controlling interest		(7,109	)		—			(1,683	)		—

Net loss attributable to Item 9 Labs Corp.	$	(5,470,477	)	$	(833,905	)	$	(12,693,569	)	$	(1,859,341	)

Basic net income (loss) per common share	$	(0.06	)	$	(0.01	)	$	(0.13	)	$	(0.03	)

Basic weighted average common shares outstanding		96,162,616			92,209,521			95,446,846			72,115,022

Diluted net income (loss) per common share		(0.06	)		(0.01	)		(0.13	)		(0.03	)

Diluted weighted average common shares outstanding		96,162,616			92,209,521			95,446,846			72,115,022



	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 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

Stock issued for cash, net		263,313		26		254,311			—			—			—			—			254,337
Issuance of shares for services		29,965		3		30,017			—			—			—			—			30,020
Stock based compensation		—		—		934,681			—			—			—			—			934,681
Net loss		—		—		—			—			—			(5,470,477	)		(7,109	)		(5,477,586	)
Balance at June 30, 2022		108,562,706	$	10,856	$	138,499,394			(12,300,000	)	$	(13,450,000	)	$	(46,567,663	)	$	13,950		$	78,506,537

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 for debt conversion		1,164,032		116		309,463			—			—			—			—			309,579
Stock issued for debt issuance		1,045,000		105		246,715			—			—			—			—			246,820
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

Issuance of shares for services		674,052		22		15,978			—			—			—			—			16,000
Stock based compensation		—		—		860,332			—			—			—			—			860,332
Net loss		—		—		—			—			—			(5,911,194	)		(3,879	)		(5,915,073	)
Balance at June 30, 2023		114,662,271	$	11,421	$	143,689,979			(12,300,000	)	$	(13,450,000	)	$	(77,602,297	)	$	(4,799	)	$	52,644,304

Cash	$	1,000,000
Debt		200,000
Common stock		336,000
Direct costs of acquisition		130,872
	$	1,666,872

	Convertible Notes

	Effective		Maturity	Annual Interest			Balance at			Balance at		Conversion
	Date		Date	Rate			June 30, 2022			September 30, 2021		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			20,000		0.50
C-5	3/19/2021		9/19/2021	10	%		—			80,000		2.50
C-7	9/29/2021		9/29/2022	10	%		250,000			250,000		1.67
C-8	9/29/2021		9/29/2022	10	%		500,000			500,000		1.67
C-9	10/1/2021		9/29/2022	10	%		750,000			—		1.67
C-10	10/29/2021		4/29/2022	15	%		750,000			—		1.50
C-11	2/21/2022		8/31/2022	24	%		250,000			—		1.10
							3,620,000			1,950,000
		Less: unamortized discounts					(353,821	)		(672,606	)
						$	3,266,179		$	1,277,394

	Notes Payable

	Effective		Maturity	Annual Interest			Balance at			Balance at
	Date		Date	Rate			June 30, 2022			September 30, 2021			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
i	2/14/2020		10/14/2022		2	%		—			312,500		Secured by licenses
l	8/18/2021		1/25/2023		36	%		1,713,707			2,162,590		Future revenues
n	12/20/2020		12/20/2021		9	%		—			13,148		Secured by vehicles
o	3/19/2021		4/1/2024		10	%		670,932			816,582		N/A
p	2/1/2021		6/30/2022		15	%		270,590			520,590		N/A
q	8/6/2021		2/6/2023		16	%		13,500,000			13,500,000		1st AZ property and other personal property
r	8/6/2021		2/6/2023		16	%		5,500,000			5,500,000		1st NV property and other personal property
s	9/30/2021		12/31/2021		18	%		500,000			500,000		Restricted common stock
t	3/19/2021		7/19/2022		18	%		250,000			500,000		N/A
u	2/22/2022		2/28/2023		36	%		547,806			—		Future revenues
v	2/22/2022		2/28/2023		36	%		176,453			—		Future revenues
w	3/4/2022		On demand		15	%		3,652,000			—
x	3/10/2022		5/10/2022		20	%		250,000			—		N/A
y	3/2/2022		8/1/2023		5	%		166,667			—		N/A
								28,868,191			25,495,446
		Less: unamortized discounts						(2,886,822	)		(6,002,045	)
							$	25,981,369		$	19,493,401


	Three months ended June 30,					Nine months ended June 30, 2022
	2022			2021		2022			2021
Amortization of debt discounts	$	1,440,535		$	316,320	$	4,932,259		$	564,622
Stated interest paid or accrued		1,508,210			301,933		4,073,665			1,217,726
Finance charges and other interest		22,021			11,012		25,016			23,671
		2,970,766			629,265		9,030,940			1,806,019
Less: interest capitalized to construction in progress		(1,345,611	)		—		(5,098,022	)		—
	$	1,625,155		$	629,265	$	3,932,918		$	1,806,019

	Common Shares Issuable Upon Exercise of		Weighted Average		Weighted Average Contractual		Aggregate
	Warrants		Exercise Price		Term in Years		Intrinsic Value
Balance of warrants at September 30, 2021		46,095,000		2.08		3.9		14,243,000

Warrants granted		1,974,687		2.68		2.8		—
Exercised		—		—		—		—
Forfeited/Cancelled		—		—		—		—

Balance of warrants at June 30, 2022		48,069,687	$	2.10	$	3.7	$	1,375,000

	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 June 30, 2023		49,370,537		$	1.95		3.6	$	—

	Nine months ended
	June 30, ~~2022~~2023
Expected stock price volatility		92~~% -~~ ~~130~~127%
Risk-free interest rate		~~0.10% -~~ ~~0.30~~4%
Expected term (years)		~~1.0~~ - 2.0
Expected dividend yield		0%
Black-scholes value		$~~0.34~~ ~~- $0.89~~0.23

	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, 2021		5,217,315			1.23		8.9		2,633,375

Options granted		1,161,582			1.55		6.7		15,800
Exercised		(41,104	)		0.87		8.3		19,730
Forfeited/Cancelled		(114,331	)		0.94		—		—

Balance of Options at June 30, 2022		6,223,462		$	1.29		7.9	$	67,175

Exercisable at June 30, 2022		2,456,774		$	1.33		7.3	$	33,588
Unvested at June 30, 2022		3,766,688		$	1.27

	Number of Options		Weighted Average Grant Date Fair Value
Unvested at June 30, 2023	4,459,204	$	0.83
Granted during the nine months ended June 30, 2023	1,152,612	$	0.20
Forfeited during the nine months ended June 30, 2023	689,702	$	0.76

	Number of Options		Weighted Average Grant Date Fair Value
Unvested at June 30, 2022		3,766,688	$	1.21
Granted during the nine months ended June 30, 2022		1,161,582	$	1.37
Vested during the nine months ended June 30, 2022		358,004	$	1.49
Forfeited during the nine months ended June 30, 2022		114,331	$	1.91

	·•	lack of properly controlled segregation of duties
	·•	lack of risk assessment procedures on internal control to detect financial reporting risks in a timely manner; and
	·•	lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives.

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.
~~4.1~~	~~2019 Equity Incentive Plan~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~10.03~~	~~Share Exchange Agreement between Crown Dynamics Corp. and Airware Dated March 20, 2012~~	~~Filed with the SEC on March 26, 2012 as part of our current report on Form 8-K.~~
~~10.04~~	~~Agreement and Plan of Exchange between Item 9 Labs Corp. fka Airware and BSSD Group, LLC dated March 20, 2018~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~10.05~~	~~Purchase Agreement between Sidewinder Dairy, Inc. and the Company dated April 20, 2018~~	~~Filed with the SEC on August 16, 2019 as an exhibit to our Form 10-Q~~
~~10.6~~	~~Asset Purchase Agreement between Item 9 Labs Corp. and AZ DP Consulting, LLC dated November 26, 2018~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~10.7~~	~~Loan and Revenue Participation Agreement between Item 9 Labs Corp. and Viridis Group I9 Capital LLC dated September 13, 2018~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~10.8~~	~~Severance Agreement between Airware Labs Corp and Jeffrey Rassas, effective July 16, 2013~~	~~Filed with the SEC on July 19, 2013 as part of our Current Report on Form 8-K.~~
~~10.11~~	~~Agreement and Plan of Merger between Item 9 Labs Corp, I9 Acquisition Sub, Inc., and OCG Inc.~~	~~Filed with the SEC on December 14, 2020 as part of our Current Report on Form 8-K.~~
~~10.12~~	~~AZ Construction Loan and Security Agreement with Pelorus Fund REIT LLC~~	~~Filed with the SEC on August 31, 2021 as part of our Current Report on Form 8-K.~~
~~10.13~~	~~NV Construction Loan and Security Agreement with Pelorus Fund REIT LLC~~	~~Filed with the SEC on August 31, 2021 as part of our Current Report on Form 8-K.~~
~~14.1~~	~~Code of Ethics~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
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.
~~99.1~~	~~Audit Committee Charter~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~99.2~~	~~Compensation Committee Charter~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
~~99.3~~	~~Nominations and Governance Committee Charter~~	~~Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G~~
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)