# EDGAR Filing Document

**Accession Number:** 0001500123
**File Stem:** 0001554795-23-000037
**Filing Date:** 2023-2
**Character Count:** 141597
**Document Hash:** 2116fd80b4176dd8608e8f5e784f1a27
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001554795-23-000037.hdr.sgml**: 20230214

**ACCESSION NUMBER**: 0001554795-23-000037

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 65

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230214

**DATE AS OF CHANGE**: 20230214

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Item 9 Labs Corp.
- **CENTRAL INDEX KEY:** 0001500123
- **STANDARD INDUSTRIAL CLASSIFICATION:** DENTAL EQUIPMENT & SUPPLIES [3843]
- **IRS NUMBER:** 980665018
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 0930

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-54730
- **FILM NUMBER:** 23631227

**BUSINESS ADDRESS:**
- **STREET 1:** 4802 E RAY ROAD
- **STREET 2:** SUITE 23
- **CITY:** PHOENIX
- **STATE:** AZ
- **ZIP:** 85044
- **BUSINESS PHONE:** 833-867-6337

**MAIL ADDRESS:**
- **STREET 1:** 4802 E RAY ROAD
- **STREET 2:** SUITE 23
- **CITY:** PHOENIX
- **STATE:** AZ
- **ZIP:** 85044

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** AIRWARE LABS CORP.
- **DATE OF NAME CHANGE:** 20130114

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** CROWN DYNAMICS CORP
- **DATE OF NAME CHANGE:** 20100827

?xml version="1.0" encoding="utf-8"?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

**FORM 10-Q**

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

**For the quarterly period ended December 31, 2022**

**OR**

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

**For the transition period from _______ to _______**

**Commission file number 000-54730**

**ITEM 9 LABS CORP.**

(Exact name of registrant as specified in its charter)

---

| | |
|:---|:---|
| **Delaware**<br> (State or other jurisdiction of<br> incorporation or organization) | **96-0665018**<br> (I.R.S. Employer Identification No.) |

---

**<u>4802 E Ray Road, Suite 23, Phoenix, Arizona 85044</u>**

(Address of principal executive offices and zip code)

1-833-867-6337

(Registrant's telephone number, including area code)

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

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

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

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

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

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

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

As of February 14, 2023, there were 100,787,770 shares of the issuer's common stock, $0.0001 par value per share, outstanding.

**SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS**

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

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

**ITEM 9 LABS CORP.**

**FORM 10-Q**

**DECEMBER 31, 2022**

**<u>INDEX</u>**

---

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

---

**PART I - FINANCIAL INFORMATION**

**Item 1. Financial Statements**.

---

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

---

**ITEM 9 LABS CORP. AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

---

| | | |
|:---|:---|:---|
|  | **December 31,**<br>**2022** | **September 30,**<br>**2022** |
|  | **(unaudited)** |  |
| **<u>ASSETS</u>** |  |  |
| **Current Assets:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $21781 | $85637 |
| &nbsp;&nbsp;&nbsp;Accounts receivable, net | 601923 | 586270 |
| &nbsp;&nbsp;&nbsp;Inventory | 1937433 | 2464222 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 285149 | 417096 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 2846286 | 3553225 |
| &nbsp;&nbsp;&nbsp;Property and equipment, net | 23009284 | 21019724 |
| &nbsp;&nbsp;&nbsp;Right of use asset | 693418 | 938687 |
| &nbsp;&nbsp;&nbsp;Construction escrow deposits | 7717908 | 7717908 |
| &nbsp;&nbsp;&nbsp;Deposits | 80000 | 86604 |
| &nbsp;&nbsp;&nbsp;Other assets | 3830250 | 655598 |
| &nbsp;&nbsp;&nbsp;Assets held for sale | 6815000 | 6815000 |
| &nbsp;&nbsp;&nbsp;Intangible assets, net | 11444700 | 11741487 |
| &nbsp;&nbsp;&nbsp;Goodwill | 58233386 | 58233386 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Assets** | $114670232 | $110761619 |
| **<u>LIABILITIES AND STOCKHOLDERS' EQUITY</u>** |  |  |
| **Current Liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | $6378820 | $6422196 |
| &nbsp;&nbsp;&nbsp;Accrued payroll and payroll taxes | 1060406 | 2086051 |
| &nbsp;&nbsp;&nbsp;Accrued interest | 4078706 | 3070415 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 4187460 | 3328222 |
| &nbsp;&nbsp;&nbsp;Deferred revenue, current portion | 169992 | 219992 |
| &nbsp;&nbsp;&nbsp;Notes payable, current portion, net of discounts | 21221322 | 15924033 |
| &nbsp;&nbsp;&nbsp;Income tax payable | 16961 | 13221 |
| &nbsp;&nbsp;&nbsp;Operating lease liability, current portion | 231389 | 271573 |
| &nbsp;&nbsp;&nbsp;Convertible notes payable, net of discounts | 3730000 | 3750000 |
| &nbsp;&nbsp;&nbsp;Liabilities related to assets held for sale | 5500000 | 5500000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 46575056 | 40585703 |
| Deferred revenue, net of current portion | 330861 | 335859 |
| Operating lease liability, net of current portion | 470814 | 682752 |
| Convertible notes payable, net of current portion and discounts | 326498 |  |
| Notes payables, net of current portion and discounts | 6609392 | 7216710 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 54312621 | 48821024 |
| **Commitments and Contingencies** |  |  |
| **Stockholders' Equity:** |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 112,302,264 and 109,950,509 shares issued and 100,002,264 and 97,650,509 shares outstanding at December 31, 2022 and September 30, 2022 | 11230 | 10995 |
| &nbsp;&nbsp;&nbsp;Additional paid-in capital | 142081468 | 140417114 |
| &nbsp;&nbsp;&nbsp;Accumulated deficit | (68274382) | (65016698) |
| &nbsp;&nbsp;&nbsp;Treasury stock | (13450000) | (13450000) |
| Total Item 9 Labs Corp. Stockholders' Equity | 60368316 | 61961411 |
| &nbsp;&nbsp;&nbsp;Non-controlling interest | (10705) | (20816) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Stockholders' Equity | 60357611 | 61940595 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Liabilities and Stockholders' Equity** | $114670232 | $110761619 |

---

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

**ITEM 9 LABS CORP. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

---

| | | |
|:---|:---|:---|
|  | **For the three months ended<br> December 31, 2022** | **For the three months ended<br> December 31, 2021** |
| Revenues, net | $5003879 | $6186011 |
| Cost of revenues | 2382006 | 3787245 |
| Gross profit | 2621873 | 2398766 |
| Operating expenses |  |  |
| &nbsp;&nbsp;&nbsp;Professional fees and outside services | 855660 | 657445 |
| &nbsp;&nbsp;&nbsp;Payroll and employee related expenses | 2189824 | 2150706 |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 287949 | 439436 |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 379356 | 439135 |
| &nbsp;&nbsp;&nbsp;Other operating expenses | 494549 | 846668 |
| Total expenses | 4207338 | 4533390 |
| Loss from operations | (1585465) | (2134624) |
| Other income (expense) |  |  |
| &nbsp;&nbsp;&nbsp;Interest expense | (1661853) | (1210390) |
| &nbsp;&nbsp;&nbsp;Other income | 3485 |  |
| Total other income (expense), net | (1658368) | (1210390) |
| Net loss, before income tax provision (benefit) | (3243833) | (3345014) |
| Income tax provision (benefit) | 3740 |  |
| Net loss | (3247573) | (3345014) |
| Less: Net net income attributable to non-controlling interest | 10111 |  |
| Net loss attributable to Item 9 Labs Corp. | $(3257684) | $(3345014) |
| Basic net loss per common share | $(0.03) | $(0.04) |
| Basic weighted average common shares outstanding | 99156853 | 94910167 |
| Diluted net loss per common share | $(0.03) | $(0.04) |
| Diluted weighted average common shares outstanding | 99156853 | 94910167 |

---

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

**ITEM 9 LABS CORP. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

**THREE MONTHS ENDED DECEMBER 31, 2022 AND 2021** 

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Item 9 Labs Corp. Equity | Item 9 Labs Corp. Equity | Item 9 Labs Corp. Equity | Item 9 Labs Corp. Equity | Item 9 Labs Corp. Equity | Item 9 Labs Corp. Equity | | |
|  | Common Stock | Common Stock | | Treasury Stock | Treasury Stock | | | |
|  | Shares | Amount | Additional<br>Paid-in<br>Capital | Shares | Amount |<br>Accumulated<br>(Deficit) |<br>Non-<br>Controlling<br>Interest |<br><br>Total |
| Balance at September 30, 2021 | 107074417 | $10707 | $133414830 | (12300000) | $(13450000) | $(33874094) |  | $86101443 |
| Stock issued for debt inducement | 142365 | 14 | 128348 |  |  |  |  | 128362 |
| Warrants issued with debt |  |  | 574239 |  |  |  |  | 574239 |
| Beneficial conversion feature |  |  | 470047 |  |  |  |  | 470047 |
| Issuance of shares for services | 16666 | 2 | 25830 |  |  |  |  | 25832 |
| Stock based compensation |  |  | 507294 |  |  |  |  | 507294 |
| Stock issued on exercise of options | 9896 | 1 | (1) |  |  |  |  |  |
| Net loss |  |  |  |  |  | (3345014) |  | (3345014) |
| Balance at December 31, 2021 | 107243344 | $10724 | $135120587 | (12300000) | $(13450000) | $(37219108) | $— | $84462203 |
| Balance at September 30, 2022 | 109950509 | $10995 | $140417114 | (12300000) | $(13450000) | $(65016698) | $(20816) | $61940595 |
| Stock issued on debt conversion | 1164032 | 116 | 309463 |  |  |  |  | 309579 |
| Stock issued for debt inducement | 1045000 | 105 | 246715 |  |  |  |  | 246820 |
| Beneficial conversion feature |  |  | 5000 |  |  |  |  | 5000 |
| Issuance of shares for services | 142723 | 14 | 49986 |  |  |  |  | 50000 |
| Stock based compensation |  |  | 1053190 |  |  |  |  | 1053190 |
| Net loss |  |  |  |  |  | (3257684) | 10111 | (3247573) |
| Balance at December 31, 2022 | 112302264 | $11230 | $142081468 | (12300000) | $(13450000) | $(68274382) | $(10705) | $60357611 |

---

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

**ITEM 9 LABS CORP. AND SUBSIDIARIES**

**UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

---

| | | |
|:---|:---|:---|
|  | **For the three months ended<br> December 31, 2022** | **For the three months ended<br> December 31, 2021** |
| **Operating Activities:** |  |  |
| Net loss | $(3247573) | $(3345014) |
| Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;Depreciation | 82569 | 71368 |
| &nbsp;&nbsp;&nbsp;Amortization of intangible assets | 296787 | 367767 |
| &nbsp;&nbsp;&nbsp;Amortization of right of use asset | 63751 | 2629 |
| &nbsp;&nbsp;&nbsp;Amortization of debt discounts | 504501 | 990281 |
| &nbsp;&nbsp;&nbsp;Stock based compensation expense | 1053190 | 507294 |
| &nbsp;&nbsp;&nbsp;Employee retention credits received | (952805) |  |
| &nbsp;&nbsp;&nbsp;Loss on disposal of fixed assets | 30952 |  |
| Changes in operating assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Accounts receivable | (15653) | (174324) |
| &nbsp;&nbsp;&nbsp;Inventory | 526789 | 1138024 |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and other assets | (492705) | (20197) |
| &nbsp;&nbsp;&nbsp;Deposits | 6604 |  |
| &nbsp;&nbsp;&nbsp;Accounts payable | (17454) | 841910 |
| &nbsp;&nbsp;&nbsp;Accrued payroll and payroll taxes | (72840) | (487860) |
| &nbsp;&nbsp;&nbsp;Income tax payable | 3740 |  |
| &nbsp;&nbsp;&nbsp;Accrued interest | 698692 | 144459 |
| &nbsp;&nbsp;&nbsp;Accrued expenses | 322413 | (298647) |
| &nbsp;&nbsp;&nbsp;Deferred revenue | (54998) | (4998) |
| &nbsp;&nbsp;&nbsp;Operating lease liability | (70604) | (386) |
| **Net Cash Used in Operating Activities** | (1334644) | (267694) |
| **Investing Activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Purchases of property, equipment and construction in progress | (6825) | (2492445) |
| &nbsp;&nbsp;&nbsp;Cash received from construction escrow accounts |  | 1053290 |
| **Net Cash Used in Investing Activities** | (6825) | (1439155) |
| **Financing Activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Payment of debt discount |  | (18750) |
| &nbsp;&nbsp;&nbsp;Proceeds from the issuance of debt | 1597500 | 1500000 |
| &nbsp;&nbsp;&nbsp;Payment of debt | (319887) | (1068150) |
| **Net Cash Provided by Financing Activities** | 1277613 | 413100 |
| **Net Decrease in Cash** | (63856) | (1293749) |
| **Cash and cash equivalents- Beginning of Period** | 85637 | 1454460 |
| **Cash and cash equivalents - End of Period** | $21781 | $160711 |
| **Supplemental disclosure of cash flow information:** |  |  |
| **Interest paid in cash** | $458660 | $75650 |
| **Income taxes paid in cash** | $— | $— |
| **Supplemental disclosure of non-cash investing and financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;Stock and warrants issued for debt | $246820 | $728433 |
| &nbsp;&nbsp;&nbsp;Debt proceeds used to pay debt discounts | $27000 | $— |
| &nbsp;&nbsp;&nbsp;Transfer of accrued interest to debt | $620861 | $1762 |
| &nbsp;&nbsp;&nbsp;Land purchased with escrow funds and deposit | $— | $3000000 |
| &nbsp;&nbsp;&nbsp;Stock issued to pay accounts payable and prepay expenses | $50000 | $— |
| &nbsp;&nbsp;&nbsp;Cancellation of operating lease right of use asset and liability | $413515 | $— |
| &nbsp;&nbsp;&nbsp;Addition of operating lease right of use asset and liability | $231997 | $— |
| &nbsp;&nbsp;&nbsp;Beneficial conversion feature on convertible debt | $5000 | $470047 |
| &nbsp;&nbsp;&nbsp;Construction in progress paid with escrow funds | $— | $1019944 |
| &nbsp;&nbsp;&nbsp;Stock issued for conversion of debt | $309579 | $— |
| &nbsp;&nbsp;&nbsp;Accrued liabilities capitalized in construction in progress | $1467285 | $1125776 |
| &nbsp;&nbsp;&nbsp;Amortized debt discount capitalized in construction in progress | $628971 | $875430 |
| &nbsp;&nbsp;&nbsp;Debt proceeds used to fund other assets | $2500000 | $— |
| &nbsp;&nbsp;&nbsp;Accounts payable converted debt | $25922 | $— |

---

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

**ITEM 9 LABS CORP. AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

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

 

*Description of Business*

 

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

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

In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd, a dispensary franchisor, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd retail dispensary locations in twelve (12) states. The majority of the locations are in the licensing process. We currently have two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings.

*Principles of Consolidation*

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

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

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

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

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

*Accounting Estimates*

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 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*

 

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.

*Revenue Recognition*

**Cultivation revenue**

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.

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. For the three months ended December 31, 2022 and 2021, 96% and 99%, respectively, of the Company's 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. 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.

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.

**Franchising revenue**

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

**Disaggregation of Revenue**

The following table presents our revenue disaggregated by source.

---

| | | |
|:---|:---|:---|
|  | Three months ended December 31, | Three months ended December 31, |
|  | 2022 | 2021 |
| Cultivation segment |  |  |
| &nbsp;&nbsp;&nbsp;Flower | $603092 | $1077211 |
| &nbsp;&nbsp;&nbsp;Vape products | 3746970 | 4249350 |
| &nbsp;&nbsp;&nbsp;Concentrates and other cannabis products | 419928 | 775591 |
| &nbsp;&nbsp;&nbsp;Accessories | 41099 | 39066 |
|  | 4811089 | 6141218 |
| Franchising segment |  |  |
| &nbsp;&nbsp;&nbsp;Franchising revenue | 101852 | 30418 |
| Corporate |  |  |
| &nbsp;&nbsp;&nbsp;Dispensary sales revenue | 90938 |  |
| &nbsp;&nbsp;&nbsp;Other |  | 14375 |
|  | 90938 | 14375 |
|  | $5003879 | $6186011 |

---

*Net Loss Per Share*

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

---

| | | |
|:---|:---|:---|
|  | **2022** | **2021** |
| Potentially dilutive common share equivalents |  |  |
| &nbsp;&nbsp;&nbsp;Options | 9115941 | 5206251 |
| &nbsp;&nbsp;&nbsp;Warrants | 49370537 | 47834744 |
| &nbsp;&nbsp;&nbsp;Convertible notes | 15796004 | 2350969 |
| &nbsp;&nbsp;&nbsp;Potentially dilutive shares outstanding | 74282482 | 55391964 |

---

*Warrants, Conversion Options, Debt Discounts and Amendments*

 

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

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 December 31, 2022 and September 30, 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.

*Segment Reporting*

The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company allocates its resources and assesses the performance of its sales activities based on the services performed by its subsidiaries. For the three months ended December 31, 2022 and 2021, 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").

*Held for sale*

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.

*Employer Retention Credit*

During the three months ended December 31, 2022, 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's policy is to account for the ERC as a grant using guidance analogous to government grants found in IAS 20, *Accounting for Government Grants and Disclosure of Government Assistance.* In accordance with this guidance, the ERC is recognized as a reduction to Payroll and employee related expenses on the statement of operations when there is reasonable assurance that the Company will receive the ERC.

*Leases*

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.

*Recently Issued Accounting Pronouncements*

 

Pending Adoption

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.

**Note 2 – Going Concern**

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

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

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

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

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.

**Note 3 – Inventory**

Inventory consisted of the following at December 31, 2022 and September 30, 2022.

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | September 30,<br>2022 |
| Raw materials and work in process | $937678 | $1209892 |
| Finished goods | 610309 | 835420 |
| Packaging and other | 389446 | 418910 |
|  | $1937433 | $2464222 |

---

**Note 4 – Pending Acquisitions**

**The Herbal Cure pending acquisition**

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

---

| |
|:---|
| (i) Upon mutual execution and delivery of the Asset Purchase Agreement, the Company shall convey to the Seller a down payment in the amount of $250,000; |
| (ii) At the Closing, the Company shall pay to Seller $3,700,000 in immediately available funds; |
| (iii) $700,000 shall be financed by the Seller and paid pursuant to the terms and conditions of the Secured Promissory Note (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%. |

---

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

**Sessions pending 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 total purchase price for the Shares is $12,800,000 (the "<u>Purchase Price</u>"), as adjusted, plus the Earnout Payment, if any (collectively, the "Purchase Price") payable as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The Company has delivered the Exclusivity Deposit in the amount of $156,902 to the Escrow Agent on March 4, 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of $12,800,000, as adjusted, in immediately available funds;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(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.

At December 31, 2022, the $156,902 Exclusivity Deposit has been paid and is included in Other Assets on the condensed consolidated balance sheets. In addition, at December 31, 2022, the Company has placed $3.0 million in a deposit account related to the potential financing for this acquisition. The $3.0 million deposit is included in Other assets on the condensed consolidated balance sheet. At December 31, 2022, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is expected to be accounted for under ASC 805, *Business Combinations**,*** have not been included in the Company's condensed consolidated balance sheet or statement of operations as of and for the three months ended December 31, 2022. The Company can provide no assurance that it will be successful in finalizing this acquisition.

**Note 5 – Variable Interest Entity**

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

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 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 December 31, 2022 and September 30, 2022.

---

| | | |
|:---|:---|:---|
|  | December 31, | September 30, |
| Assets | 2022 | 2022 |
| Current assets |  |  |
| &nbsp;&nbsp;&nbsp;Inventory | $20799 | $26909 |
| Total assets | $20799 | $26909 |
| Liabilities |  |  |
| Current liabilities |  |  |
| &nbsp;&nbsp;&nbsp;Income tax payable | $16961 | $13221 |
| Total liabilities | $16961 | $13221 |

---

The following table presents the operations (after intercompany eliminations) of the entity that is a VIE and consolidated by the Company for the three months ended December 31, 2022.

---

| | |
|:---|:---|
|  | Three months ended<br>December 31, 2022 |
| Revenues, net | $31016 |
| Cost of revenue | 17165 |
| Gross profit | 13851 |
| Income tax expense | 3740 |
| Net income | $10111 |

---

**Note 6 - Property and Equipment, Net**

The following represents a summary of our property and equipment as of December 31, 2022 and September 30, 2022:

---

| | | |
|:---|:---|:---|
|  | December 31,<br>2022 | September 30,<br>2022 |
| Cultivation and manufacturing equipment | $674374 | $612137 |
| Computer equipment and software | 270795 | 270795 |
| Leasehold improvements | 63788 | 63788 |
| Buildings and improvements | 2811340 | 2811340 |
|  | 3820297 | 3758060 |
| Accumulated Depreciation | (860042) | (777473) |
|  | 2960255 | 2980587 |
| Land | 3455563 | 3455563 |
| Construction on progress | 16593466 | 14583574 |
| Property and Equipment, Net | $23009284 | $21019724 |

---

During the three months ended December 31, 2021, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land-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 months ended December 31, 2022, 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.

Depreciation expense for the three months ended December 31, 2022 and 2021 was $82,569 and $71,368, respectively.

**Note 7 – Debt**

**Convertible Notes**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | <br>Effective Date | Maturity<br>Date | Annual Interest<br>Rate | Balance at<br>December 31, 2022 | Balance at<br>September 30, 2022 | Conversion<br>Price |
| C-2 | 3/23/2020 | 9/23/2020 | 15% | $1100000 | $1100000 | See C-2 |
| C-3 | 8/15/2011 | 8/15/2012 | 8% |  | 20000 | $0.50 |
| C-7 | 9/29/2021 | 1/1/2023 | 10% | 275000 | 275000 | 0.35 |
| C-8 | 9/29/2021 | 1/1/2023 | 10% | 555000 | 550000 | 0.35 |
| C-9 | 10/1/2021 | 1/1/2023 | 10% | 820000 | 825000 | 0.35 |
| C-10 | 10/29/2021 | 3/31/2023 | 15% | 750000 | 750000 | 1.50 |
| C-11 | 2/21/2022 | 8/31/2022 | 24% | 230000 | 230000 | 1.10 |
| C-12 | 10/24/2022 | 10/24/2024 | 15% | 250000 |  | 0.31 |
| C-13 | 12/13/2022 | 12/13/2024 | 15% | 50000 |  | 0.25 |
| C-14 | 12/13/2022 | 12/13/2024 | 15% | 50000 |  | 0.25 |
|  |  |  |  | 4080000 | 3750000 |  |
|  |  | Less: unamortized discounts | Less: unamortized discounts | (23502) |  |  |
|  |  |  |  | $4056498 | $3750000 |  |

---

(C-2) Convertible Viridis Note

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. At December 31, 2022 the Company was not in compliance with the terms of the Viridis note, however, during the three months ended December 31, 2022, the default cure period was extended to March 1, 2023. The convertible Viridis note included a provision for the issuance of 5,000,000 warrants exercisable into the Company's common stock. The exercise price on the warrants is $0.75 and the warrants have a term of 5 years.

(C-3) Other Convertible Note

The outstanding principal and accrued interest of C-3 was converted into 5,714 shares of the Company's common stock during the three months ended December 31, 2022.

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

These two convertible notes were amended on September 30, 2022 to, among other terms, extend the maturity date to January 1, 2023 and to pledge the Company's Colorado Retail Marijuana License as security for the note. These notes are currently passed their maturity date and the Company is working with the lenders on an amendment.

(C-9) Convertible Tysadco Note

This note was amended on September 30, 2022 to, among other terms, extend the maturity date to January 1, 2023 and to pledge the Company's Colorado Retail Marijuana License as security for the note. This note is currently passed its maturity date and the Company is working with the lender on an amendment.

(C-10) Convertible \*Individual\* Note

This note was amended effective September 30, 2022 to, among other terms, extend the maturity date to March 31, 2023.

(C-11) Convertible \*Individual\* Note

At December 31, 2022, Note C-11 was in default and the Company is working with the lenders to cure the default. As a result of the default, the Company is accruing an additional $2,500 of monthly default interest.

(C-12) Playmakers Note

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

(C-13) \*Individual\* Note

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

(C-14) \*Individual\* 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, until such time as the pending Sessions acquisition is finalized (see Note 4). Upon the finalization of the pending Sessions acquisition, this note will be secured by a second priority security interest in all assets of OCG Management Ontario, Inc. The outstanding principal and any accrued interest is convertible into shares of the Company's common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as an inducement to the lender to enter into the note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt.

The future minimum payments of the Company's convertible debt obligations as of December 31, 2022 are as follows. The unamortized discount will be amortized through December 2024.

---

| | |
|:---|:---|
| Year ended |  |
| December 31, | Amount |
| 2023 | $3730000 |
| 2024 | 350000 |
|  | 4080000 |
| Unamortized discount | (23502) |
|  | 4056498 |
| Less: current portion | (3730000) |
|  | $326498 |

---

**Notes Payable**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | <br>Effective Date | Maturity<br>Date | Annual Interest<br>Rate | Balance at<br>December 31, 2022 | Balance at<br>September 30, 2022 | <br>Secured by |
| f | 5/1/2020 | 11/1/2023 | 10% | $1386370 | $1386370 | 2nd DOT AZ property |
| h | 5/1/2020 | 5/1/2023 | 15% | 283666 | 283666 | N/A |
| l | 7/22/2022 | 7/31/2023 | 36% | 1953004 | 1823405 | Future revenues; shares of Company stock |
| &nbsp;&nbsp;&nbsp;&nbsp;o | 3/19/2021 | 4/1/2024 | 10% | 295113 | 637114 | N/A |
| p | 2/1/2021 | 7/15/2023 | 15% | 220590 | 220590 | N/A |
| q | 8/6/2021 | 3/1/2023 | 16% | 13500000 | 13500000 | 1st AZ property and other personal property |
| r | 8/6/2021 | 3/1/2023 | 16% | 5500000 | 5500000 | 1st NV property and other personal property |
| s | 9/30/2021 | 12/31/2021 | 18% |  | 500000 | Restricted common stock |
| u | 11/2/2022 | 7/18/2024 | 25% | 528206 | 548082 | Future revenues |
| w | 3/4/2022 | 5/21/2024 | 15% | 6203930 | 5253256 |  |
| x | 3/10/2022 | 3/31/2023 | 20% | 250000 | 250000 | N/A |
| y | 3/2/2022 | 8/1/2023 | 5% | 145388 | 165388 | N/A |
| z | 7/20/2022 | 4/30/2023 | 36% | 479646 | 426558 | Future revenues |
| aa | 10/28/2022 | 1/31/2023 | 70% | 2000000 |  | Deposit account holding the funds |
| bb | 11/2/2022 | 3/28/2023 | 41% | 734159 |  | Future revenues |
| cc | 10/26/2022 | 11/16/2022 | 71% | 326680 |  | Deposit account holding the funds |
| dd | 11/3/2022 | 5/3/2023 | 20% | 500000 |  | N/A |
| ee | 11/1/2022 | 12/20/2022 | 1% | 25922 |  | N/A |
|  |  |  |  | 34332674 | 30494429 |  |
|  | Less: liabilities related to assets held for sale | Less: liabilities related to assets held for sale | Less: liabilities related to assets held for sale | (5500000) | (5500000) |  |
|  |  | Less: unamortized discounts | Less: unamortized discounts | (1001960) | (1853686) |  |
|  |  |  |  | $27830714 | $23140743 |  |

---

&nbsp;&nbsp;&nbsp;&nbsp; (f) Viridis AZ

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<sup>nd</sup> position. 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. At December 31, 2022 the Company was not in compliance with the terms of the Viridis AZ note, however, during the three months ended December 31, 2022, the default cure period was extended to March 1, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;(h) Viridis (unsecured)

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. At December 31, 2022 the Company was not in compliance with the terms of this note, however, during the three months ended December 31, 2022, the default cure period was extended to March 1, 2023.

&nbsp;&nbsp;&nbsp;&nbsp;(o) OCG Officers Debt

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. One of these officers is a director and officer of the Company. See Note 10.

&nbsp;&nbsp;&nbsp;&nbsp;(p) Stockbridge Amended Debt

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

Effective March 31, 2022, the debt was amended to extend the maturity date to June 30, 2022, interest payments were due on April 1, May 1 and June 1, 2022. Principal payments in the amount of $50,000 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 was due on June 30, 2022. At December 31, 2022, this note was in default, however, on January 20, 2023, the Company and lender amended the note to extend the maturity date to July 15, 2023. See Note 14.

(q, r) Pelorus Notes

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 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 is 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 is amortized to interest expense over the term of the debt. The Pelorus notes are currently in default and the Company is working with the lenders to cure the default.

&nbsp;&nbsp;&nbsp;&nbsp;(s) Viridis $500,000

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 and warrants were recorded at their relative fair values. The resulting discount in the amount of $284,534 is amortized to interest expense over the term of the debt. During the three months ended December 31, 2022, 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.

&nbsp;&nbsp;&nbsp;&nbsp;(u) Lendspark

On November 2, 2022, the Company entered into a third short-term financing arrangement with Lendspark. The proceeds of $0.58 million were used to repay the previous Lendspark short-term financing. Payments of $7,967 are due weekly until $0.725 million has been repaid. This results in an effective interest rate of 25%. Fees in the amount of $12,000 have been recorded as a discount and are being amortized to interest expense over the term of the arrangement.

&nbsp;&nbsp;&nbsp;&nbsp;(w) Viridis note

Effective December 1, 2022, the Company entered into an Unsecured Promissory Note with Viridis Group Holdings, LLC, a 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 loans to the effective date of the agreement, the principal amount of the Unsecured Promissory Note is $6,203,930. Interest only payments in the amount $82,396 will begin on May 21, 2023 with a final balloon payment of all outstanding principal and interest to be paid at maturity on May 21, 2024.

&nbsp;&nbsp;&nbsp;&nbsp;(x) Non-convertible \*Individual\* Note

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

&nbsp;&nbsp;&nbsp;&nbsp;(y) Nebrina Adams County Note

Effective with the close of the Adams County acquisition, 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. At December 31, 2022, this note was in default.

&nbsp;&nbsp;&nbsp;&nbsp;(aa) \*Individual\* Note

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 is 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 an inducement to the lender to enter into the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $166,819 is amortized to interest expense over the term of the debt.

&nbsp;&nbsp;&nbsp;&nbsp;(bb) Lendspark 2 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 are paid daily for the first three months and then payments of $19,658 are paid daily until a total of $862,500 has been repaid.

&nbsp;&nbsp;&nbsp;&nbsp;(cc) Viridis 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 currently in default and the Company is working with the lender to cure the default.

&nbsp;&nbsp;&nbsp;&nbsp;(dd) \*Individual\* Note

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 an inducement to the lender to enter into the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $60,000 is amortized to interest expense over the term of the debt.

&nbsp;&nbsp;&nbsp;&nbsp;(ee) VGI Citadel 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 matures on December 20, 2022. This note is currently in default and the Company is working with the lender to cure the default.

The future minimum payments of the Company's notes payable obligations as of December 31, 2022 are as follows. The unamortized discount will be amortized through July 2024.

---

| | |
|:---|:---|
| Year ended |  |
| December 31, | Amount |
| 2023 | $28433541 |
| 2024 | 6609391 |
| 2025 |  |
|  | 35042932 |
| Less: liabilities related to assets held for sale | (5500000) |
| Less: unamortized discount | (1001960) |
| Less: imputed interest | (710258) |
|  | 27830714 |
| Less: current portion | (21221322) |
|  | $6609392 |

---

A summary of interest expense for the three months ended December 31, 2022 and 2021 is as follows.

---

| | | |
|:---|:---|:---|
|  | Three months ended December 31, | Three months ended December 31, |
|  | 2022 | 2021 |
| Amortization of debt discounts | $1133472 | $1865711 |
| Stated interest paid or accrued | 2007295 | 1203932 |
| Finance charges and other interest | 7245 | 817 |
|  | 3148012 | 3070460 |
| Less: interest capitalized to construction in progress | (1305763) | (1860070) |
|  | $1842249 | $1210390 |

---

**Note 8 - Concentrations**

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

**Note 9 - Commitments and Contingencies**

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 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, and $7,178 for years two through five, respectively. Rent expense for the three months ended December 31, 2022 and 2021 on this lease was $6,348 and $23,200, 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. The lease calls for base rent payments of $21 per square foot ($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 December 31, 2022 on this lease was $28,100. There was no rent expense on this lease during the three months ended December 31, 2021. Interest was imputed using a discount rate of 18%.

In March 2022, the Company assumed a lease to rent approximately 2,650 square feet of retail space in Adams County, Colorado as part of the Adams County acquisition. The lease calls for base rent payments of $15,450, plus a prorated share of operating costs of the building, per month and escalate each year to $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 December 31, 2022 on this lease was $50,483. There was no rent expense on this lease during the three months ended December 31, 2021. Interest was imputed using a discount rate of 18%.

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

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

The future lease payments are as follows.

---

| | |
|:---|:---|
| Year ended |  |
| December 31, | Amount |
| 2023 | $339443 |
| 2024 | 186152 |
| 2025 | 159301 |
| 2026 | 149045 |
| 2027 | 78374 |
| Thereafter | 94212 |
|  | 1006527 |
| Less: imputed interest | (304324) |
|  | 702203 |
| Less: current portion: | (231389) |
|  | $470814 |

---

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

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

**Note 10 - Related Party Transactions**

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

As discussed in Note 7, the Company has entered into various loan agreements with Viridis or its related entities. A member of Viridis serves on the Company's board of directors.

As discussed in Note 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 7, the Company has a convertible loan agreement with a 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 director and 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 had a lease agreement with VGI Capital LLC. One member of VGI Capital LLC serves on the Company's board of directors.

During the three months ended December 31, 2022 and 2021, the Company purchased cultivation supplies from a related party in the amount of $0 and $12,993, respectively. This related party is owned by the parent of a stockholder that holds more than 5% of the Company's common stock.

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

Included in our accounts payable at December 31, 2022 and September 30, 2022 is approximately $172,000, and $243,000, respectively in amounts due to related parties.

 **Note 11 – Assets Held for Sale**

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 the current letter of intent. The following assets and liability are included under "Corporate" in Note 13.

---

| | |
|:---|:---|
|  | December 31,<br>2022 |
| Assets held for sale |  |
| &nbsp;&nbsp;&nbsp;Construction in progress - land and building | $9646612 |
| &nbsp;&nbsp;&nbsp;Licenses | 6703981 |
|  | 16350593 |
| &nbsp;&nbsp;&nbsp;Valuation allowance | (9535593) |
|  | $6815000 |
| Liabilities related to assets held for sale |  |
| &nbsp;&nbsp;&nbsp;Debt | $5500000 |

---

**Note 12 - Stockholders' Equity**

*Warrants*

The following table summarizes the Company's warrant activity for the three months ended December 31, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **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 | 49870537 | $2.05 | 3.7 | $315000.00 |
| &nbsp;&nbsp;&nbsp;Warrants granted | 2300000 | 0.50 | 2.0 |  |
| &nbsp;&nbsp;&nbsp;Forfeited/Cancelled | (2800000) | 2.57 | 3.4 |  |
| Balance of warrants at December 31, 2022 | 49370537 | $1.95 | 3.6 | $72000 |

---

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

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

---

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

---

*Stock Options*

 

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

 

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

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Common Shares Issuable Upon Exercise of Options** | **Weighted Average Exercise Price** | **Weighted Average Remaining Contractual Term in Years** | **Aggregate Intrinsic Value (1)** |
| Balance of Options at September 30, 2022 | 8594805 | $1.08 | 8.3 | $33162.00 |
| &nbsp;&nbsp;&nbsp;Options granted | 567673 | 0.30 | 8.1 |  |
| &nbsp;&nbsp;&nbsp;Forfeited/Cancelled | (46537) | 1.88 |  |  |
| Balance of Options at December 31, 2022 | 9115941 | $1.03 | 8.0 | $10204 |
| Exercisable at December 31, 2022 | 5151565 | $1.16 | 7.2 | $8253 |
| Unvested at December 31, 2022 | 3964376 | $0.86 |  |  |

---

---

| | | |
|:---|:---|:---|
|  | Number of Options | Weighted Average Grant Date Fair Value |
| Unvested at December 31, 2022 | 3964376 | $0.82 |
| Granted during the three months ended December 31, 2022 | 567673 | $0.34 |
| Forfeited during the three months ended December 31, 2022 | 46537 | $1.86 |

---

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

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

---

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

---

During the three months ended December 31, 2022 and 2021, the Company recognized compensation expense of $1,053,190 and $507,294, respectively. At December 31, 2022, there was $2,499,183 of total unrecognized compensation cost. This unrecognized cost is expected to be recognized over the weighted average vesting period of approximately 1 year.

**Note 13 – Segment Information**

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 months ended December 31, 2022 and 2021.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | Cultivation | Franchising | Corporate | Total |
| **Three months ended December 31, 2022** | **Three months ended December 31, 2022** |  |  |  |
| Revenues from external customers | $4811090 | $101852 | $90937 | $5003879 |
| Operating income (loss) | 1755243 | (680290) | (2660418) | (1585465) |
| Interest expense | 369148 | 4218 | 1288487 | 1661853 |
| Depreciation and amortization | 26770 | 299228 | 53358 | 379356 |
| Additions to property, equipment and construction in progress |  | 6826 | 2065303 | 2072129 |
| **At December 31, 2022** |  |  |  |  |
| Property, equipment and construction in progress, net | $366925 | $24086 | $22618273 | $23009284 |
| Total assets (after intercompany eliminations) | 2812904 | 67162112 | 44695216 | 114670232 |
| **Three months ended December 31, 2021** |  |  |  |  |
| Revenues from external customers | $6141217 | $30418 | $14376 | $6186011 |
| Operating income (loss) | 1569295 | (959139) | (2744780) | (2134624) |
| Interest expense | 196 | 22810 | 1187384 | 1210390 |
| Depreciation and amortization | 31265 | 300739 | 107131 | 439135 |
| Additions to property, equipment and construction in progress |  |  | 8399584 | 8399584 |
| **At December 31, 2021** |  |  |  |  |
| Property, equipment and construction in progress, net | $658276 | $77630 | $18470158 | $19206064 |
| Total assets (after intercompany eliminations) | 7905440 | 68151658 | 40963918 | 117021016 |

---

**Note 14 - Subsequent Events**

Subsequent to December 31, 2022 the following events have occurred.

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.

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

---

| | |
|:---|:---|
| **ITEM 2.** | **MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |

---

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, 2022 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2022, filed with the Securities and Exchange Commission (the "SEC") on January 13, 2023.

**Forward-Looking Statements**

**Overview**

Item 9 Labs Corp. (OTCQX: INLB) is a vertically integrated cannabis operator and dispensary franchisor delivering premium products from its large-scale cultivation and production facilities in the United States. The award-winning Item 9 Labs brand specializes in best-in-class products and user experience across several cannabis categories. The company also offers a unique dispensary franchise model through the national Unity Rd. retail brand. Easing barriers to entry, the franchise provides an opportunity for both new and existing dispensary owners to leverage the knowledge, resources, and ongoing support needed to thrive in their state compliantly and successfully. Item 9 Labs brings the best industry practices to markets nationwide through distinctive retail experience, cultivation capabilities, and product innovation. The veteran management team combines a diverse skill set with deep experience in the cannabis sector, franchising, and the capital markets to lead a new generation of public cannabis companies that provide transparency, consistency, and well-being. Headquartered in Arizona, the company is currently expanding its operations space by 640,000+ square feet on its 50-acre site, one of the largest properties in Arizona zoned to grow and cultivate flower.

The award-winning Item Nine Labs brand seeks to offer best-in-class products and user experience across several cannabis categories. The product catalogue exceeds seventy-five (75) active cannabis strains and more than one hundred fifty (150) differentiated cannabis vape products as well as premium concentrates and Orion vape technologies. The highly regarded brand has received twenty five (25) wins and podium placements in Arizona marijuana competitions, including Cannabis Cup, Errl Cup and 710 Degree Cup, for its high-quality, premium flower, concentrates and vape products. Item Nine Labs has delivered over 3 million packaged goods in its history, and over 290,000 units during the quarter ended December 31, 2022.

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 and its Unity Rd dispensary franchise model. Easing barriers to entry, the franchise approach seeks to provide an opportunity for both new and existing dispensary owners to leverage the 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 business. The dispensary franchise ranked in the top five (5) out of seven hundred (700) submissions for MJBizDaily magazine's ranking of the top cannabis retail leaders in the nation and has earned high placements in several trade industry lists. Unity Rd has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd retail dispensary locations in 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 two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Additionally, the Company has two (2) dispensaries owned and operated by its wholly owned dispensaries, one in North Denver, CO, and another in Oklahoma City, OK.

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

**Results of Operations**

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| | | | | |
|:---|:---|:---|:---|:---|
|  | Three months ended December 31, | Three months ended December 31, | | |
|  | 2022 | 2021 |<br>$ Change |% Change |
| Revenues, net | $5003879 | $6186011 | $(1182132) | -19% |
| Cost of revenues | 2382006 | 3787245 | (1405239) | -37% |
| Gross profit | 2621873 | 2398766 | 223107 | 9% |
| Operating expenses |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Professional fees and outside services | 855660 | 657445 | 198215 | 30% |
| &nbsp;&nbsp;&nbsp;Payroll and employee related expenses | 2189824 | 2150706 | 39118 | 2% |
| &nbsp;&nbsp;&nbsp;Sales and marketing | 287949 | 439436 | (151487) | -34% |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization | 379356 | 439135 | (59779) | -14% |
| &nbsp;&nbsp;&nbsp;Other operating expenses | 494549 | 846668 | (352119) | -42% |
| Total operating expenses | 4207338 | 4533390 | (326052) | -7% |
| Loss from operations | (1585465) | (2134624) | 549159 | -26% |
| Other expense, net | (1658368) | (1210390) | (447978) | 37% |
| Net loss, before income tax provision (benefit) | (3243833) | (3345014) | 101181 | -3% |
| Income tax provision (benefit) | 3740 |  | 3740 | 0% |
| Net loss | (3247573) | (3345014) | 97441 | -3% |
| Less: Net loss attributable to non-controlling interests | 10111 |  | 10111 | 100% |
| Net loss attributable to Item 9 Labs Corp. | $(3257684) | $(3345014) | $87330 | -3% |

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*Revenues*

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

*Cost of Revenues*

Cost of revenues consist primarily of labor, materials, supplies and utilities. Cost of revenues as a percentage of revenues was 48% for the three months ended December 31, 2022 compared to 61% for the three months ended December 31, 2021. This is primarily the result of decreases in the unit costs the Company pays for materials resulting from additional competition in material suppliers. Management will remain focused on reducing costs through bulk purchasing, implementing additional efficiencies in production and making additional investments in property and equipment. The Company believes that it will reduce the overall cost of revenues and cost of revenues will increase at a lower rate than revenues in future periods, which will lead to increased profit margins.

*Gross Profit*

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

*Operating Expenses*

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

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

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

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

Other operating expenses decreased primarily due to the reversal of penalties and interest on previously unpaid payroll taxes as a result of receiving the ERCs during the three months ended December 31, 2022.

Total operating expenses as a percentage of gross profit decreased from 189% for the three months ended December 31, 2021 to 160% for the three months ended December 31, 2022. Management believes this ratio will decrease for profit center segments going forward as the expectation is that revenues will grow at a higher rate than operating expenses.

*Other Expense, net* 

Other expenses consist primarily of interest expense of $1,661,853 for the three months ended December 31, 2022 and $1,210,390 for the three months ended December 31, 2021. The increase in interest expense was primarily the result of the interest expense and amortization of discounts on the debt financing the Nevada construction. The interest and discount amortization expense related to the Nevada construction debt was capitalized into construction in progress during the quarter ended December 31, 2021. As the Nevada expansion is substantially complete, the related interest and discount amortization are recorded to interest expense for the three months ended December 31, 2022.

**Adjusted EBITDA**

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

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

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| | | |
|:---|:---|:---|
|  | Three months ended December 31, | Three months ended December 31, |
|  | 2022 | 2021 |
| Net loss | $(3247573) | $(3345014) |
| Depreciation and amortization | 379356 | 439135 |
| Interest expense | 1661853 | 1210390 |
| Income tax expense | 3740 |  |
| Stock-based expense | 1053190 | 507294 |
| Acquisition related costs | 91239 |  |
| Employee retention credits | (952805) |  |
| Adjusted EBITDA | $(1011000) | $(1188195) |

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**FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES**

 

*Liquidity and Capital Resources*

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

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

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

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

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

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

*Cash Flows*

 

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

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| | | | | |
|:---|:---|:---|:---|:---|
|  | Three months ended December 31, | Three months ended December 31, | | |
|  | 2022 | 2021 |<br>$ Change |% Change |
| Net cash used in operating activities | $(1334644) | $(267694) | $(1066950) | 399% |
| Net cash used in investing activities | (6825) | (1439155) | 1432330 | -100% |
| Net cash provided by financing activities | 1277613 | 413100 | 864513 | 209% |
| Net increase (decrease) in cash and cash equivalents | $(63856) | $(1293749) | $1229893 | -95% |

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*Operating Activities*

During the three months ended December 31, 2022, operating activities used $1,334,644 of cash and cash equivalents, primarily resulting from a net loss of $3,247,573 which was offset by net cash provided by operating assets and liabilities of $833,984. There was significant non-cash activity that contributed to the net loss totaling $1,078,945 including depreciation and amortization of $443,107, amortization of debt discount of $504,501, and stock-based compensation of $1,053,190. These non-cash expenses were offset by the non-cash employee retention credits of $952,805.

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

*Investing Activities*

During the three months ended December 31, 2022, investing activities used $6,825 of cash and cash equivalents, consisting of $6,825 in purchases of property, equipment and construction in progress.

During the three months ended December 31, 2021, investing activities used $1,439,155 of cash and cash equivalents, consisting primarily of $2,492,445 in purchases of property, equipment and construction in progress, offset by $1,053,290 of cash received from the escrow deposit accounts.

*Financing Activities*

During the three months ended December 31, 2022, financing activities provided $1,277,613, consisting of $1,597,500 in proceeds from the issuance of debt and offset by $319,887 of debt payments made.

During the three months ended December 31, 2021, financing activities provided $413,100, consisting of $1,500,000 in proceeds from the issuance of debt and offset by $1,068,150 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 are also in discussions with various potential capital partners to provide additional debt capital for accretive acquisitions. We do not have any other arrangements in place to complete any private placement financings of debt and equity. There is no assurance that we will be successful in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.

**Off-Balance Sheet Arrangements**

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.

**Critical Accounting Policies**

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

**Recently Issued Accounting Pronouncements**

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.

***Contractual Obligations***

 ****

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.

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|:---|:---|
| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.** |

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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.

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|:---|:---|
| **ITEM 4.** | **CONTROLS AND PROCEDURES** |

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 ***Evaluation of Disclosure Controls and Procedures***

 ****

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 December 31, 2022.

***Identified Material Weaknesses***

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:

• 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.

***Changes in Internal Control over Financial Reporting***

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

**<u>PART II - OTHER INFORMATION</u>**

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| | |
|:---|:---|
| **ITEM 1.** | **LEGAL PROCEEDINGS** |

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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.

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| | |
|:---|:---|
| **ITEM 1A.** | **RISK FACTORS** |

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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.

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| | |
|:---|:---|
| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |

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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.

**1.** **Quarterly Issuances:** 

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

**2.** **Subsequent Issuances:** 

Subsequent to December 31, 2022, the Company issued 785,506 shares of common stock for services.

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|:---|:---|
| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES** |

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None.

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|:---|:---|
| **ITEM 4.** | **MINE SAFETY DISCLOSURES** |

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N/A.

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|:---|:---|
| **ITEM 5.** | **OTHER INFORMATION** |

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N/A.

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| | |
|:---|:---|
| **ITEM 6.** | **EXHIBITS** |

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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:

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| | | |
|:---|:---|:---|
| **Exhibit**<br>**Number** | <br>**Description of Exhibit** | |
| [3.01a](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-1.htm) | [Articles of Incorporation dated June 15, 2010](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-1.htm) | [Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-1.htm) |
| [3.01b](http://www.sec.gov/Archives/edgar/data/1500123/000110807812000398/exhibit3-1a.htm) | [Certificate of Amendment to Articles of Incorporation dated October 22, 2012](http://www.sec.gov/Archives/edgar/data/1500123/000110807812000398/exhibit3-1a.htm) | [Filed with the SEC on November 13, 2012 as part of our Current Report on Form 8-K](http://www.sec.gov/Archives/edgar/data/1500123/000110807812000398/exhibit3-1a.htm) |
| [3.01c](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01c.htm) | [Certificate of Amendment to Articles of Incorporation dated March 15, 2018](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01c.htm) | [Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01c.htm) |
| [3.01d](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01d.htm) | [Certificate of Amendment to Articles of Incorporation dated March 19, 2018](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01d.htm) | [Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01d.htm) |
| [3.01e](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01e.htm) | [Certificate of Amendment to Articles of Incorporation dated April 3, 2018](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01e.htm) | [Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01e.htm) |
| [3.01f](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01f.htm) | [Certificate of Amendment to Articles of Incorporation dated October 9, 2018](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01f.htm) | [Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G](http://www.sec.gov/Archives/edgar/data/1500123/000155479519000192/airw0614form10exh3_01f.htm) |
| [3.02](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-2.htm) | [Bylaws](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-2.htm) | [Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.](http://www.sec.gov/Archives/edgar/data/1500123/000114420411028428/v222179_ex3-2.htm) |
| [31.01](inlb0214form10qexh31_1.htm) | [Certification of Principal Executive Officer Pursuant to Rule 13a-14](inlb0214form10qexh31_1.htm) | [Filed herewith.](inlb0214form10qexh31_1.htm) |
| [31.02](inlb0214form10qexh31_2.htm) | [Certification of Principal Financial Officer Pursuant to Rule 13a-14](inlb0214form10qexh31_2.htm) | [Filed herewith.](inlb0214form10qexh31_2.htm) |
| [32.01](inlb0214form10qexh32_1.htm) | [CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act](inlb0214form10qexh32_1.htm) | [Filed herewith.](inlb0214form10qexh32_1.htm) |
| [32.02](inlb0214form10qexh32_2.htm) | [CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act](inlb0214form10qexh32_2.htm) | [Filed herewith.](inlb0214form10qexh32_2.htm) |
| 101.INS\* | Inline XBRL Instance Document | Filed herewith. |
| 101.SCH\* | Inline XBRL Taxonomy Extension Schema Document | Filed herewith. |
| 101.CAL\* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith. |
| 101.LAB\* | Inline XBRL Taxonomy Extension Labels Linkbase Document | Filed herewith. |
| 101.PRE\* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith. |
| 101.DEF\* | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith. |
| 104\* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |  |

---

\*Pursuant to 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.

**SIGNATURES**

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

---

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

---

Date: February 14, 2023 By: <u>/*s/ Robert Mikkelsen*</u> <br> Name: Title: Robert Mikkelsen Chief Financial Officer (Principal Financial Officer)

## Exhibit 31.1

**EXHIBIT 31.1**

**SECTION 302 CERTIFICATIONS**

I, Michael Weinberger, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Item 9 Labs Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(a) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 14, 2023

*<u>/s/ Michael Weinberger</u>*

Michael Weinberger

Chief Executive Officer

## Exhibit 31.2

**EXHIBIT 31.2**

**SECTION 302 CERTIFICATIONS**

I, Robert Mikkelsen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Item 9 Labs Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(a) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 14, 2023

<u>/s/ *Robert Mikkelsen*</u>

Robert Mikkelsen

Chief Financial Officer

## Exhibit 32.1

**EXHIBIT 32.1**

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED**

**PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Item 9 Labs Corp. (the "Company") on Form 10-Q for the quarter ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew Bowden, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Principal Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

<u>/s/ Michael Weinberger</u>

Michael Weinberger

Chief Executive Officer

February 14, 2023

## Exhibit 32.2

**EXHIBIT 32.2**

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED**

**PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Item 9 Labs Corp. (the "Company") on Form 10-Q for the quarter ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert Mikkelsen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Principal Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

<u>/s/ *Robert Mikkelsen*</u>

Robert Mikkelsen

Chief Financial Officer

February 14, 2023