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, 2021and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2021, filed with the Securities and Exchange Commission
(the "SEC") on
January 13, 2022. Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the securities Exchange Act of 1934, as amended, (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. The words "anticipated," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "should," "could," "predicts," "potential," "continue," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this quarterly report on Form 10-
Q. Youshould carefully consider these risks and uncertainties described and other information contained in the reports we file with or furnish to the SECbefore making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement. Overview Item 9 Labsproduces premium cannabis and cannabis related products in a rapidly growing market. The Company currently offers over 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 Company's product offerings will continue to grow as they develop new products to meet the needs of the end users. The Company makes its products available to consumers through licensed dispensaries in Arizona. Item 9 Labs'products are now carried in more than 80 dispensaries throughout the state of Arizona. The Company believes its past and future success is dependent upon its ongoing ability to understand the needs and desires of the consumers, and the Company develops and offers products that meet those needs. The Company's objective is to leverage its assets (tangible and intangible) to fuel the growth of its share of the Arizonacannabis market, as well as expand the geographical reach of its products into markets outside of Arizona, with the ultimate goal of providing comfortable cannabis health solutions to a larger population in a manner that will create value for the Company's shareholders. In March 2020, the World Health Organizationcategorized Coronavirus Disease 2019 ("COVID-19") as a pandemic, and the President of the United Statesdeclared the COVID-19 outbreak a national emergency. The extent of the impact of the COVID-19 outbreak on the Company's operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on its customers and vendors, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. In March 2021, the Company closed on the acquisition of OCG, Inc., dba Unity Rd., a cannabis dispensary franchisor. The transaction was structured as a reverse triangular merger, with the effect of OCG, Inc.becoming a wholly owned subsidiary of the Company. Unity Rdhas agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rdretail dispensary locations in twelve (12) states. The majority of the locations are in the licensing process. We currently have one franchisee operating in Boulder, Colorado. Unity Rd.will assist in providing distribution for Item 9 Labsproducts to be sold across the United Statesand internationally to its franchisees for public resale, while keeping dispensaries locally owned and operated. As Unity Rd.dispensaries expand in its market penetration, Item 9 Labsaims to offer its products in those locations by expanding the distribution footprint of its premium product offerings to new states. 25 The Company's Arizonacannabis operations have expanded in recent years, with the addition of a 2nd nearly 10,000 square foot facility in the 4th quarter of fiscal year 2019, more than doubling the Company's cultivation and processing space for Arizona. As the Company methodically expanded its operational capacity by more than 100% in fiscal year 2020, it was also able to significantly increase efficiencies within the cultivation and processing operations. The increased efficiencies have been offset in the current period by certain supply shortages and repair and maintenance delays resulting in longer production
Arizonaexpansion has continued in fiscal year 2022 and is expected to continue thereafter. The Company has tripled production since October 1, 2020, while beginning construction on phase 1 of its construction plan to build additional cultivation space. Phase 1 plans total over 60,000 square feet of additional cultivation and processing space, and the planned remaining five phases would add over 560,000 square feet of cultivation and processing space. By the conclusion of the master site development, the Company anticipates a total of more than 640,000 square feet of cultivation and processing space; there is no assurance the Company can complete these construction projects as planned. The Company estimates that phase 1 of its construction plan will be completed during the third quarter of its fiscal year 2023. The extension of time to complete phase 1 of its construction plan is primarily due to delays in obtaining the necessary construction permits and supply chain shortages of construction materials. Further, given the current level of inflation and the supply chain shortages, the Company estimates that costs will exceed original estimates by 25%-30%. The needed permits were obtained subsequent to June 30, 2022. The Company may experience additional construction delays. The Company can provide no assurance that it will be able to obtain the financing needed to pay the additional construction costs. Item 9 Labs Corp.has continued its expansion plans into other states as well as the Company acquired (pending regulatory approval) cultivation and processing licenses in Nye County, Nevadawhich will be paired with their Nevadafacility. In fiscal 2019, the Company broke ground on their 20,000 square foot cultivation and processing facility in Nevada. The facility is now approximately 98% complete. Construction recommenced, after a pause due to Covid-19, in August 2021. The Company aims to commence operations in Nevadain early fiscal year 2023. On October 6, 2021, the Company entered into an Asset Purchase Agreement ("APA") to acquire an existing dispensary license and storefront from Nebrina Adams County LLC, a Coloradolimited liability company ("Seller") in Adams County, CO.The total purchase price was $1,536,000, as to which $1,000,000was paid to an escrow account upon conditional approvals of the change of ownership from state and local licensing authorities concerning the transfer of ownership. At closing, that amount was released to the Seller along with an 18-month promissory note in the principal amount of $200,000and the balance payable in 300,000 shares of Company common stock, valued at $336,000. The Company obtained financing to consummate this transaction. On March 2, 2022, the Company received the necessary regulatory approvals and completed this transaction. The existing dispensary license had never been operational. This dispensary, known as the Company's North Denverlocation, began operations on July 11, 2022, making it the Company's first corporate-owned shop in Coloradounder the Company's cannabis dispensary brand, Unity Rd.This license acquisition is part of an overarching acquisition strategy that is intended to accelerate national expansion by creating turnkey investment opportunities for Unity Rd.franchisees. The Company plans to convert acquired dispensaries into Unity Rd.shops, operate them internally and sell them to an existing or future franchise partner. This offers an expedited solution for entrepreneurs seeking immediate entry into cannabis. The Company is targeting numerous similar transactions in the next 12 months to gain a deeper market penetration in select markets. Subsequently and/or concurrently, the Company plans to introduce the Item 9 Labssuite of products to the same markets through the acquisition of cultivation and production licenses or through joint ventures with qualified local, licensed operators. On March 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC, a Coloradolimited 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 $250,000is to be paid upon execution of the Asset Purchase Agreement, $3,700,000payable at closing, $700,000shall 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 $1,100,000divided by the product of the 10-day volume weighted average price of the shares as of the closing date and 85%. The Company can provide no assurance that it will be successful in finalizing this acquisition. On May 18, 2022, the Company and its wholly owned subsidiary, OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario("Purchaser") solely for the purpose of completing this transaction, entered into a Share Purchase Agreement pursuant to which the Purchaser is purchasing all, but not less than all, of the issued and outstanding shares in the capital of Wild Card Cannabis Incorporated, a corporation formed under the laws of the Province of Ontariofree and clear of all Liens from the Shareholders. The Company can provide no assurance that it will be successful in finalizing this acquisition.
The aggregate purchase price for the Shares is twelve million eight hundred thousand dollars (
(i) The Company has posted the exclusivity deposit of
to the escrow agent
(ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of Twelve Million Eight Hundred Thousand Dollars (
$12,800,000.00 USD), as adjusted, in immediately available funds; (iii) Four Million One Hundred Thousand Dollars ( $4,100,000.00), as adjusted, payable by the delivery of the Company's common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company's common stock on the stock exchange upon which the Company's common stock is listed, with the last day of the First Earnout Period (the date that is 12 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the First Earnout Period is greater than or equal to the Target Net Revenue for the First Earnout Period; and (iv) Four Million One Hundred Thousand Dollars ( $4,100,000.00), as adjusted, payable by the delivery of the Company's common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company's common stock on the stock exchange upon which the Company's common stock is listed, with the last day of the Second Earnout Period (the date that is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period. 26 Results of Operations Nine months ended June 30, 2022 2021 $ Change % Change Revenues, net $ 17,755,519 $ 15,843,256 $ 1,912,26312 % Cost of revenues 11,089,560 8,531,623 2,557,937 30 % Gross profit 6,665,959 7,311,633 (645,674 ) -9 % Operating expenses Professional fees and outside services 2,207,618 1,350,196 857,422 64 % Payroll and employee related expenses 7,889,672 4,014,819 3,874,853 97 % Sales and marketing 1,260,551 389,819 870,732 223 % Depreciation and amortization 1,320,664 360,601 960,063 266 % Other operating expenses 2,747,158 1,292,154 1,455,004 113 % Provision for bad debt (5,000 ) - (5,000 ) 100 % Total operating expenses 15,420,663 7,407,589 8,013,074 108 % Income (loss) from operations (8,754,704 ) (95,956 ) (8,658,748 ) 9024 % Other expense, net (3,932,600 ) (1,763,385 ) (2,169,215 ) 123 % Net loss, before income tax provision (benefit) (12,687,304 ) (1,859,341 ) (10,827,963 ) 582 % Income tax provision (benefit) 7,948 - 7,948 0 % Net loss (12,695,252 ) (1,859,341 ) (10,835,911 ) 583 % Less: Net loss attributable to non-controlling interests (1,683 ) - (1,683 ) 100 % Net loss attributable to Item 9 Labs Corp. $ (12,693,569 ) $ (1,859,341 ) $ (10,834,228 )583 % Three months ended June 30, 2022 2021 $ Change % Change Revenues, net $ 4,931,322 $ 6,693,061 $ (1,761,739 )-26 % Cost of revenues 3,341,367 3,802,447 (461,080 ) -12 % Gross profit 1,589,955 2,890,614 (1,300,659 ) -45 % Operating expenses Professional fees and outside services 993,452 442,483 550,969 125 % Payroll and employee related expenses 2,683,722 1,592,673 1,091,049 69 % Sales and marketing 207,213 262,473 (55,260 ) -21 % Other operating expenses 1,114,323 728,100 386,223 53 % Total operating expenses 5,437,762 3,137,888 2,299,874 73 % Income (loss) from operations (3,847,807 ) (247,274 ) (3,600,533 ) 1456 % Other expense, net (1,625,155 ) (586,631 ) (1,038,524 ) 177 % Net income (loss), before income tax provision (benefit) (5,472,962 ) (833,905 ) (4,639,057 ) 556 % Income tax provision (benefit) 4,624 - 4,624 0 % Net income (loss) (5,477,586 ) (833,905 ) (4,643,681 ) 557 % Less: Net loss attributable to non-controlling interests (7,109 ) - (7,109 ) 100 % Net loss attributable to Item 9 Labs Corp. $ (5,470,477 ) $ (833,905 ) $ (4,636,572 )556 % Revenues The increase in revenue for the nine months ended June 30, 2022was primarily due to a change in certain processes and procedures in the Company's lab during the year ended September 30, 2021. That is, during fiscal year 2021, the Company purchased equipment to automate certain manual processes. The purchase of this equipment made certain processes, such as the filling of cartridges, more efficient, which allowed for increased output. In order to support this increased output, the Company purchases certain inventory materials from third party vendors that it had previously produced itself. Further, during fiscal year 2021, the Company added and reorganized post-production space to more efficiently package its products for sale. These improvements for the nine months ended June 30, 2022were offset by the following events during the quarter ended June 30, 2022. The decrease in revenue for the three months ended June 30, 2022was primarily due to effects of additional competition entering the Company's market that were not as significant during the same three month period of the prior year. This additional competition resulted in a decrease in units sold and a decrease in unit sales prices. Further, during the three months ended June 30, 2022, the Company experienced supply chain issues that caused a decrease in new orders for the Company's products and delays in fulfilling existing orders. 27 Cost of Revenues Cost of revenues consist primarily of labor, materials, supplies and utilities. Cost of revenues as a percentage of revenues was 68% and 62% for the three and nine months ended June 30, 2022compared to 57% and 54% for the three and nine months ended June 30, 2021. The Company was able to increase operational efficiency throughout fiscal year 2021. However, the cost of the purchased inventory materials discussed above and increases in other costs, such as product testing, primarily negated these efficiency gains. Further, cost of revenues as a percentage of revenues decreased due to the reduction in unit sales prices during the quarter. 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 decrease in gross profit as a percentage of revenue for the nine months ended
June 30, 2022was due to increases in revenue offset by price reduction as competition rises and by increases in purchased inventory materials and other costs. Further, the decrease in gross profit as a percentage of revenue of the three months ended June 30, 2022also decreased due to the decrease in the number of units sold as a result of the increased competition and the supply chain issues experienced. With the Company's continued efforts to increase capacity and focus on efficiencies and reducing costs, management expects gross profit to increase going forward. Operating Expenses
Professional fees and outside services increased for the nine months ended
June 30, 2022compared to the nine months ended June 30, 2021primarily due to the amortization of prepaid consulting agreements that were entered into subsequent to June 30, 2021and additional expenses incurred for corporate advisory services, and investor and public relations services. Further, the Company incurred significant legal expenses during the three and nine months ended June 30, 2022related to entering into the Share Purchase Agreement for the purchase of all of the issued and outstanding shares of Wild Card Cannabis, Incorporated, a corporation formed under the laws of the Province of Ontario, Canada. The increase in payroll expenses was primarily due to the amortization of stock-based compensation expense for stock options granted subsequent to June 30, 2021. Further, payroll expenses increased due to an increase in employee headcount during fiscal year 2021 and the nine months ended June 30, 2022, as a result of increased hiring of employees. The increase was offset by approximately $294,000of Employee Retention Credits ("ERCs") received by the Company. Sales and marketing expenses increased due to increased spending on promotional items and marketing and branding initiatives during the nine months ended June 30, 2022. The decrease in sales and marketing expenses decreased slightly for the three months ended June 30, 2022compared to June 30, 2021as a result of the decrease in promotional items during the quarter. The increase in depreciation and amortization is due primarily to the scheduled amortization of intangible assets acquired in the OCG Inc.acquisition in March 2021.
Other operating expenses increased mainly due to increased insurance expenses, facility expenses such as rental expenses, travel expenses and additional IT support for the increase in headcount.
Total operating expenses as a percentage of gross profit increased from 109% and 101% for the three and nine months ended
June 30, 2021, respectively, to 342% and 231% for the three and nine months ended June 30, 2022, respectively. Management believes this ratio will decrease for the Cultivation segment going forward as the expectation is that revenues will grow at a higher rate than operating expenses, however, management believes that operating expenses will outpace revenues for the Franchising and Corporate segments as the Franchising and Corporate segments continue to perform on growth initiatives. During the three months ended June 30, 2022, the Company has noted indicators of the possible impairment of its goodwill and intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2022and determine if any impairment has occurred. Given the carrying value of the Company's goodwill and intangible assets at June 30, 2022, the occurrence of an impairment may be material to the Company's financial position and results of operations. Other Expense, net Other expenses consist primarily of interest expense of $1,625,155and $3,932,918for the three and nine months ended June 30, 2022, respectively, and $629,265and $1,806,019for the three and nine months ended June 30, 2021, respectively. The increase in interest expense was primarily the result of the continued interest and amortization of debt discounts for debt outstanding at June 30, 2021and the additional interest and amortization of debt discounts for debt incurred subsequent to June 30, 2021. This increase in interest expense was offset by debt and amortization of debt discounts that were capitalized to construction in progress related to the Company's capital projects. Adjusted EBITDA Management uses the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation expense, acquisition-related costs, 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
The following table shows the reconciliation of net income (loss) to Adjusted EBITDA for the three and nine months ended
Three months ended June 30, Nine months ended June 30, 2022 2021 2022 2021 Net loss
$ (5,477,586 ) $ (833,905 ) $ (12,695,252 ) $ (1,859,341 )Depreciation and amortization 439,052 112,159 1,320,664 360,601 Interest expense 1,625,155 629,265 3,932,918 1,806,019 Income tax expense 4,624 - 7,948 - Stock-based expense 1,161,739 304,672 3,032,518 1,077,252 Acquisition related costs 479,904 5,804 499,904 272,541 Adjusted EBITDA $ (1,767,112 ) $ 217,995 $ (3,901,300 ) $ 1,657,072The approximately $5.6 millionchange from prior year is due to the addition of the franchise business, as well as significant investments in human capital and infrastructure to prepare for anticipated growth.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL POSITION
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 assuming the 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 in business, the company must generate additional income and raise additional capital to fund its operating losses and service its debt. Management’s plans in relation to these matters are described as follows:
Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing its products 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 Arizonamarket by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona, with construction of a cultivation and processing facility nearing completion in Nevada. The Company believes that it will continue reducing 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.
Financing. To date, the Company has financed its operations primarily with loans from shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will continue to grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company's 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
June 30, 2022, the Company had $441,662of cash and cash equivalents and negative working capital of ( $33,778,387) (current assets minus current liabilities), compared with $1,454,460of cash and cash equivalents and negative working capital of ( $4,893,385) as of September 30, 2021. The decrease of $28,885,002in the Company's working capital is primarily due to increases in the amount of the Company's debt maturing within the next 12 months. The decrease is also due to decreases in the Company's cash, accounts receivable, inventory and prepaid balances and increases in the Company's accounts payable and other operating liabilities and the current portion of operating lease liabilities. The $1,012,798decrease in cash and cash equivalents was primarily due to the net cash used in operating activities, purchases of property, equipment and construction in progress related to the Company's capital projects, and the Company's acquisition of a dispensary license in Colorado. 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: Nine months ended June 30, 2022 2021 $ Change % Change Net cash used in operating activities
$ (2,016,148 ) $ (6,877,259 ) $ 4,861,111-71 % Net cash used in investing activities (3,769,744 ) (3,851,950 ) 82,206 -2 % Net cash provided by financing activities 4,773,094 10,941,424 (6,168,330 ) -56 % Net increase (decrease) in cash and cash equivalents $ (1,012,798 ) $ 212,215 $ (1,225,013 )-577 % Operating Activities During the nine months ended June 30, 2022, operating activities used $2,016,148of cash and cash equivalents, primarily resulting from a net loss of $12,695,252which was offset by net cash provided by operating assets and liabilities of $3,918,454. There was significant non-cash activity that contributed to the net loss totaling $6,760,650including depreciation and amortization of $1,410,508, amortization of debt discount of $2,311,783, and stock-based compensation of $3,032,518. During the nine months ended June 30, 2021, operating activities used $6,877,259of cash, primarily resulting from a net loss of $1,859,341which was extended by net cash used in operating assets and liabilities of $7,060,610. There was significant non-cash activity that contributed to the net loss totaling $2,042,692including depreciation and amortization of $400,419, amortization of debt discount of $565,021, and stock based compensation of $1,077,252. With the increase in revenues, the Company's receivables increased $1,703,092, deferred costs increased $6,348,573and prepaid expenses increased $192,292, offset by an increase in current liabilities of $1,183,347. Investing Activities During the nine months ended June 30, 2022, investing activities used $3,769,744of cash and cash equivalents, consisting primarily of $2,918,584in purchases of property, equipment and construction in progress, the purchase of a dispensary license in the amount of $1,130,872, cash payments for acquisitions of $140,726and cash paid to acquisition escrow accounts of $406,932, offset by $816,227of cash received from the escrow deposit accounts.
During the nine months ended
Cash consisting mainly of
During the nine months ended
During the nine months ended
June 30, 2021, financing activities provided $10,941,424, consisting of $13,298,965in proceeds from the issuance of stock and proceeds from the issuance of convertible debt of $1,355,000and offset by $3,712,541in 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. 30
We intend to meet our cash requirements for the next 12 months through the use of the cash we have on hand and through business operations, future equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We have filed an offering document on Form 1-A with the
Securities and Exchange Commissionin order to sell units comprising of one share of common stock and one-half of one warrant. We are also in discussions with various potential capital partners to provide additional debt capital for accretive acquisitions. We do not have any other arrangements in place to complete any private placement financings of debt and equity. There is no assurance that we will be successful in completing the offering on Form 1-A, or in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.
Off-Balance Sheet Arrangements
We are not currently involved or otherwise involved in any off-balance sheet arrangement that has or is likely to have a present or future material effect on our financial condition, changes in financial condition, income or expenses, or 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, 2021. Management believes that there have been no material changes in our critical accounting policies during the three months ended June 30, 2022.
Recently issued accounting pronouncements
See Note 1 to our Condensed Consolidated Financial Statements contained 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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