Notes Payable

12 Months Ended

Dec. 31, 2023

Notes Payable [Abstract]

NOTES PAYABLE

NOTE 14. NOTES PAYABLE

Our notes payable consisted of the following:

	December 31, 2023									December 31, 2022
	Third-party			Related-party			Total			Third-party			Related-party			Total
2022 12% Notes	$	13,167,796		$	332,204		$	13,500,000		$	13,167,796		$	332,204		$	13,500,000
Trees Transaction Notes		—			326,811			326,811			—			1,191,865			1,191,865
Green Tree Acquisition Notes		—			562,000			562,000			774,750			2,725,250			3,500,000
Green Man Acquisition Notes		1,555,000			—			1,555,000			1,500,000			—			1,500,000
Working Capital Note		500,000			—			500,000			—			—			—
Unamortized debt discount		(1,312,427	)		(25,141	)		(1,337,568	)		(1,527,346	)		(361,587	)		(1,888,933	)
Total debt		13,910,369			1,195,874			15,106,243			13,915,200			3,887,732			17,802,932
Less: Current portion		(605,000	)		(487,382	)		(1,092,382	)		(179,827	)		(1,723,517	)		(1,903,344	)
Long-term portion	$	13,305,369		$	708,492		$	14,013,861		$	13,735,373		$	2,164,215		$	15,899,588

Aggregate Maturities

As of December 31, 2023, aggregate future contractual maturities of long-term debt (excluding issue discounts) are as follows:

Year ended December 31, 2023	Amount
2024	$	1,092,382
2025		970,571
2026		14,380,858
	$	16,443,811

Trees Transaction Notes

In January 2022, with the completion of the Trees MLK acquisition, we are obligated to pay the Seller cash equal to $384,873 in equal month installments over a period of 24 months. The payments began on June 15, 2022 and the payment is equal to $16,036 per month. As of December 31, 2023 and 2022, the debt balance of this note was $200,495 and $272,618, respectively.

In December 2021, with the completion of the TREES Portland and TREES Waterfront acquisitions, we are obligated to pay the Seller cash equal to $497,371. This note calls for monthly payments of $20,724, which began on February 15, 2022. As of December 31, 2023 and 2022, the debt balance of this note was $126,316 and $269,409, respectively.

In September 2021, with the completion of the Englewood acquisition, we are obligated to pay the Seller cash equal to $1,732,884. This note calls for monthly payments of $72,204, which began on October 15, 2021. There is no interest associated with this note. As of December 31, 2022, the debt balance of this note was $649,838. During the year, the Englewood Seller forgave the remaining principal balance $256,582 owed from the Englewood acquisition. As the debt holder is also a shareholder of the Company, the effect of this debt forgiveness was accounted for as a capital contribution in paid-in capital.

Green Man Acquisition Notes

In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $1,500,000 in equal month installments over a period of 18 months. The payments begin in December 2023 and the payment is equal to $83,333 per month. The relative fair value of this obligation resulted in a debt discount of $275,154. We recorded amortization of debt discount expense from this obligation of $133,970 and nil for the years ended December 31, 2023 and 2022, respectively. In December 2023, as part of the remeasurement of the Green Man acquisition, the fair value of the installment payments were remeasured (see Note 2), resulting in a decrease of the fair value of the debt of $104,198.

Green Tree Acquisition Notes

In December 2022, with the completion of the Green Tree Acquisition, we were obligated to pay the Sellers cash equal to $3,500,000 in equal month installments over a period of 15 months. Payments of $233,333 were due monthly and were set to begin in September 2023, however, this debt was restructured as part of the settlement with the Green Tree entities (see Note 6 for the transfer and below for details of the restructuring). The relative fair value of the original obligation resulted in a debt discount of $482,490. We recorded amortization of debt discount from this obligation of $345,354 and nil for the years ended December 31, 2023 and 2022, respectively. In December 2023, as part of the final determination of purchase accounting for the Green Tree acquisition, the fair value of the installment payments were remeasured (see Note 2), resulting in a decrease of the fair value of the debt of $136,502.

Green Tree Acquisition Notes Restructuring

Upon the transfer of the Green Tree assets to the Green Tree entities (see Note 6), we signed a settlement agreement with the Sellers to eliminate the amounts due and payable under the Green Tree Acquisition Notes, with the exception certain amounts due to one of the Sellers. As part of this settlement, we signed a letter amendment with this seller, who is a shareholder of the Company, to modify the terms of the monthly installments due to this seller. Pursuant to the amended terms, we shall make (i) thirty-three (33) equal monthly installments (“Installment Payments”), totaling $441,571, commencing within five (5) business days of January 4, 2024 and continuing on or before the 15th day of each successive month thereafter; plus (ii) a single balloon payment equal to $120,429 (“Balloon Payment”) on or before September 15, 2026 (“Balloon Payment Date”), for a total of $562,000. The Balloon Payment may be paid in cash or, at the sole option of the Company, common stock of the Company, the per share of which to be determined utilizing the “volume weighted average price” of the common stock for the five-trading day period immediately preceding the Balloon Payment Date.

Upon agreement of these amended terms, we and the Sellers acknowledged that we lacked the financial means to make the remaining installment payments previously due, forecasting that we would default on the installment payments due to the Sellers. Additionally, we determined the effective interest rate for the amounts due under the amended installment payments was lower than the effective interest rate of the previous installment payments, evidencing that the Sellers have granted a concession related to this amendment. These factors resulted in the amendment of the debt being considered a troubled debt restructuring under ASC 470. Further, as the parties to the amendment were shareholders of the Company, this transaction is considered a non-reciprocal transfer with owners and is accounted for within equity (with no gain or loss recognized related to the restructuring). Accordingly, a capital contribution of $1,974,384 was recognized in paid-in capital as of December 31, 2023, calculated as 1) the forgiveness of amounts due under the original Green Tree Acquisition Notes totaling $3,244,467 and 2) the redemption of the Seller’s equity consideration by the Company of $1,636,400, offset by 3) the derecognition of Green Tree fixed assets, tradename intangible assets, goodwill, and inventory assets transferred from the Company to the Sellers totaling $2,344,483 and 4) assumption of new amounts due under the amended terms discussed above of $562,000.

12% Notes - 2022 Modification

On September 15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “12% Investors”), pursuant to which we agreed to issue and sell senior secured convertible notes (the “12% Notes”) with an aggregate principal amount of $13,500,000 to such 12% Investors, in exchange for payment by certain 12% Investors of an aggregate amount of $10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $2,912,750 represented by the 10% Notes discussed below. On December 15, 2023, the 12% Notes were restructured, as discussed below.

In connection with the 12% Notes, the 12% Investors received warrants (the “12% Warrants”) to purchase shares of our Common Stock equal to 20% coverage of the aggregate principal amount with an exercise price of $0.70 per share, which equals an aggregate of warrants to purchase 3,857,150 shares of Common Stock. The Lead 12% Investor received an additional 10% warrant coverage on the aggregate principal amount of 12% Notes for total additional warrants to purchase 1,928,571 shares of our Common Stock. The Lead 12% Investor also received a five percent fee on the aggregate principal amount of the 12% Notes. This total fee in the amount of $675,000 was recorded as a debt discount and will be amortized over the life of the loan. The 12% Notes bear interest at an annual rate of 12% and will mature on September 16, 2026. The 12% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 12% Notes into Common Stock at a fixed conversion price equal to $1.00 per share. the 12% Notes are treated as conventional debt.

The fair value of the 12% Warrants was recorded as a debt discount and additional paid-in capital of $569,223 was recorded in 2022. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $103,577 in 2022.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 12% Warrants as of September 15, 2022, were:

Current stock price	$	0.20
Exercise price	$	0.70
Risk-free interest rate		3.66	%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		107	%

On December 15, 2023, the 12% Warrants were modified to reduce the exercise price of the 12% Warrants to $0.40 per share, as discussed below.

12% Notes - 2023 Modification

On December 15, 2023, the Company entered into Amended and Restated Senior Secured Convertible Notes (“Amended Notes”) with certain accredited investors (“Investors”) to modify the original terms of the 12% Notes. The material terms of the Amended Notes include no changes to the aggregate principal amount, the maturity date, or the interest rate. Material changes to the Amended Notes are discussed in the following sections:

Mandatory Conversion Feature

In accordance with the Amended Notes, up to $3,375,000 (the “Convertible Amount”) of the principal balance will be mandatorily convertible at a price per share equal to $0.50. Additionally, the Convertible Amount contains different terms than the remaining principal balance, as discussed below.

The principal balance of the Convertible Amount is mandatorily convertible at any time during term upon occurrence of a trigger event.

Additionally, in the event a trigger event occurs, interest on the Convertible Amount is subject to optional conversion by the Company. The first 50% of the Convertible Amount, or $1,687,500, shall convert to common stock upon the occurrence of the 1) our common stock having a closing price equal to or greater than $0.50 per share for five (5) consecutive trading days as reported on the OTCQB Market; and 2) the aggregate dollar amount of the common tock traded, starting on the first day of the five (5) day span referred above and for up to ninety day thereafter (“Trading Value”) is equal to or greater than $1,687,500. The remaining 50% of the Convertible Amount, or $1,687,500, shall convert to common stock upon the occurrence of 1) our common stock having a closing price equal to or greater than $0.50 per share for five (5) consecutive trading days as reported on the OTCQB Market, 2) the aggregate Trading Value is equal to or greater than $1,687,000, and 3) the Common Stock converted upon the occurrence of the First Trigger Event has been registered with the SEC, by filing a registration statement on Form S-1 or otherwise.

Optional Conversion Feature

In accordance with the Amended Notes, an additional $3,375,000 of the principal balance plus unpaid accrued interest on this principal will be convertible at Investors’ option at a price per share equal to $0.50.

Deferral of Interest Payments

Current interest payments on the entire principal balance are deferred until March 2024. Further, the Company shall make ‘catch-up’ interest payments beginning in December 2024 for deferred interest.

Amendments to Warrants

The exercise price of previously granted warrants issued in connection with the 12% note offerings was reduced to $0.40 per share and the warrant expiration date was extended to September 15, 2029. We also recognized an increase to the debt discount of $128,447 related to the increase in fair value of the 12% Warrants resulting from the reduction in exercise price and the extension of the exercise period.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the amended 12% Warrants as of December 15, 2023 were:

Current stock price	$	0.09
Exercise price	$	0.40
Risk-free interest rate		3.91	%
Expected dividend yield		—
Expected term (in years)		5.8
Expected volatility		109	%

Working Capital Note

In addition to the Amended Notes, the Lead Investor agreed to provide an additional $250,000 in a separate note (the “Working Capital Note”) which includes a liquidation preference to recover 1.25x the original investment in the event that the Company commences any dissolution, liquidation, or winding up. At our option, the Lead Investor shall provide up to an additional $250,000, and, in such event, the Working Capital Note shall have a liquidation preference of 1.5x the original investment, applicable to the full $500,000, in the event that the Company commences any dissolution, liquidation, or winding up. The Working Capital Note bears interest at 12% per annum and is due and payable on September 15, 2026. As of December 31, 2023, the balance of the Working Capital Note was $500,000, as the Company requested and received the additional $250,000 optional amount.

The restructuring was deemed to be a debt modification under ASC 470, as the change in the present value of the cash flows related to the 12% Notes before and after the restructuring was less than 10%. Therefore, we will record debt obligations using the new effective interest rate as of the date of the modification.

We recorded amortization of debt discount expense from the 12% Notes of $310,201 and nil for the years ended December 31, 2023 and 2022, respectively.

10% Notes

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “10% Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “10% Notes”) with an aggregate principal amount of $2,940,000 in exchange for payment to us by certain 10% Investors of an aggregate amount of $1,940,000 in cash, as well as cancellation of outstanding indebtedness of the 15% Notes (defined below) in the aggregate amount of $1,000,000. In connection with the issuance of the 10% Notes, the holders of the 10% notes received warrants (the “10% Warrants”) to purchase shares of our Common Stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 1,050,011 shares of our Common Stock. The 10% Notes will bear interest at an annual rate of 10% and matured on December 23, 2023. The 10% Investors have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest of the Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per 10% Warrant.

The fair value of the 10% Warrants issued in 2022 was recorded as a debt discount and additional paid-in capital of $254,400.  The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $131,000.  

For the years ended December 31, 2023 and 2022, amortization of debt discount expense was nil and $84,375, respectively, from the 10% Notes. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10% Warrants as of December 31, 2020, were:

Current stock price	0.53
Exercise price	0.56
Risk-free interest rate	0.38	%
Expected dividend yield	—
Expected term (in years)	5.0
Expected volatility	115	%

On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited 10% Investor, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $1,660,000 to such 10% Investor.  The 10% Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above. In connection with the issuance of the 10% Notes, the holder received warrants to purchase shares of our Common Stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 592,858 shares of our Common Stock. The 10% Notes bear interest at an annual rate of 10% and will mature on February 8, 2024.  The 10% Investor has the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $429,300. We determined that this 10% Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.66 at the date of the note issuance and the fair value of the Common Stock into which the debt is convertible at the commitment date, per share being $0.90, multiplied by the number of shares into which the debt is convertible).  The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. For the years ended December 31, 2023 and 2022, amortization of debt discount expense was nil and $594,721, respectively. The 10% Notes are treated as conventional debt. 

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10% Warrants as of February 8, 2021, were:

Current stock price	1.12
Exercise price	0.56
Risk-free interest rate	0.48	%
Expected dividend yield	—
Expected term (in years)	5.0
Expected volatility	118	%

On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10% Investors, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $2,300,000 to such 10% Investors. The 10% Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $4,600,000 consummated on December 23, 2020 and February 8, 2021. In connection with the issuance of the 10% Notes, each holder received warrants to purchase shares of our Common Stock equal to 20% coverage of the aggregate principal amount at $0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5% of the aggregate principal amount invested. The 10% Notes bear interest at an annual rate of 10% and will mature on April 20, 2024. The 10% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant. On December 15, 2023, the 10% Warrants were modified to reduce the exercise price of the 12% Warrants to $0.40 per share, as previously discussed.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $810,000. We determined that these 10% Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.49 at the date of the note issuance and the fair value of the Common Stock into which the debt is convertible at the commitment date, per share being $0.83, multiplied by the number of shares into which the debt is convertible).  The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued.  We recorded $692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations. For the years ended December 31, 2023 and 2022, amortization of debt discount expense was nil and $1,024,442, respectively. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the 10% Warrants as of April 20, 2021, were:

Current stock price	0.83
Exercise price	0.56
Risk-free interest rate	0.81	%
Expected dividend yield	—
Expected term (in years)	5.0
Expected volatility	115	%

In September 2022, $2,912,750 of the 10% Notes were exchanged for the 12% Notes (see above) and the remaining $3,987,250 was paid in full. Of the remaining debt discount, $207,045 was expensed to extinguishment of debt and $1,125,844 was expensed to amortization of debt discount.

2023 Amendments to Warrant

On December 15, 2023, the exercise price of some of the previously granted warrants issued in connection with the 10% note offerings was reduced to $0.40 per share and the warrant expiration date was extended to September 15, 2029. We also recognized an increase to the debt discount of $49,544 related to the increase in fair value of the 10% Warrants resulting from the reduction in exercise price and the extension of the exercise period.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the amended 10% Warrants as of December 15, 2023 were:

Current stock price	$	0.09
Exercise price	$	0.40
Risk-free interest rate		3.91	%
Expected dividend yield		—
Expected term (in years)		5.8
Expected volatility		109	%

See Note 19 for a summary of the outstanding warrants issued in conjunction with our debt.