Resource item

ITEM 9 LABS CORP. MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes included in this Quarterly
Report on Form 10-Q and the audited financial statements and notes thereto as of
and for the year ended September 30, 2021 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 2021, 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. You should carefully consider these risks and uncertainties
described and other information contained in the reports we file with or furnish
to the SEC before making any investment decision with respect to our securities.
All forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this cautionary statement.



Overview



Item 9 Labs produces 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 70 dispensaries throughout the state of Arizona.

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

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

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

In March 2021, the Company closed on the acquisition of OCG, Inc., dba Unity
Rd., a cannabis dispensary franchisor. The transaction was structured as a
reverse triangular merger, with the effect of OCG, Inc. becoming a wholly owned
subsidiary of the Company. Unity Rd has agreements with more than twenty (20)
entrepreneurial groups to open more than thirty (30) Unity Rd retail 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. One such franchise unit has been opened to date, in Boulder,
Colorado. Unity Rd. will assist in providing distribution for Item 9 Labs
products to be sold across the United States and 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
Labs aims to offer its products in those locations by expanding the distribution
footprint of its premium product offerings to new states.



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The Company's Arizona cannabis operations have expanded in recent years, with
the addition of a 2nd nearly 10,000 square foot facility in the 4th quarter of
fiscal year 2019, more than doubling the Company's cultivation and processing
space for Arizona. As the Company methodically expanded its operational capacity
by more than 100% in fiscal year 2020, it was also able to significantly
increase efficiencies within the cultivation and processing operations.



The Arizona expansion has continued in fiscal year 2022 and is expected to
continue thereafter. The Company has tripled production since October 1,
2020, while beginning construction on phase 1 of its construction plan to build
additional cultivation space. Phase 1 plans total over 60,000 square feet
of additional cultivation and processing space, and the planned remaining five
phases would add over 560,000 square feet of cultivation and processing
space. By the conclusion of their 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.



Item 9 Labs Corp. has continued its expansion plans into other states as well as
the Company acquired (pending regulatory approval) cultivation and processing
licenses in Nye County, Nevada which will be paired with their Nevada facility.
In fiscal 2019, the Company broke ground on their 20,000 square foot cultivation
and processing facility in Nevada. The facility is now approximately 98%
complete. Construction recommenced, after a pause due to Covid-19, in August
2021. The Company aims to commence operations in Nevada in fiscal year 2022.



On October 6, 2021, the Company entered into an Asset Purchase Agreement ("APA")
to acquire an existing dispensary license and storefront from Nebrina Adams
County LLC, a Colorado limited liability company ("Seller") in Adams County, CO.
The total purchase price was $1,536,000, as to which $1,000,000 was paid to an
escrow account upon conditional approvals of the change of ownership from state
and local licensing authorities concerning the transfer of ownership. At
closing, that amount was released to the Seller along with an 18-month
promissory note in the principal amount of $200,000 and the balance payable in
300,000 shares of Company common stock, valued at $336,000. For additional terms
of the APA, please see the Company's filing on Form 8-K filed with the
Securities and Exchange Commission on October 7, 2021. 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 has never been operational.



If completed, this will be the first corporate-owned shop in Colorado under its
cannabis dispensary brand, Unity Rd., and is anticipated to open in early to the
middle of fiscal year 2022. This license acquisition is part of an overarching
acquisition strategy that is intended to accelerate national expansion by
creating turnkey investment opportunities for Unity Rd. franchisees. The Company
plans to convert acquired dispensaries into Unity Rd. shops, operate them
internally and sell them to an existing or future franchise partner. This offers
an expedited solution for entrepreneurs seeking immediate entry into cannabis.
The Company is targeting numerous similar transactions in the next 12 months to
gain a deeper market penetration in select markets. Subsequently and/or
concurrently, the Company plans to introduce the Item 9 Labs suite of products
to the same markets through the acquisition of cultivation and production
licenses or through joint ventures with qualified local, licensed operators.



On March 11, 2022, the Company entered into an Asset Purchase Agreement with The
Herbal Cure LLC, a Colorado limited liability company, pursuant to which the
Company is purchasing certain assets. Effective upon the completion of the sale,
which as 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%.



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Results of Operations



                                      Six months ended March 31,
                                        2022              2021           $ Change       % Change
Revenues, net                      $  12,824,197     $  9,150,195     $  3,674,002            40 %
Cost of revenues                       7,748,193        4,729,176        3,019,017            64 %
Gross profit                           5,076,004        4,421,019          654,985            15 %
Operating expenses
Professional fees and outside
services                               1,214,166          907,713          306,453            34 %
Payroll and employee related
expenses                               5,205,950        2,422,146        2,783,804           115 %
Sales and marketing                    1,053,338          127,346          925,992           727 %
Depreciation and amortization            881,612          248,442         
633,170           255 %
Other operating expenses               1,632,835          564,054        1,068,781           189 %
Provision for bad debt                    (5,000 )             -            (5,000 )         100 %
Total operating expenses               9,982,901        4,269,701        5,713,200           134 %
Income (loss) from operations         (4,906,897 )        151,318       (5,058,215 )       -3343 %
Other expense, net                    (2,307,445 )     (1,176,754 )     (1,130,691 )          96 %
Net loss, before income tax
provision (benefit)                   (7,214,342 )     (1,025,436 )     (6,188,906 )         604 %
Income tax provision (benefit)             3,324               -             3,324             0 %
Net loss                              (7,217,666 )     (1,025,436 )     (6,192,230 )         604 %
Less: Net income attributable to
non-controlling interests                  5,426               -             5,426           100 %
Net loss attributable to Item 9
Labs Corp.                         $  (7,223,092 )   $ (1,025,436 )   $ (6,197,656 )         604 %




                                      Three months ended March 31,
                                          2022              2021           $ Change       % Change
Revenues, net                      $     6,638,186      $ 6,110,631     $    527,555             9 %
Cost of revenues                         3,960,948        3,121,045          839,903            27 %
Gross profit                             2,677,238        2,989,586         (312,348 )         -10 %
Operating expenses
Professional fees and outside
services                                   556,721          613,758          (57,037 )          -9 %
Payroll and employee related
expenses                                 3,055,244        1,318,842        1,736,402           132 %
Sales and marketing                        613,902           84,165          529,737           629 %
Other operating expenses                   786,167          349,517          436,650           125 %
Provision for (recovery of) bad
debt                                        (5,000 )             -            (5,000 )         100 %
Total operating expenses                 5,449,511        2,472,179        2,977,332           120 %
Income (loss) from operations           (2,772,273 )        517,407       (3,289,680 )        -636 %
Other expense, net                      (1,097,055 )       (468,387 )       (628,668 )         134 %
Net income (loss), before income
tax provision (benefit)                 (3,869,328 )         49,020       (3,918,348 )       -7993 %
Income tax provision (benefit)               3,324               -             3,324             0 %
Net income (loss)                       (3,872,652 )         49,020       (3,921,672 )       -8000 %
Less: Net income attributable to
non-controlling interests                    5,426               -             5,426           100 %
Net income (loss) attributable
to Item 9 Labs Corp.               $    (3,878,078 )    $    49,020     $ (3,927,098 )       -8011 %


Revenues


The increase in revenue was primarily due to a change in certain processes and
procedures in the Company's lab during the year ended September 30, 2021. That
is, during fiscal year 2021, the Company purchased equipment to automate certain
manual processes. The purchase of this equipment made certain processes, such as
the filling of cartridges, more efficient, which allowed for increased output.
In order to support this increased output, the Company purchases certain
inventory materials from third party vendors that it had previously produced
itself. This allows the Company to avoid interruptions in production due to a
lack of material. Further, during fiscal year 2021, the Company added and
reorganized post-production space to more efficiently package its products for
sale. This allows the Company to deliver its products to the dispensaries more
timely. Management anticipates revenues to continue to grow as the revenue
trends are positive month over month.

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Cost of Revenues



Cost of revenues consist primarily of labor, materials, supplies and utilities.
Cost of revenues as a percentage of revenues was 60% and 61% for the three and
six months ended March 31, 2022 compared to 51% and 52% for the three and six
months ended March 31, 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. 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 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.



Gross Profit


The decrease in gross margin as a percentage of revenue is attributable to increased revenue offset by reduced prices as competition intensifies and increased inventory of purchased materials and other costs. With the Company’s continued efforts to increase capacity and focus on efficiency and cost reduction, management expects gross profit to increase in the future.


Operating Expenses



Professional fees and outside services increased for the six months ended March
31, 2022 compared to the six months ended March 31, 2021 primarily due to the
amortization of prepaid consulting agreements that were entered into subsequent
to March 31, 2021 and additional expenses incurred for corporate advisory
services, and investor and public relations services. Professional fees and
outside services decreased for the three months ended March 31, 2022 compared to
the three months ended March 31, 2021 as professional fees were higher than
usual during the three months ended March 31, 2021 primarily due to fees
incurred as part of the OCG, Inc. acquisition.



The increase in payroll expenses was primarily due to the amortization of
stock-based compensation expense for stock options granted subsequent to March
31, 2021. Further, payroll expenses increased due to an increase in employee
headcount during fiscal year 2021 and the six months ended March 31, 2022, as a
result of increased hiring of employees and the hiring of OCG, Inc. employees as
part of the merger.


Sales and marketing expenses increased due to increased spending on marketing and branding initiatives in the three and six months ended March 31, 2022.



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 costs, travel costs and additional IT support for the increase in the number of employees.

Total operating expenses as a percentage of gross profit increased from 83% and
97% for the three and six months ended March 31, 2021, respectively, to 193% and
191% for the three and six months ended March 31, 2022, respectively. Management
believes this ratio will decrease for the Cultivation segment going forward as
the expectation is that revenues will continue to 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.



Other Expense, net



Other expenses consist primarily of interest expense of $1,097,373 and
$2,307,763 for the three and six months ended March 31, 2022, respectively, and
$468,387 and $1,176,754 for the three and six months ended March 31, 2021,
respectively. The increase in interest expense was primarily the result of the
continued interest and amortization of debt discounts for debt outstanding at
March 31, 2021 and the additional interest and amortization of debt discounts
for debt incurred subsequent to March 31, 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
GAAP."



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The following table reflects the reconciliation of net earnings (loss) to adjusted EBITDA for the three and six months ended March 31, 2022 and 2021:


                                       Three months ended March 31,           Six months ended March 31,
                                           2022               2021              2022               2021
Net income (loss)                   $    (3,872,652 )     $    49,020      $  (7,217,666 )    $ (1,025,436 )
Depreciation and amortization               442,477           105,897            881,612           248,442
Interest expense                          1,097,373           468,387          2,307,763         1,176,754
Income tax expense                            3,324                -               3,324                -
Stock-based expense                       1,363,485           304,672          1,870,779           772,580
Acquisition related costs                    23,676            87,060      
      23,676           266,738
Adjusted EBITDA                     $      (942,317 )     $ 1,015,036      $  (2,130,512 )    $  1,439,078




The approximately $1.9 million change from prior year is due to the addition of
the franchise business, as well as significant investments in human capital and
infrastructure to prepare for anticipated growth.



FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Cash 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 its operations, the Company will have to generate additional revenues and obtain additional capital to finance its operating losses and to service its debt. Management’s plans regarding 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
Arizona market by providing superior products. Additionally, as capital
resources become available, the Company plans to expand into additional markets
outside of Arizona, with construction of a cultivation and processing facility
nearing completion in Nevada. The Company believes that it will 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
concern.



  29



As of March 31, 2022, the Company had $105,128 of cash and cash equivalents and
negative working capital of ($28,715,140) (current assets minus current
liabilities), compared with $1,454,460 of cash and cash equivalents and negative
working capital of ($4,893,385) as of September 30, 2021. The decrease of
$23,821,755 in the Company's working capital is primarily due to increases in
the amount of the Company's debt maturing within the next 12 months. The
decrease is also due to decreases in the Company's cash, 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
$1,349,332 decrease in cash and cash equivalents was primarily due to the
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:



                                       Six months ended March 31,
                                         2022              2021           $ Change       % Change
Net cash provided by (used in)
operating activities                $     373,812     $ (4,479,607 )   $  4,853,419          -108 %
Net cash used in investing
activities                             (4,012,703 )     (2,328,122 )     (1,684,581 )          72 %
Net cash provided by financing
activities                              2,289,559       11,030,929       (8,741,370 )         -79 %
Net increase (decrease) in cash
and cash equivalents                $  (1,349,332 )   $  4,223,200     $ (5,572,532 )        -132 %




Operating Activities


In the six months ended March 31, 2022operating activities provided
$373,812 cash and cash equivalents, mainly resulting from a net loss of
$7,217,666 which was offset by the net cash provided by the operating assets and liabilities of $3,173,658. There were significant non-cash activities which contributed to the net loss totaling $4,516,521 including depreciation and amortization of $911,576amortization of the discount on the debt of $1,728,325and the stock-based compensation of $1,870,779.



During the six months ended March 31, 2021, operating activities used $4,479,607
of cash, primarily resulting from a net loss of $1,025,436 which was extended by
net cash used in operating assets and liabilities of $3,454,171. There was
significant non-cash activity that contributed to the net loss totaling
$1,321,358 including depreciation and amortization of $276,419, amortization of
debt discount of $272,359, and compensation paid in the form of stock of
$772,580. With the increase in revenues, the Company's receivables increased
$2,213,229, deferred costs increased $3,622,372 and prepaid expenses increased
$1,024,680, offset by an increase in current liabilities of $2,084,752.



Investing Activities



During the six months ended March 31, 2022, investing activities used $4,012,703
of cash and cash equivalents, consisting primarily of $3,235,125 in purchases of
property, equipment and construction in progress, the purchase of a dispensary
license in the amount of $1,130,872 and cash paid to acquisition escrow accounts
of $381,932, offset by $794,807 of cash received from the escrow deposit
accounts.



During the six months ended March 31, 2021, investing activities used $2,328,122
of cash, consisting primarily of $739,560 in purchase of property and equipment
and $1,685,368 of deposits paid on an acquisition.



Financing Activities


In the six months ended March 31, 2022fundraising activities provided
$2,289,559made up of $3,980,762 the proceeds of the debt issue,
$288,841 of the proceeds from the issue of shares and compensated by $1,944,294 in debt repayments made.



During the six months ended March 31, 2021, financing activities provided
$11,030,929, consisting of $12,959,808 in proceeds from the issuance of stock
and proceeds from the issuance of convertible debt of $1,355,000 and offset by
$3,283,879 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.



  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 Commission in order to
sell units comprising of one share of common stock and one-half of one warrant.
We are also in discussions with various potential capital partners to provide
additional debt capital for accretive acquisitions. We do not have any other
arrangements in place to complete any private placement financings of debt and
equity. There is no assurance that we will be successful in completing the
offering on Form 1-A, or in finding a capital partner to provide additional debt
capital or any other such financings on terms that will be acceptable to us.



Off-balance sheet arrangements

We are not currently a party to any off-balance sheet arrangement that has or is reasonably likely to have a present or future material effect on our financial position, changes in our financial position, our revenues or expenses, our results of operations, the liquidity, capital expenditure 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 March 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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