UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended SeptemberJune 30, 20162017

ORor

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

For the Transition Period From ____________ to ____________

Commission file number File Number: 000-54258

4700 Von Karman, Suite 110

Newport Beach, California 92660

(Address of principal executive offices)

2040 Main Street, Suite 225 Irvine, California		92614
(Address of Principal Executive Offices)		(Zip Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of November 5, 2016,August 4, 2017, there were 521,345,040640,043,036 shares of common stock outstanding, 100 shares of Series A Preferred Stock, convertible at any time into 100 shares of common stock, 37,675,95333,146,112 shares of Series B Preferred Stock, convertible into approximately 202,859,596178,469,458 shares of common stock, 14,20,26515,668,298 shares of common stock issuable upon the exercise of all of our outstanding warrants, and 2,233,3334,744,687 shares of common stock issuable upon the exercise of all vested stock options.

TERRA TECH CORP. AND SUBSIDIARIES

FORM 10-Q

QUARTERLY PERIOD ENDED JUNE 30, 2017

INDEX

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TERRA TECH CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)(UNAUDITED)

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

TERRA TECH CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TERRA TECH CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		For the Six Months Ended June 30,
		2017				2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss		$	(11,479,885	)		$	(9,315,340	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
(Gain) Loss on Fair Market Valuation of Derivatives			(2,597,950	)			1,366,700
Loss on Fair Market Valuation of Contingent Consideration			4,426,047				–
Gain on Settlement of Contingent Consideration			(4,991,571	)			–
Loss on Extinguishment of Debt			2,678,595				920,797
Amortization of Debt Discount			1,126,270				312,532
Deferred Tax Expense			–				49,000
Depreciation and Amortization			1,778,782				787,178
Warrants Issued with Common Stock and Debt			211,534				–
Stock Issued for Compensation			1,356,138				–
Stock Issued for Director Fees			221,973				60,550
Stock Issued for Services			591,359				20,727
Stock Option Expense			205,019				95,177
Equity Instruments Issued with Debt Greater than Debt Carrying Value			–				488,000
Change in Allowance for Doubtful Accounts			–				102,253
Changes in Operating Assets and Liabilities:
Accounts Receivable			(36,279	)			(369,557	)
Inventory			(1,323,742	)			(472,970	)
Prepaid Expenses			(533,808	)			257,238
Other Assets			(166,925	)			–
Accounts Payable and Accrued Expenses			1,383,860				2,393,183
NET CASH USED IN OPERATING ACTIVITIES			(7,150,583	)			(3,304,532	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Assumed in Acquisition			–				163,566
Purchase of Property, Equipment and Leasehold Improvements			(1,036,233	)			(1,988,587	)
Purchase of Intangible Assets – Domain Names			–				(75,000	)
NET CASH USED IN INVESTING ACTIVITIES			(1,036,233	)			(1,900,021	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes Payable			6,000,000				3,250,000
Cash Paid for Debt Discount			(180,000	)			–
Proceeds from Issuance of Common Stock			3,750,000				3,208,134
Payment of Contingent Consideration			(2,088,000	)			–
Cash Contribution from Non-Controlling Interest			86,550				–
NET CASH PROVIDED BY FINANCING ACTIVITIES			7,568,550				6,458,134
NET CHANGE IN CASH			(618,266	)			1,253,581
Cash at Beginning of Period			9,749,572				418,082
CASH AT END OF PERIOD		$	9,131,306			$	1,671,663
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:
Cash Paid for Interest		$	–			$	10,100
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Settlement of Contingent Consideration		$	4,739,638			$	–
Gain on Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital		$	4,692,697			$	–
Fair Value of Debt Discount Recorded		$	4,446,000			$	2,824,000
Issuance of Common Stock for Debt and Interest Expense		$	8,564,324			$	–

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TERRA TECH CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016

NOTE 1 – DESCRIPTION OF BUSINESS

Organization

References in the Notes to CondensedUnaudited Consolidated Financial Statements (Unaudited)to “the Company”, “Terra Tech”, “we”, “us”, or “our” are intended to mean Terra Tech Corp., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.

Three

Through MediFarm, LLC, a Nevada limited liability company (“MediFarm”), MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”), and Nine Months Ended September 30,MediFarm II, LLC, a Nevada limited liability company (“MediFarm II”), subsidiaries in which the Company owns interests, the Company operates and/or plans to operate medical marijuana dispensary facilities, cultivation, and production facilities in Nevada. Through IVXX, LLC, a Nevada limited liability company (“IVXX LLC”), and IVXX, Inc., a California corporation (“IVXX Inc.”; together with IVXX LLC, “IVXX”), the Company’s wholly-owned subsidiary, the Company produces and sells a line of cannabis flowers, as well as a line of cannabis pure concentrates. Most recently, the Company formed another subsidiary, MediFarm I Real Estate, LLC, a Nevada limited liability company (“MediFarm I RE”), which owns the real property on which a medical marijuana dispensary will be constructed. The dispensary will be operated by MediFarm I. Through Black Oak Gallery, a California corporation (“Black Oak”), we operate a medical marijuana retail dispensary, a medical marijuana cultivation facility, and have a second medical marijuana cultivation facility in the early stages of construction, all in Oakland, California. The Company is a wholesale seller of locally grown hydroponic produce, herbs and floral products through its wholly-owned subsidiary, Edible Garden Corp., a Nevada corporation (“Edible Garden”).

On April 1, 2016, the Company acquired Black Oak. Black Oak operates a medical marijuana retail dispensary in Oakland, California under the name Blüm, pursuant to that certain Agreement and Plan of Merger, dated December 23, 2015 (the “Merger Agreement”), with Generic Merger Sub, Inc., a California corporation and our wholly-owned subsidiary, and Black Oak.

Since the Merger was completed on April 1, 2016, Black Oak’s financial results are included in our unaudited consolidated financial statements subsequent to that date.

NOTE 12 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

References in this document to the “Company,” “Terra Tech,” “we,” “us,” or “our” are intended to mean Terra Tech Corp. (“Terra Tech”), individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.

We were incorporated in Nevada on July 22, 2008, under the name Private Secretary, Inc. Our original business was developing a software program that would allow for automatic call processing through voice-over-Internet protocol, or “VoIP”, technology. Our operations were limited to capital formation, organization, and development of its business plan and target customer market. We generated no revenue. We changed our name to Terra Tech Corp. on January 27, 2012.

On February 9, 2012, we completed a reverse-triangular merger with GrowOp Technology Ltd., a Nevada corporation (“GrowOp Technology”), whereby we acquired all of the issued and outstanding shares of GrowOp Technology and in exchange we issued: (i) 33,998,520 shares of its common stock, (ii) 100 shares of Series A Preferred Stock, convertible into shares of common stock on a one-for-one basis, and (iii) 14,750,000 shares of Series B Preferred Stock, with each share convertible into 5.384325537 shares of common stock. As a result of the merger, GrowOp Technology became our wholly-owned subsidiary. Following the merger, Terra Tech ceased its prior operations and is now solely a holding company. Through GrowOp Technology, we engage in the design, marketing, and sale of hydroponic equipment with proprietary technology to create sustainable solutions for the cultivation of indoor agriculture.

We are also a wholesale seller of locally grown hydroponic produce, herbs, and florals through our wholly-owned subsidiary, Edible Garden Corporation, a Nevada corporation (“Edible Garden”). We acquired all of the issued and outstanding shares in Edible Garden pursuant to a Share Exchange Agreement, dated March 23, 2013 (the “Share Exchange Agreement”), entered into by and among Terra Tech, Edible Garden, and the stockholders of Edible Garden. Pursuant to the Share Exchange Agreement, we offered and sold 1,250,000 shares of our common stock in consideration for all the issued and outstanding shares in Edible Garden. Separately, Amy Almsteier, one of our stockholders and a director (and, at that time, an executive officer), offered and sold 7,650,000 shares of Series B Preferred Stock to Kenneth Vande Vrede, Michael Vande Vrede, Steven Vande Vrede, Daniel Vande Vrede, Beverly Willekes, and David Vande Vrede (collectively, the “Former EG Principal Stockholders”).

On March 19, 2014, we formed MediFarm, LLC, a Nevada limited liability company (“MediFarm”), as a subsidiary. On July 18, 2014, we formed MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”), as a subsidiary. On July 30, 2014, we formed MediFarm II, LLC, a Nevada limited liability company (“MediFarm II”), as a subsidiary. Through MediFarm, MediFarm I, and MediFarm II, we are currently operating one medical marijuana dispensary facility in Nevada and plan to operate additional medical marijuana cultivation, production, and dispensary facilities in that state. In April 2016, MediFarm commenced operations at its dispensary in Las Vegas, Nevada under the “Blüm” brand.

On September 16, 2014, we formed IVXX, LLC, a Nevada limited liability company (“IVXX”), as a wholly-owned subsidiary, for the purpose of producing a line of cannabis flowers and cigarettes, as well as a complete line of cannabis pure concentrates including: oils, waxes, shatters, and clears. We began producing and selling IVXX’s products during the first quarter of fiscal 2015. We currently offer these products to 200 select dispensaries in California. We use our extraction lab located in Oakland, California to manufacture these products. IVXX also sells clothing, apparel, and other various branded products.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2016 and 2015

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

On October 14, 2015, we formed MediFarm I Real Estate, LLC, a Nevada limited liability company (“MediFarm I RE”). MediFarm I RE is a real estate holding company that owns the real property and building at which a medical marijuana dispensary facility will be located. It is our intention that MediFarm I will operate the medical marijuana dispensary. We own 50% of the membership interests in MediFarm I RE. The remaining membership interests are owned by Forever Young Investments, LLC (50%), an otherwise unaffiliated entity.

On April 1, 2016, we acquired Black Oak Gallery, a California corporation (“Black Oak”). Black Oak operates a medical marijuana dispensary in Oakland, California under the name Blüm, pursuant to that certain Agreement and Plan of Merger, dated December 23, 2015 (the “Merger Agreement”), with Generic Merger Sub, Inc., a California corporation and our wholly-owned subsidiary (the “Merger Sub”), and Black Oak. The Merger Agreement was amended by a First Amendment to the Agreement and Plan of Merger, dated February 29, 2016. Pursuant to the Merger Agreement, the Merger Sub merged with and into Black Oak, with Black Oak as the surviving corporation, and became our wholly-owned subsidiary (the “Merger”). The Merger is intended to qualify for Federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.

Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, the outstanding shares of common stock of Black Oak held by (i) three of the current shareholders of Black Oak (the “Group A Shareholders”) were converted into the right to receive approximately 8,166 shares of our Series Z preferred stock, par value $0.001 per share (“Series Z Preferred Stock”), of which approximately 1,175 shares of Series Z Preferred Stock were issued and paid at closing, and approximately 8,668,700 shares of our Series B preferred stock, par value $0.001 per share (“Series B Preferred Stock”), of which approximately 1,248,300 shares of Series B Preferred Stock were issued and paid at closing and (ii) the remaining shareholders of Black Oak (the “Group B Shareholders”) were converted into the right to receive approximately 21,378 shares of our Series Q preferred stock, par value $0.001 per share (“Series Q Preferred Stock), of which approximately 3,695 shares of Series Q Preferred Stock were issued and paid at closing. The shares of Series Z Preferred Stock, Series B Preferred Stock, and Series Q Preferred Stock that were issued but not paid to the Black Oak shareholders at closing are subject to certain holdback and lock-up provisions, and held in an escrow account as security for the satisfaction of any post-closing adjustments or indemnification claims, as provided for in the Merger Agreement. Each share of Series Q Preferred Stock was converted into 5,000 shares of our common stock and each share of Series Z Preferred Stock was converted into 1,857 shares of our Series B Preferred Stock, in each case immediately upon our filing with the Secretary of State of the State of Nevada an Amendment to our Articles of Incorporation to increase our authorized capital for, among other reasons, satisfaction of the terms of this potential transaction. Accordingly, the approximately 21,378 shares of Series Q Preferred Stock was issued to the Group B Shareholders was converted into approximately 106,890,000 shares of common stock and the approximately 8,166 shares of Series Z Preferred Stock was issued to the Group A Shareholders was converted into approximately 15,164,262 shares of Series B Preferred Stock. The Series Z Preferred Stock was intended to mirror the rights of the holders of our Series B Preferred Stock. Each share of our Series B Preferred Stock remains convertible into 5.384325537 shares of our common stock. The aggregate fair market value of the securities issued in the Merger was approximately $22.9 million. The Group B Shareholders may also receive cash consideration equal to approximately $2.1 million.

The securities paid to the Group A Shareholders and the Group B Shareholders are subject to certain post-closing adjustments that are based on certain performance indicators as of the first anniversary of the closing date of the Merger. The first indicator is based on the performance of the volume-weighted average price of our common stock on the first anniversary of the closing date of the Merger compared to the price of our common stock on the date of the Merger Agreement. The second indicator is based on our revenues for the twelve-month period following the closing date of the Merger. A portion of the securities that the Group A Shareholders and the Group B Shareholders are entitled to receive at closing of the Merger will be held in an escrow until the first anniversary of the closing date of the Merger and the post-closing adjustments are complete.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2016 and 2015

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Since the Merger was completed on April 1, 2016, Black Oak’s financial results are included in our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016.

Basis of Presentation

The accompanying unaudited consolidated financial statements include all of the accounts of Terra Tech. and subsidiaries. These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAPgenerally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments consisting(consisting only of normal recurring adjustments and accrualsadjustments) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20162017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.2017.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP haveThe consolidated balance sheet at December 31, 2016 has been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction withderived from the audited consolidated financial statements at that date but does not include all of the information and accompanying notesfootnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Item 8 of Part II, “Financial Statements and Supplementary Data,” of our 2015 Annual ReportTerra Tech’s annual report on Form 10-K.10-K for the year ended December 31, 2016.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Non-Controlling Interest

Non-controlling interest is shown as a component of shareholders’ equity on the consolidated balance sheets and the share of income (loss) attributable to non-controlling interest is shown as a component of income (loss) in the consolidated statements of operations.

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAPUnited States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash EquivalentsReclassifications

CashCertain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss and all highly liquid investments with a maturity of three months or less from the date of purchase, including money market mutual funds, short-term time deposits, and government agency and corporate obligations, are classified as cash and cash equivalents.shareholders’ equity.

Accounts ReceivableInventory

We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its current estimated net realizable value (“NRV”). ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, defines NRV as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. We periodically review all outstanding accounts receivableour physical inventory for collectabilityexcess, obsolete, and potentially impaired items and reserve accordingly. Our reserve estimate for excess and obsolete is based on a quarterly basis. An allowanceexpected future use. Our reserve estimates have historically been consistent with our actual experience as evidenced by actual sale or disposal of the goods.

Prepaid Expenses

Prepaid expenses consist of various payments that the Company has made in advance for doubtful accounts is recorded for any amounts deemed uncollectable. We do not accrue interest receivable on past due accounts receivable. There was an allowance for doubtful accounts of $159,169 at September 30, 2016goods or services to be received in the future. These prepaid expenses include advertising, insurance and $184,642 at December 31, 2015.service contracts requiring up-front payments.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3 toassets. The approximate useful lives for depreciation of our property, equipment and leasehold improvements are as follows: 32 years for machinerybuildings; three to eight years for furniture and equipment, leasehold improvements,equipment; and buildings are amortized overthe shorter of the estimated useful life.life or the underlying lease term for leasehold improvements. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.

Goodwill

Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired and liabilities assumed in a business acquisition. Goodwill is not amortized for accounting purposes.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

We test property and equipmentreview the goodwill allocated to each of our reporting units for possible impairment annually for recoverability oras of August 1 and whenever events or changes in circumstances indicate that the carryits carrying amount may not be recoverable. For the year ended December 31, 2015 andWhen assessing goodwill for the nine months ended September 30, 2016,impairment, we have concludedthe option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the sumfair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform a two-step impairment test. If we conclude otherwise, then no further action is taken. We also have the option to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the undiscounted cash flows exceedstwo-step impairment test. In the carrytwo-step impairment test, we measure the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the assets.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2016 and 2015

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)reporting unit.

Intangibles

Intangible assets are stated at historical cost and amortized over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: customer relationships, five to 15 years; trade names, five to 15 years; and dispensary license, 15 years.

We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. ConditionsIntangible assets that mayhave indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment include, but are not limitedloss is recognized to a significant adverse change in legal factors or business climatethe extent that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposescarrying amount of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group)reporting unit exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), we will write the carrying value down to theits fair value in the period identified.value.

We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group).

The Carrying Value, Recoverability and Impairment of Long-Lived Assets

We have adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification (“ASC”) for our long-lived assets. Our long -livedlong-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

We considerOther Assets

Other assets are comprised primarily of security deposits for leased properties in California, Nevada and New Jersey. The deposits will be returned at the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in our overall strategy with respect to the manner of useend of the acquired assets or changes in our overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in our stock price for a sustained period of time; and (vi) regulatory changes. We evaluate acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. The impairment charges, if any, are included in operating expenses in the accompanying statements of operations. Based on the test results, no impairments have occurred.lease term.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Three and Nine Months Ended September 30, 2016 and 2015

NOTE 12 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)

Deposits

Deposits are for stores, land and utility companies located in California, Nevada and New Jersey.

Revenue Recognition

Cannabis Products

We recognize revenue from product sales net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured.

We recognize revenue in accordance with ASC 605, “Revenue RecognitionRecognition”,,” by recognizing as revenue the fees we charge customers because persuasive evidence of an arrangement exists, the fees we charge are substantially fixed or determinable during the period that we provide the goods or services, we and our customers understand the specific nature and terms of the agreed upon transactions, and payment is made for the goods or services when they have been rendered.

Cannabis Dispensary, Cultivation and Production

We recognize revenue from manufacturing and distribution product sales and upon transfer of title and risk to the customer, which occurs either at shipping (F.O.B. terms), or upon sell through, depending on the arrangement.

Revenue from our retail dispensaries is recognized net of discounts, rebates, promotional adjustments, price adjustments and returns, and net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Revenue is recorded upon transfer of title and risk to the customer, which occurs at the time customers take delivery of our products at our retail dispensary.dispensaries. Upon purchase, we have no further performance obligations and collection is assured as sales are paid for at time of purchase.

Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory and sold directly to our end-customers at our retail dispensary.end-customers. We recognize revenue from the sale of consignment inventory on a gross basis, as it haswe have determined that it isthat: 1) we are the primary obligor to the customer, hascustomer; 2) we have latitude in establishing the sales prices and profit margins of its products, hasour products; 3) we have discretion in selecting its suppliers, isour suppliers; 4) we are responsible for loss or damage to consigned inventoryinventory; and through its5) our customer validation process performs an important part of the process of providing such products to authorized customers. We believe that these factors outweigh the fact that we do not have title to the consigned inventory prior to its sale.

During the threeHerbs and nine months ended September 30, 2016, sales returns were not significant and, as such, no sales return allowance has been recorded as of September 30, 2016.

Hydroponic Produce Products

We recognize revenue from products grown in our greenhouses and sold net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured.