2022
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| UNRIVALED BRANDS, INC. | ||||||||
| (Exact Name of Registrant as Specified in its Charter) | ||||||||
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Nevada | 26-3062661 | |||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer | |||||||
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3242 S. Halladay Street Santa Ana, California | 92705 | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
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| Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Common Stock, par value $0.001 | UNRV | OTCQX | ||||||||||||
| Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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Emerging growth company |
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INDEX
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CONSOLIDATED BALANCE SHEETS September 30, December 31, 2017 2016 (Unaudited) ASSETS Current Assets: Cash Accounts Receivable Inventory Prepaid Expenses and Other Current Assets Total Current Assets Property, Equipment and Leasehold Improvements, Net Intangible Assets, Net Goodwill Other Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY LIABILITIES: Current Liabilities: Accounts Payable and Accrued Expenses Derivative Liabilities Short-Term Debt Income Taxes Payable Contingent Consideration Total Current Liabilities Long-Term Liabilities: Long-Term Debt Total Long-Term Liabilities Total Liabilities COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Preferred Stock, Convertible Series A, Par Value $0.001: 100 Shares Authorized as of September 30, 2017 and December 31, 2016; 100 Shares Issued and Outstanding as of September 30, 2017 and December 31, 2016 Preferred Stock, Convertible Series B, Par Value $0.001: 49,999,900 Shares Authorized as of September 30, 2017 and December 31, 2016; 0 and 36,825,953 Shares Issued and Outstanding as of September 30, 2017 and December 31, 2016, respectively Common Stock, Par Value $0.001: 990,000,000 Shares Authorized as of September 30, 2017 and December 31, 2016; 863,733,855 and 553,863,812 Shares Issued and Outstanding as of September 30, 2017 and December 31, 2016, respectively Additional Paid-In Capital Accumulated Deficit Total Terra Tech Corp. Stockholders’ Equity Non-Controlling Interest Total Stockholders’ Equity TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,651,398 $ 9,749,572 666,306 747,792 4,481,793 1,909,330 6,457,920 704,721 18,257,417 13,111,415 10,973,932 10,464,764 28,960,102 23,627,098 28,921,260 28,921,260 244,804 54,193 $ 87,357,515 $ 76,178,730 $ 4,210,514 $ 2,417,400 4,639,000 6,987,000 - 564,324 557,859 615,830 - 12,085,859 9,407,373 22,670,413 2,133,904 1,354,352 2,133,904 1,354,352 11,541,277 24,024,765 - - - 36,826 863,734 553,864 165,367,190 124,915,182 (91,229,689 ) (72,870,999 ) 75,001,235 52,634,873 815,003 (480,908 ) 75,816,238 52,153,965 $ 87,357,515 $ 76,178,730
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended For the Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Total Revenues Cost of Goods Sold Gross Profit Selling, General and Administrative Expenses Loss from Operations Other Income (Expense): Amortization of Debt Discount Impairment of Property Loss on Extinguishment of Debt Loss from Derivatives Issued with Debt Greater than Debt Carrying Value Gain (Loss) on Fair Market Valuation of Derivatives Interest Expense Loss on Fair Market Valuation of Contingent Consideration Gain on Settlement of Contingent Consideration Total Other Income (Expense) Loss Before Provision for Income Taxes Provision for Income Taxes NET LOSS Net (Gain) Loss Attributable to Non-Controlling Interest NET LOSS ATTRIBUTABLE TO TERRA TECH CORP. Net Loss Per Common Share Attributable to Terra Tech Corp. Common Stockholders – Basic and Diluted Weighted-Average Number of Common Shares Outstanding – Basic and Diluted $ 10,121,375 $ 6,950,365 $ 24,788,704 $ 18,198,441 7,786,437 5,694,289 20,588,330 15,380,864 2,334,938 1,256,076 4,200,374 2,817,577 6,238,110 5,942,636 18,653,697 13,233,888 (3,903,172 ) (4,686,560 ) (14,453,323 ) (10,416,311 ) (490,068 ) (610,089 ) (1,616,338 ) (922,621 ) (138,037 ) - (138,037 ) - (1,373,538 ) - (4,052,133 ) (920,797 ) - (867,000 ) - (1,355,000 ) (1,475,900 ) 771,000 1,122,050 (595,700 ) (119,650 ) (159,633 ) (407,993 ) (276,193 ) - - (4,426,047 ) - - - 4,991,571 - (3,597,193 ) (865,722 ) (4,526,927 ) (4,070,311 ) (7,500,365 ) (5,552,282 ) (18,980,250 ) (14,486,622 ) - 410,300 - 791,300 (7,500,365 ) (5,962,582 ) (18,980,250 ) (15,277,922 ) (292,568 ) 374,823 621,560 629,861 $ (7,792,933 ) $ (5,587,759 ) $ (18,358,690 ) $ (14,648,061 ) $ (0.01 ) $ (0.02 ) $ (0.03 ) $ (0.04 ) 720,366,345 352,676,081 624,153,141 343,052,572
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Nine Months Ended September 30, 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: (Gain) Loss on Fair Market Valuation of Derivatives Loss on Fair Market Valuation of Contingent Consideration Gain on Settlement of Contingent Consideration (See Note 10) Impairment of Property Loss on Extinguishment of Debt Amortization of Debt Discount Depreciation and Amortization Warrants Issued with Common Stock and Debt Stock Issued for Compensation Stock Issued for Director Fees Stock Issued for Services Stock Option Expense Equity Instruments Issued with Debt Greater than Debt Carrying Value Change in Allowance for Doubtful Accounts Changes in Operating Assets and Liabilities: Accounts Receivable Inventory Prepaid Expenses and Other Current Assets Other Assets Accounts Payable and Accrued Expenses Income Taxes Payable NET CASH USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES: Cash Assumed in Black Oak Acquisition Cash Paid for Acquisition, Net of Cash Acquired (See Note 4) (4,113,779 ) - Purchase of Property, Equipment and Leasehold Improvements Purchase of Intangible Assets – Trade Names NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Notes Payable Cash Paid for Debt Discount Proceeds from Issuance of Common Stock Proceeds from Exercise of Warrants Payment of Contingent Consideration (See Note 10) Cash Contribution from Non-Controlling Interest NET CASH PROVIDED BY FINANCING ACTIVITIES NET CHANGE IN CASH Cash at Beginning of Period CASH AT END OF PERIOD SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: Cash Paid for Interest SUPPLEMENTAL DISCLOSURE FOR FINANCING ACTIVITIES: Warrant Expense NON-CASH INVESTING AND FINANCING ACTIVITIES: Settlement of Contingent Consideration Gain on Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital (See Note 10) Fair Value of Debt Discount Recorded Issuance of Common Stock for Debt and Interest Expense (See Note 9) Fair Value of Shares Issued for Acquisition (See Note 4) Fair Value of Shares Issued for Production Operating Agreement (See Note 14) Warrants Issued for Debt Discount Conversion of Series B Preferred Stock to Common Stock Reclass of Non-Controlling Interest to Additional Paid-In Capital for the Acquisition of Additional Interest in Subsidiary (See Note 1) $ (18,980,250 ) $ (15,277,922 ) (1,122,050 ) 595,700 4,426,047 - (4,991,571 ) - 138,037 - 4,052,133 920,797 1,616,338 922,621 2,687,994 1,653,791 211,534 - 1,526,286 715,039 221,973 60,550 1,036,427 20,727 439,599 142,766 - 1,355,000 - 102,253 81,486 (432,798 ) (2,458,684 ) (1,356,365 ) (3,817,699 ) 434,824 (185,611 ) (3,375 ) 2,300,098 3,177,610 (57,971 ) 1,783,731 (12,875,884 ) (5,185,051 ) - 163,566 (1,947,057 ) (3,211,064 ) - (75,000 ) (6,060,836 ) (3,122,498 ) 11,500,000 4,928,650 (360,000 ) - 6,700,000 3,208,134 - 3,150,000 (2,088,000 ) - 86,546 - 15,838,546 11,286,784 (3,098,174 ) 2,979,235 9,749,572 418,082 $ 6,651,398 $ 3,397,317 $ - $ 16,500 $ - $ 142,766 $ 4,739,638 $ - $ 4,692,697 $ - $ 7,881,000 $ 2,824,000 $ 12,321,309 $ 961,740 $ 2,726,146 $ - $ 1,935,500 $ - $ 169,225 $ - $ 33,146 $ - $ 1,830,925 $ -
| September 30, 2022 | December 31, 2021 | ||||||||||
(Unaudited) | |||||||||||
ASSETS | |||||||||||
| Current Assets: | |||||||||||
| Cash and Cash Equivalents | $ | 1,989 | $ | 6,891 | |||||||
| Accounts Receivable | 573 | 4,677 | |||||||||
| Inventory | 2,684 | 7,179 | |||||||||
| Prepaid Expenses & Other Assets | 1,564 | 1,272 | |||||||||
| Notes Receivable | 375 | 750 | |||||||||
| Assets Held for Sale | 23 | 4,495 | |||||||||
| Total Current Assets | 7,208 | 25,264 | |||||||||
| Property, Equipment and Leasehold Improvements, Net | 19,576 | 23,728 | |||||||||
| Intangible Assets, Net | 3,360 | 129,637 | |||||||||
| Goodwill | 3,585 | 48,132 | |||||||||
| Other Assets | 16,212 | 26,915 | |||||||||
| Investments | 721 | 164 | |||||||||
| Deferred Tax Asset | 608 | — | |||||||||
| Long-Term Assets Held for Sale | 2,579 | 17,984 | |||||||||
| TOTAL ASSETS | $ | 53,849 | $ | 271,824 | |||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | |||||||||||
| LIABILITIES: | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts Payable & Accrued Liabilities | $ | 37,037 | $ | 31,904 | |||||||
| Current Portion of Notes Payable | 26,454 | 45,749 | |||||||||
| Income Taxes Payable | 9,394 | 7,969 | |||||||||
| Liabilities Held for Sale | 1,653 | 2,087 | |||||||||
| Total Current Liabilities | 74,538 | 87,708 | |||||||||
| Notes Payable, Net of Discounts | 7,964 | 10,006 | |||||||||
| Deferred Tax Liabilities | — | 6,123 | |||||||||
| Lease Liabilities | 12,101 | 21,316 | |||||||||
| Long-Term Liabilities Held for Sale | 1,357 | 184 | |||||||||
| TOTAL LIABILITIES | 95,960 | 125,337 | |||||||||
| COMMITMENTS AND CONTINGENCIES (Note 19) | — | — | |||||||||
| STOCKHOLDERS’ (DEFICIT) EQUITY: | |||||||||||
| Common Stock, par value $0.001: | |||||||||||
| 990,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 560,353,549 and 498,546,291 shares outstanding as of September 30, 2022 and December 31, 2021, respectively | 584 | 521 | |||||||||
Treasury Stock: 2,308,408 shares of common stock as of September 30, 2022 and December 31, 2021 | (808) | (808) | |||||||||
| Additional Paid-In Capital | 401,729 | 392,930 | |||||||||
| Accumulated Deficit | (443,616) | (250,015) | |||||||||
| Total Equity Attributable to Stockholders of Unrivaled Brands, Inc. | (42,111) | 142,628 | |||||||||
| Non-Controlling Interest | — | 3,859 | |||||||||
| TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | (42,111) | 146,487 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 53,849 | $ | 271,824 | |||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | $ | 10,762 | $ | 20,052 | $ | 49,042 | $ | 24,980 | |||||||||||||||
| Cost of Goods Sold | 10,826 | 19,724 | 34,404 | 21,737 | |||||||||||||||||||
| Gross (Loss) Profit | (64) | 328 | 14,638 | 3,243 | |||||||||||||||||||
| Operating Expenses: | |||||||||||||||||||||||
| Selling, General & Administrative | 13,236 | 12,029 | 51,074 | 29,376 | |||||||||||||||||||
| Impairment Expense | 107,972 | — | 163,698 | — | |||||||||||||||||||
| Loss on Disposal of Assets | 1,529 | — | 1,872 | — | |||||||||||||||||||
| Total Operating Expenses | 122,737 | 12,029 | 216,644 | 29,376 | |||||||||||||||||||
| Loss from Operations | (122,801) | (11,701) | (202,006) | (26,133) | |||||||||||||||||||
| Other Income (Expense): | |||||||||||||||||||||||
| Interest Expense, Net | (384) | (515) | (2,594) | (627) | |||||||||||||||||||
| Gain (Loss) on Extinguishment of Debt | — | 185 | 542 | (5,976) | |||||||||||||||||||
| Gain on Investments | — | — | — | 5,337 | |||||||||||||||||||
| Unrealized (Loss) Gain on Investments | (493) | — | 470 | — | |||||||||||||||||||
| Other Income | 251 | 5 | 1,729 | 367 | |||||||||||||||||||
| Total Other (Expense) Income | (626) | (325) | 147 | (899) | |||||||||||||||||||
| Loss from Continuing Operations Before Provision for Income Taxes | (123,427) | (12,026) | (201,859) | (27,032) | |||||||||||||||||||
| Provision for Income Tax Benefit for Continuing Operations | 3,449 | — | 5,585 | — | |||||||||||||||||||
| Net Loss from Continuing Operations | (119,978) | (12,026) | (196,274) | (27,032) | |||||||||||||||||||
| Net Income from Discontinued Operations | 72 | 6,561 | 4,051 | 4,898 | |||||||||||||||||||
| NET LOSS | $ | (119,906) | $ | (5,465) | $ | (192,223) | $ | (22,134) | |||||||||||||||
| Less: Net (Loss) Income from Discontinued Operations Attributable to Non-Controlling Interest | — | (118) | 275 | (604) | |||||||||||||||||||
| NET LOSS ATTRIBUTABLE TO UNRIVALED BRANDS, INC. | $ | (119,906) | $ | (5,347) | $ | (192,498) | $ | (21,530) | |||||||||||||||
| Net Loss from Continuing Operations per Common Share Attributable to Unrivaled Brands, Inc. - Basic and Diluted | $ | (0.21) | $ | (0.03) | $ | (0.33) | $ | (0.09) | |||||||||||||||
| Net Loss per Common Share Attributable to Unrivaled Brands, Inc. - Basic and Diluted | $ | (0.21) | $ | (0.01) | $ | (0.33) | $ | (0.07) | |||||||||||||||
| Weighted-Average Shares Outstanding - Basic and Diluted | 579,942,517 | 457,745,655 | 588,887,945 | 317,491,979 | |||||||||||||||||||
| Treasury | Additional Paid-In Capital | Accumulated Deficit | Non- Controlling Interest | Total | |||||||||||||||||||||||||||||||||||||
| Common Stock | Stock | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | |||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2022 | 532,514,791 | $ | 554 | $ | (808) | $ | 401,215 | $ | (323,710) | $ | — | $ | 77,251 | ||||||||||||||||||||||||||||
| Net Loss Attributable to Unrivaled Brands, Inc. | — | — | — | — | (119,906) | — | (119,906) | ||||||||||||||||||||||||||||||||||
| Stock Compensation - Services Expense | 6,472,492 | 7 | — | 261 | — | — | 268 | ||||||||||||||||||||||||||||||||||
| Stock Option Expense | — | — | — | 276 | — | — | 276 | ||||||||||||||||||||||||||||||||||
| Issuance of UMBRLA Holdback Shares | 23,424,674 | 23 | — | (23) | — | — | — | ||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2022 | 562,411,957 | $ | 584 | $ | (808) | $ | 401,729 | $ | (443,616) | $ | — | $ | (42,111) | ||||||||||||||||||||||||||||
| Treasury | Additional Paid-In Capital | Accumulated Deficit | Non- Controlling Interest | Total | |||||||||||||||||||||||||||||||||||||
| Common Stock | Stock | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | |||||||||||||||||||||||||||||||||||||||
| BALANCE AT JUNE 30, 2021 | 236,545,420 | $ | 258 | $ | (808) | $ | 291,026 | $ | (234,927) | $ | 3,977 | $ | 59,526 | ||||||||||||||||||||||||||||
| Net Loss Attributable to Unrivaled Brands, Inc. | — | — | — | — | (5,347) | — | (5,347) | ||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Non-Controlling Interest | — | — | — | — | — | (118) | (118) | ||||||||||||||||||||||||||||||||||
| Stock Compensation - Directors | 124,998 | — | — | 32 | — | — | 32 | ||||||||||||||||||||||||||||||||||
| Stock Compensation - Services Expense | 3,234,428 | 3 | — | 870 | — | — | 873 | ||||||||||||||||||||||||||||||||||
| Stock Option Exercise | 1,434,608 | 1 | — | (1) | — | — | — | ||||||||||||||||||||||||||||||||||
| Debt Conversion - Common stock | 4,548,006 | 5 | — | 1,041 | — | — | 1,046 | ||||||||||||||||||||||||||||||||||
| Stock Issued for UMBRLA Acquisition | 191,772,781 | 193 | — | 80,130 | — | — | 80,323 | ||||||||||||||||||||||||||||||||||
| Stock Option Expense | — | — | — | 780 | — | — | 780 | ||||||||||||||||||||||||||||||||||
| Net Assets Attributable to Non-Controlling Interest | — | — | — | — | — | 58,749 | 58,749 | ||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2021 | 437,660,241 | $ | 460 | $ | (808) | $ | 373,878 | $ | (240,274) | $ | 62,608 | $ | 195,864 | ||||||||||||||||||||||||||||
NOTES TO UNAUDITED
THREE AND OF STOCKHOLDERS EQUITY (UNAUDITED)
| Convertible Series A | Treasury | Additional Paid-In Capital | Accumulated Deficit | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | — | $ | — | 498,546,291 | $ | 521 | $ | (808) | $ | 392,930 | $ | (250,015) | $ | 3,859 | $ | 146,487 | |||||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Unrivaled Brands, Inc. | — | — | — | — | — | — | (192,498) | — | (192,498) | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants Exercise | — | — | 4,759,708 | 5 | — | (5) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Employees | — | — | 2,100,000 | 2 | — | 350 | — | — | 352 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Directors | — | — | 943,128 | 1 | — | 212 | — | — | 213 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Services Expense | — | — | 7,197,492 | 7 | — | 390 | — | — | 397 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Exercise | — | — | 146,212 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Debt Conversion - Common Stock | — | — | 294,452 | — | — | 75 | — | — | 75 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Issued for Cash | — | — | 25,000,000 | 25 | — | 4,350 | — | — | 4,375 | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of UMBRLA Holdback Shares | — | — | 23,424,674 | 23 | — | (23) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Expense | — | — | — | — | — | 3,450 | — | — | 3,450 | ||||||||||||||||||||||||||||||||||||||||||||
| Disposition of Non-Controlling Interest | — | — | — | — | — | — | (1,103) | (4,134) | (5,237) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Income Attributable to Non-Controlling Interest | — | — | — | — | — | — | — | 275 | 275 | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2022 | — | $ | — | 562,411,957 | $ | 584 | $ | (808) | $ | 401,729 | $ | (443,616) | $ | — | $ | (42,111) | |||||||||||||||||||||||||||||||||||||
| Convertible Series A | Treasury | Additional Paid-In Capital | Accumulated Deficit | Non- Controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | |||||||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2020 | 8 | $ | — | 196,512,879 | $ | 219 | $ | (808) | $ | 275,060 | $ | (219,803) | $ | 4,463 | $ | 59,131 | |||||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Unrivaled Brands, Inc. | — | — | — | — | — | — | (21,530) | — | (21,530) | ||||||||||||||||||||||||||||||||||||||||||||
| Adoption of ASU 2020-06 | — | — | — | — | — | (1,072) | 1,059 | — | (13) | ||||||||||||||||||||||||||||||||||||||||||||
| Debt Conversion - Common Stock | — | — | 24,939,780 | 25 | — | 5,031 | — | — | 5,056 | ||||||||||||||||||||||||||||||||||||||||||||
| Warrants Issued to Dominion | — | — | — | — | — | 5,978 | — | — | 5,978 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Employees | — | — | 250,000 | 1 | — | 67 | — | — | 68 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Directors | — | — | 1,010,157 | — | — | 245 | — | — | 245 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Compensation - Services Expense | — | — | 3,557,375 | 4 | — | 903 | — | — | 907 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Exercise | — | — | 3,131,555 | 3 | — | (1) | — | — | 2 | ||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Class A Shares | — | — | 16,485,714 | 16 | — | 5,873 | — | — | 5,889 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Issued for UMBRLA Acquisition | — | — | 191,772,781 | 192 | — | 80,130 | — | — | 80,322 | ||||||||||||||||||||||||||||||||||||||||||||
| Stock Option Expense | — | — | — | — | — | 1,664 | — | — | 1,664 | ||||||||||||||||||||||||||||||||||||||||||||
| Net Assets Attributable to Non-Controlling Interest | — | — | — | — | — | — | — | 58,749 | 58,749 | ||||||||||||||||||||||||||||||||||||||||||||
| Net Loss Attributable to Non-Controlling Interest | — | — | — | — | — | — | — | (604) | (604) | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE AT SEPTEMBER 30, 2021 | 8 | $ | — | 437,660,241 | $ | 460 | $ | (808) | $ | 373,878 | $ | (240,274) | $ | 62,608 | $ | 195,864 | |||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net Loss | $ | (192,223) | $ | (22,134) | |||||||
| Less: Net Income from Discontinued Operations | 4,051 | 4,898 | |||||||||
| Net Loss from Continuing Operations | (196,274) | (27,032) | |||||||||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | |||||||||||
| Deferred Income Tax Benefit | (6,730) | — | |||||||||
| Bad Debt Expense | 3,050 | — | |||||||||
| Gain from Debt Forgiveness | — | (86) | |||||||||
| Gain on Sale of Investments | — | (5,337) | |||||||||
| Loss (Gain) on Extinguishment of Debt | (542) | 5,976 | |||||||||
| Non-Cash Portion of Severance Expense | — | 7,990 | |||||||||
| Non-Cash Interest Expense | 1,001 | 30 | |||||||||
| Loss on Disposal of Assets | 2,208 | — | |||||||||
| Depreciation and Amortization | 9,965 | 2,653 | |||||||||
| Amortization of Operating Lease Right-of-Use Asset | 1,500 | 633 | |||||||||
| Stock-Based Compensation | 4,412 | 2,884 | |||||||||
| Unrealized Gain on Investments | (470) | — | |||||||||
| Impairment Loss | 163,698 | — | |||||||||
| Change in Operating Assets and Liabilities: | |||||||||||
| Accounts Receivable | 1,047 | (1,076) | |||||||||
| Inventory | 4,485 | 4,018 | |||||||||
| Prepaid Expenses and Other Current Assets | (852) | (1,334) | |||||||||
| Other Assets | 50 | (263) | |||||||||
| Accounts Payable and Accrued Expenses | 9,928 | (3,771) | |||||||||
| Operating Lease Liabilities | (2,566) | 262 | |||||||||
| Net Cash Provided by (Used in) Operating Activities - Continuing Operations | (6,090) | (14,453) | |||||||||
| Net Cash Provided by (Used in) Operating Activities - Discontinued Operations | (427) | (2,542) | |||||||||
| NET CASH USED IN OPERATING ACTIVITIES | (6,517) | (16,995) | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchase of Property and Equipment | (2,129) | (6,217) | |||||||||
| Proceeds from (Issuance of) Notes Receivable | 375 | (15,000) | |||||||||
| Cash from Acquisitions | — | 2,258 | |||||||||
| Proceeds from Sale of Investments | — | 39,382 | |||||||||
| Proceeds from Sale of Assets | 450 | 72 | |||||||||
| Net Cash Provided by (Used in) Investing Activities - Continuing Operations | (1,304) | 20,495 | |||||||||
| Net Cash Provided by (Used in) Investing Activities - Discontinued Operations | 20,709 | 8,350 | |||||||||
| NET CASH PROVIDED BY INVESTING ACTIVITIES | 19,405 | 28,845 | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from Issuance of Notes Payable | — | 6,000 | |||||||||
| Payments of Debt Principal | (21,723) | (3,778) | |||||||||
| Cash Paid for Debt Issuance Costs | — | (178) | |||||||||
| Proceeds from Issuance of Common Stock | 4,375 | — | |||||||||
| NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES | (17,348) | 2,044 | |||||||||
| NET CHANGE IN CASH | (4,460) | 13,894 | |||||||||
| Cash at Beginning of Period | 6,891 | 217 | |||||||||
| Cash Reclassed to Discontinued Operations | (442) | — | |||||||||
| CASH AT END OF PERIOD | $ | 1,989 | $ | 14,111 | |||||||
| SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: | |||||||||||
| Cash Paid for Interest | $ | 1,590 | $ | 705 | |||||||
| SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||||||||||
| Debt Principal and Accrued Interest Converted into Common Stock | $ | 75 | $ | 5,056 | |||||||
| Promissory Note Issued for Severance | $ | — | $ | 2,100 | |||||||
| Net Assets Transferred to Assets Held For Sale | $ | 851 | $ | — | |||||||
| Fixed Assets in Accounts Payable | $ | — | $ | 100 | |||||||
| Stock Options Exercised on a Net Share Basis | $ | — | $ | 3 | |||||||
| Non-Cash Acquisition of UMBRLA Inc. | $ | — | $ | 79,032 | |||||||
| Non-Cash Capital Expenditures | $ | — | $ | 2,986 | |||||||
| Non-Cash Acquisition of People's | $ | — | $ | 58,749 | |||||||
| Issuance of UMBRLA Holdback Shares | $ | 23 | $ | — | |||||||
Organization
Through MediFarm, LLC, a Nevada limited liability company (“MediFarm”), MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”), and 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 Blüm San Leandro, a California corporation (“Blüm San Leandro”), the Company operates a medical marijuana retail dispensary and production facility in San Leandro, California. Through MediFarm So Cal Inc., a California mutual benefit corporation (“MediFarm SoCal”), the Company operates a medical marijuana retail dispensary in Santa Ana, California. Through MediFarm I Real Estate, LLC, a Nevada limited liability company (“MediFarm I RE”), the Company owns real property on which a medical marijuana dispensary is located and operated by MediFarm I. Through Black Oak Gallery, a California corporation (“Black Oak”), the Company operates a medical marijuana retail dispensary, a medical marijuana cultivation facility, and has a second medical marijuana cultivation facility in the early stages of construction, all in Oakland, California. 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 through Black Oak Gallery’s permit. 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”). EG Transportation LLC, a Nevada limited liability company (“EG Transportation”), supports the distribution of Edible Garden product.
On April 1, 2016, the Company acquired Black Oak. Black Oak operates a medical marijuana retail dispensary and cultivation 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.
Due to changes in planned operations of the MediFarm dispensaries, the Company acquired an additional 38% ownership for no additional consideration during August 2017. Previously, the Company owned 60%. As of September 30, 2017, the Company has 98% ownership of MediFarm. In connection with the ownership change the Company recorded a $1,830,925 adjustment to additional paid in capital representing the change in non-controlling interest.
On August 17, 2017, the Company formed a wholly owned legal entity, MediFarm SoCal, to acquire all assets of Tech Center Drive Management, LLC (“Tech Center Drive”) and 55 OC Collective, Inc. (“55 OC”). 55 OC owns and holds the cannabis dispensary license in the city of Santa Ana, California. Tech Center Drive manages and operates a dispensary under the license of 55 OC. On September 13, 2017, MediFarm SoCal acquired all of the assets of Tech Center Drive and 55 OC. The acquisition was accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-10, “Business Combinations”;see “Note 4 – Acquisition” for further information. MediFarm SoCal’s sole purpose is to operate a medical marijuana retail dispensary.
See “
Note 16 –Discontinued Operations" for further discussion regarding discontinued operations.| Buildings | 32 years | ||||
| Furniture and Equipment | 3 to 8 years | ||||
| Computer and Software | 3 to 5 years | ||||
| Vehicles | 5 years | ||||
| Leasehold Improvements | Shorter of lease term or economic life | ||||
Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of ASC 360,
“Property, Plant, andGoodwill
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. In accordance with ASC 350, “Intangibles—Goodwill and Other,” goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.
The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of August 1 and whenever events or changes in circumstances indicate its carrying amount may not be recoverable. When assessing goodwill for impairment, the Company has the 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 fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the Company performs a two-step impairment test. If the Company concludes otherwise, then no further action is taken. The Company also has the option to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step impairment test. In the two-step impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. There were no events or changes in circumstances that indicated potential impairment of intangible assets during 2017, as such the Company determined that no adjustment to the carrying value of goodwill was required.
|
| |||||
| 3 to 5 years | |||||
| Trademark and Patent | 2 to 8 | |||||
Dispensary | 14 | |||||
|
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|
| |||||
Long-Lived Assets
Other long-lived
Other Assets
Other assets are comprised primarilysale in conjunction with the sale of security deposits for leased properties in California, Nevada and New Jersey. The deposits will be returned at the end of the lease term.
Revenue Recognition
a business. The Company recognizes revenuerecords assets held for sale in accordance with ASC 605, “Revenue Recognition.” Revenue360 at the lower of carrying value or fair value less costs to sell. F
Cannabis Dispensary, Cultivation and Production
The Company recognizes revenue from manufacturing and distribution product sales, upon transfer of title and risk to the customer, which occurs either at shipping (F.O.B. terms), or upon sell through, dependingliabilities are presented separately on the arrangement.
balance sheet of the initial period in which it is classified as held for sale.
Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory and sold directly to end-customers.
Herbs and Produce Products
The Company recognizes revenue from products grown in its 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 delivery (F.O.B. terms). Upon delivery, the Company has no further performance obligations, selling price is fixed, and collection is reasonably assured.
periods presented:
| (in thousands) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| California | $ | 9,236 | $ | 16,712 | $ | 43,289 | $ | 21,640 | |||||||||||||||
| Oregon | 1,526 | 3,340 | 5,753 | 3,340 | |||||||||||||||||||
| Total | $ | 10,762 | $ | 20,052 | $ | 49,042 | $ | 24,980 | |||||||||||||||
Cannabis Dispensary, Cultivation and Production
Herbs and Produce Products
Cost of goods sold include cultivation costs, packaging, other supplies and purchased plants that are sold into the retail marketplace by Edible Garden. Other expenses included in cost of goods sold include freight, allocations of rent, repairs and maintenance, and utilities.
Warrants
ASC 815-40, “Contracts in Entity’s Own Equity”, requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designatedawards as an equity instrument, asset or a liability. Under the provisions of ASC 815-40, a contract designated as an asset or a liability must be carried at fair value on a company’s balance sheet, with any changes in fair value recorded in the company’s results of operations. A contract designated as an equity instrument must be included within equity, and no fair value adjustments are required from period to period.
ASC 815, “Derivatives and Hedging”, requires all derivatives to be recorded on the balance sheet at fair value. Furthermore, ASC 815 precludes contracts issued or held by a reporting entity that are both (1) indexed to its own stock and (2) classified as stockholders’ equity in its statement of financial position from being treated as derivative instruments.
they occur.
No valuation allowance remained at September 30, 2022.
Fair Value of Financial Instruments
The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilitiesall periods presented.
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Common Stock Warrants | 80,881,817 | 85,336,515 | |||||||||
| Common Stock Options | 58,843,517 | 99,504,369 | |||||||||
| 139,725,334 | 184,840,884 | ||||||||||
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. We have not elected the fair value option for any eligible financial instruments.
Recently Issued Accounting Standards
FASBTopic 260. ASU 2017-04 (Topic 350), “Intangibles - Goodwill and Others” – Issued in January 2017, ASU 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-042021-04 is effective for annual periodsfiscal years beginning after December 15, 2019 including interim periods within those periods.2021 and should be applied prospectively on or after the effective date of the amendments. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements.
FASBdifficulty. ASU 2017-01 (Topic 805), “Business Combinations: Clarifying the Definition of a Business” – Issued in January 2017, ASU 2017-01 revises the definition of a business and provides new guidance in evaluating when a set of transferred assets and activities2022-02 is a business. This guidance will be effective for the Company in the first fiscal quarter of 2018 on a prospective basis, and early adoption is permitted. The Company does not expect the standard to have a material impact on our consolidated financial statements and related disclosures.
FASB ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” – Issued in August 2016, the amendments in ASU 2016-15 address eight specific cash flow issues and apply to all entities that are required to present a statement of cash flows under ASC Topic 230, “Statement of Cash Flows”. The amendments in ASU 2016-15 are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption during an interim period. The Company has not yet completed the analysis of how adopting this guidance will affect its consolidated financial statements and related disclosures.
FASB ASU No. 2016-02 (Topic 842), “Leases” – Issued in February 2016, ASU No. 2016-02 will require entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new standard also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new standard will be effective for the Company on January 1, 2019. Early adoption is permitted.2022. The Company is in the process ofcurrently evaluating the impacteffect of adopting this ASU.
FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers” – Issued in May 2014, ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the termsstatements.
The Company expects to apply the guidance using the modified retrospective transition method. The Company does not expect the adoption of ASU 2014-09 to have a material impact on the Company’s financial position or results of operations but will result in additional disclosures regarding the Company’s revenue recognition policies. The Company also does not expect the adoption of ASU 2014-09 will require material or significant changes to its internal controls over financial reporting. In connection with the application of that guidance and the adoption of ASU 2014-09, the Company expects that it will expand its revenue recognition inquiries and update its questionnaires primarily to identify matters that would signal variable consideration implications under the new guidance.
The amount in excess of insured limitations was at $0.53 million and $5.42 million as of September 30, 2022 and December 31, 2021, respectively.
NOTE 4 – ACQUISITION
On There were no customers that comprised more than 10.0% of the Company's revenue for the three and nine months ended September 13, 2017, the30, 2022 and 2021.
The purchase price allocation for the acquisition, as set forth in the table below, reflects various preliminary fair value estimatesnine months ended September 30, 2022 and analyses, including preliminary work performed by third-party valuation specialists, which are subject to change within the measurement period as valuations are finalized. The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair values of certain tangible assets, the valuation of intangible assets acquired, and residual goodwill. The Company expects to continue to obtain information to assist in determining the fair value of the net assets acquired at the acquisition date during the measurement period. Measurement period adjustments that2021, the Company determines to be material will be applied retrospectively to the perioddid not have any concentration of acquisition in the Company’s consolidated financial statements and,vendors for inventory purchases. However, this may change depending on the naturenumber of vendors who receive appropriate licenses to operate in the adjustments, other periods subsequent to the periodState of acquisition could also be affected. The Company acquired inventory, property, equipment and leasehold improvements, a security deposit and a management service agreement which allows for Tech Center Drive to purchase the medical marijuana dispensary license of 55 OC.
As consideration for entering into the Asset Purchase Agreement, the Company paid $4,120,791 in cash, issued 9,500,206 shares of the Company’s common stock with a value of $2,090,046 on the closing date and issued 2,891,365 shares of the Company’s common stock with a value of $636,100 into an escrow account. The shares held in escrow are to be paid six months after the acquisition date subject to any amounts to be withheld related to working capital type adjustments. The Company is also due $7,012 from the sellers of Tech Center Drive for amounts paid in excess of the agreement, which will be settled six months after the closing date. The value of the shares issued were based on the closing value of the Company's common stock on September 13, 2017, which was $0.22 per share.
The following table summarizes the acquisition with a purchase price of $6,839,925:
Assets Acquired Inventory Property, Equipment and Leasehold Improvements: Furniture and Equipment Leasehold Improvements Security Deposits Management Service Agreement Total Assets Acquired $ 113,779 52,829 46,737 5,000 6,621,580 $ 6,839,925
The supplemental pro forma information, as if the acquisition had occurred on January 1, 2016, is as follows:
Pro Forma Results of Operations Three Months Ended September 30, Nine Months Ended September 30, (Unaudited) (Unaudited) 2017 2016 2017 2016 Revenues Net Loss Attributable to Terra Tech Corp. Net Loss per Common Share Attributable to Terra Tech Corp. Common Stockholders - Basic and Diluted $ 10,629,069 $ 7,895,506 $ 27,196,032 $ 19,700,614 $ (8,670,424 ) $ (5,602,487 ) $ (19,664,164 ) $ (14,724,160 ) $ (0.01 ) $ (0.02 ) $ (0.03 ) $ (0.04 )
The supplemental pro forma information above is based on estimates and assumptions that we believe are reasonable. The pro forma information presented is not necessarily indicative of the consolidated results of operations in future periods or the results that would have been realized had the acquisition occurred on January 1, 2016. The supplemental pro forma results above exclude any benefits that may result from the acquisition due to synergies that are expected to be derived from the elimination of any duplicative costs.
California.
Inventory consistsDecember 31, 2021 consisted of the following:
September 30, December 31, 2017 Raw Materials Work-in-Progress Finished Goods Total Inventory 2016 $ 1,309,131 $ 486,119 901,241 570,145 2,271,421 853,066 $ 4,481,793 $ 1,909,330
| (in thousands) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Raw Materials | $ | 235 | $ | 2,258 | |||||||
| Work-In-Progress | 1,743 | 1,077 | |||||||||
| Finished Goods | 706 | 3,844 | |||||||||
| Total Inventory | $ | 2,684 | $ | 7,179 | |||||||
| (in thousands) | |||||||||||
| September 30, 2022 | |||||||||||
| $ | 3 | ||||||||||
| Accounts Receivable, Net | 6 | ||||||||||
| Prepaid Expenses and Other Assets | 14 | ||||||||||
| Current Assets Held for Sale | 23 | ||||||||||
| Property, Equipment and Leasehold Improvements, Net | 975 | ||||||||||
| Other Assets | 1,604 | ||||||||||
| Assets Held For Sale | 2,579 | ||||||||||
| TOTAL ASSETS OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE | $ | 2,602 | |||||||||
| Accounts Payable and Accrued Expenses | $ | 1,653 | |||||||||
| Current Liabilities Held For Sale | 1,653 | ||||||||||
| Long-Term Lease Liabilities | 1,357 | ||||||||||
| Liabilities Held For Sale | 1,357 | ||||||||||
| TOTAL LIABILITIES OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE | $ | 3,010 | |||||||||
September 30, December 31, 2017 Land and Building Furniture and Equipment Computer Hardware and Software Leasehold Improvements Construction in Progress Subtotal Less Accumulated Depreciation Property, Equipment and Leasehold Improvements, Net 2016 $ 1,316,087 $ 1,454,124 3,467,647 3,141,244 457,535 396,479 8,785,307 7,568,465 834,220 459,327 14,860,796 13,019,639 (3,886,864 ) (2,554,875 ) $ 10,973,932 $ 10,464,764
| (in thousands) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Land and Building | $ | 7,581 | $ | 7,787 | |||||||
| Furniture and Equipment | 3,573 | 3,873 | |||||||||
| Computer Hardware | 295 | 348 | |||||||||
| Leasehold Improvements | 11,336 | 14,409 | |||||||||
| Vehicles | 221 | 1,142 | |||||||||
| Construction in Progress | 2,499 | 1,832 | |||||||||
| Subtotal | 25,505 | 29,391 | |||||||||
| Less Accumulated Depreciation | (5,929) | (5,663) | |||||||||
| Property, Equipment and Leasehold Improvements, Net | $ | 19,576 | $ | 23,728 | |||||||
During the third quarter of 2017,
September 30, 2017 December 31, 2016 Estimated Useful Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Amortizing Intangible Assets: Customer Relationships 5 to 12 Trade Brands and Patent 2 to 8 Dispensary Licenses 14 Management Service Agreement 15 Total Amortizing Intangible Assets Non-Amortizing Intangible Assets: Trade Name Indefinite Total Non-Amortizing Intangible Assets Total Intangible Assets, Net $ 8,960,700 $ (1,437,312 ) $ 7,523,388 $ 8,960,700 $ (780,960 ) $ 8,179,740 498,598 (173,106 ) 325,492 498,598 (91,061 ) 407,537 10,270,000 (1,100,358 ) 9,169,642 10,270,000 (550,179 ) 9,719,821 6,621,580 - 6,621,580 - - - 26,350,878 (2,710,776 ) 23,640,102 19,729,298 (1,422,200 ) 18,307,098 5,320,000 - 5,320,000 5,320,000 - 5,320,000 5,320,000 - 5,320,000 5,320,000 - 5,320,000 $ 31,670,878 $ (2,710,776 ) $ 28,960,102 $ 25,049,298 $ (1,422,200 ) $ 23,627,098
The Company recorded amortization
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
| Estimated Useful Life in Years | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | Gross Carrying Amount | Accumulated Amortization | Net Carrying Value | |||||||||||||||||||||||||||||||||||
| Amortizing Intangible Assets: | |||||||||||||||||||||||||||||||||||||||||
| Customer Relationships | 3 to 5 | $ | 7,400 | $ | (7,400) | $ | — | $ | 7,400 | $ | (7,400) | $ | — | ||||||||||||||||||||||||||||
| Trademarks and Patent | 2 to 8 | 4,500 | (2,490) | 2,010 | 4,500 | (750) | 3,750 | ||||||||||||||||||||||||||||||||||
| Operating Licenses | 14 | 12,239 | (12,239) | — | 100,701 | (6,864) | 93,837 | ||||||||||||||||||||||||||||||||||
| Total Amortizing Intangible Assets | 24,139 | (22,129) | 2,010 | 112,601 | (15,014) | 97,587 | |||||||||||||||||||||||||||||||||||
| Non-Amortizing Intangible Assets: | |||||||||||||||||||||||||||||||||||||||||
| Trade Name | Indefinite | 1,350 | — | 1,350 | 32,050 | — | 32,050 | ||||||||||||||||||||||||||||||||||
| Total Non-Amortizing Intangible Assets | 1,350 | — | 1,350 | 32,050 | — | 32,050 | |||||||||||||||||||||||||||||||||||
| Total Intangible Assets, Net | $ | 25,489 | $ | (22,129) | $ | 3,360 | $ | 144,651 | $ | (15,014) | $ | 129,637 | |||||||||||||||||||||||||||||
2021, respectively.
| (in thousands) | |||||||||||
| $ | 48,132 | ||||||||||
| Impairment Losses | (44,547) | ||||||||||
| Balance as of September 30, 2022 | 3,585 | ||||||||||
Future estimated amortization expense
Three months ending Year Ending December 31, 2018 2019 2020 2021 2022 and thereafter Total Amortization expense December 31, 2017 $ 539,614 $ 1,783,635 $ 1,769,913 $ 1,769,913 $ 1,731,568 $ 16,045,459 $ 23,640,102
September 30, December 31, 2017 Accounts Payable Sales Tax Payable Accrued Interest Payable Accrued Expenses Total Accounts Payable and Accrued Expenses 2016 $ 2,171,256 $ 1,986,907 482,509 122,470 2,844 96,633 1,553,905 211,390 $ 4,210,514 $ 2,417,400
NOTE 9 – NOTES PAYABLE
Notes payable consists of the following:
September 30, 2017 December 31, 2016 Unsecured promissory demand notes issued to an accredited investor, which bear interest at a rate of 4% per annum. Holder may elect to convert into common stock at $0.75 per share. The balance of the note and accrued interest was converted into common stock in April 2017. Convertible promissory note dated December 14, 2015, issued to accredited investors, which matured December 13, 2016 and bears interest at a rate of 12% per annum. The holder of the note extended the maturity to December 13, 2017. The conversion price is $0.1211, subject to adjustment. The balance of the note and accrued interest was converted into common stock in July 2017. Senior convertible promissory note dated October 28, 2016, issued to accredited investors, which matures April 28, 2018 and bears interest at a rate of 1% per annum. The conversion price is 90% of the average of the lowest three (3) VWAPs for the five (5) consecutive trading days prior to the conversion date. The balance of the note and accrued interest was converted into common stock in January 2017. Senior convertible promissory note dated November 1, 2016, issued to accredited investors, which matures May 1, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.35, subject to adjustment. The balance of the note and accrued interest was converted into common stock in July 2017. Senior convertible promissory note dated December 16, 2016, issued to accredited investors, which matures June 16, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.27, subject to adjustment. The balance of the note and accrued interest was converted into common stock in May 2017. Senior convertible promissory note dated February 22, 2017, issued to accredited investors, which matures August 22, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.25, subject to adjustment. The balance of the note and accrued interest was converted into common stock in June 2017. Senior convertible promissory note dated June 23, 2017, issued to accredited investors, which matures December 23, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.1362, subject to adjustment. Senior convertible promissory note dated August 21, 2017, issued to accredited investors, which matures February 21, 2019 and bears interest at a rate of 12% per annum. The conversion price is $0.30, subject to adjustment. Total Debt Less Short-Term Portion Long-Term Portion $ - $ 64,324 - 500,000 - 102,582 - 31,615 - 1,220,155 - - 335,119 - 1,798,785 - 2,133,904 1,918,676 - 564,324 $ 2,133,904 $ 1,354,352
As of September 30, 2017 and December 31, 2016, total debt was $2,133,904 and $1,918,676, respectively, which included unamortized debt discount of $3,766,095 and $4,295,648, respectively. Senior secured promissory notes are secured by shares of common stock. There was accrued interest payable of $2,844 and $96,633 as of September 30, 20172022 and December 31, 2016, respectively.
See “Note 172021 consisted of the following:
| (in thousands) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Accounts Payable | $ | 21,773 | $ | 16,804 | |||||||
| Tax Liabilities | 5,392 | 5,147 | |||||||||
| Accrued Payroll and Benefits | 947 | 1,409 | |||||||||
| Current Lease Liabilities | 2,053 | 3,120 | |||||||||
| Other Accrued Expenses | 6,872 | 5,424 | |||||||||
| Total Accounts Payable and Accrued Expenses | $ | 37,037 | $ | 31,904 | |||||||
Securities Purchase Agreement Dated August 21, 2017use an underlying asset for the lease term and 12% Senior Convertible Promissory Note Due February 21, 2019
On August 21, 2017,operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing market conditions. The terms used to calculate the right-of-use assets for certain properties include the renewal options that the Company entered into a Securities Purchase Agreement with an accredited investor pursuantis reasonably certain to whichexercise.
All principal and interest due and owingoccupies office facilities under Note A is convertible into shares of Common Stocklease agreements that expire at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.30 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price A”), which Conversion Price A is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price of Note A will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect.
various dates. In addition, office, production and transportation equipment is leased under agreements that expire at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) day’s notice, that the holder convert Note A at Conversion Price A.
various date
s. The CompanySecurities Purchase Agreement Dated June 23, 2017 and 12% Senior Convertible Promissory Note Due December 23, 2018
On June 23, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sold to the accredited investor a 12% Senior Convertible Promissory Note due December 23, 2018 (“Note B”) in the principal amount of $3,000,000 for a purchase price of $3,000,000 (“Offering B”). There were no fees or expenses deducted from the net proceeds received by the Company in Offering B. The Company paid $90,000 in connection with the loan. The cash fee was recorded as a debt discount. Note B and the shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) issuable upon conversion of Note B are collectively referred to herein as the “Securities.”
All principal and interest due and owing under Note B is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.1362 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price B”), which Conversion Price B is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price of Note B will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect.
In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) day’s notice, that the holder convert Note B at Conversion Price B.
The Company may prepay in cash any portion of the outstanding principal amount of Note B and any accrued and unpaid interest by, upon ten (10) days’ written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of Note B plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of Note B; (ii) 115% of the sum of the then-outstanding principal amount of Note B plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of Note B; or (iii) 125% of the sum of the then-outstanding principal amount of Note B plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of Note B.
Securities Purchase Agreement Dated February 22, 2017 and 12% Senior Convertible Promissory Note Due August 22, 2018
On February 22, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sold to the accredited investor a 12% Senior Convertible Promissory Note due August 22, 2018 (“Note C”) in the principal amount of $3,000,000 for a purchase price of $3,000,000 (“Offering C”). There were no fees or expenses deducted from the net proceeds received by the Company in Offering C. The Company paid $90,000 in connection with the loan. The cash fee was recorded as a debt discount. Note C and the shares of the Common Stock issuable upon conversion of Note C are collectively referred to herein as the “Securities.”
All principal and interest due and owing under Note C is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.2495 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price C”), which Conversion Price C is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price of Note C will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect. All interest payments under the Note are payable, at the Company’s option, in cash or shares of Common Stock.
In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) day’s notice, that the holder convert Note C at Conversion Price C.
The Company may prepay in cash any portion of the outstanding principal amount of Note C and any accrued and unpaid interest by, upon ten (10) days’ written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of Note C plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of Note C; (ii) 115% of the sum of the then-outstanding principal amount of Note C plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of Note C; or (iii) 125% of the sum of the then-outstanding principal amount of Note C plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of Note C.
Conversion of Notes Payable and Related Loss on Extinguishment of Debt
The table below details the conversion of the notes payable into equity and the loss on extinguishment of debt$0.51 million for the three and nine months ended September 30, 20172022 and 2016:
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2017 2016 2017 2016 Fair market value of common stock issued upon conversion Principal amount of debt converted Accrued interest converted Fair value of derivative at conversion date Debt discount value at conversion date Loss on extinguishment of debt $ 6,424,597 $ - $ 18,156,952 $ 2,064,137 (3,250,000 ) - (11,814,324 ) (846,491 ) (232,225 ) - (506,985 ) (115,249 ) (3,434,900 ) - (9,106,950 ) (570,100 ) 1,866,066 - 7,323,440 388,500 $ 1,373,538 $ - $ 4,052,133 $ 920,797
NOTE 10 – CONTINGENT CONSIDERATION LIABILITY
The Company accounts for “contingent consideration” according to ASC 805, “Business Combinations” (ASC 805). Contingent consideration typically represents the acquirer’s obligation to transfer additional assets or equity interests to the former owners of the acquiree if specified future events occur or conditions are met. ASC 805 requires that contingent consideration be recognized at the acquisition-date fair value as part of the consideration transferred in the transaction.
In the acquisition of Black Oak, the Company valued the contingent consideration based on an analysis using a cash flow model to determine the expected contingent consideration payment, which model determined that the aggregate expected contingent consideration liability was $15,305,463 and the present value of the contingent consideration liability was $12,754,553. Accordingly, the Company recognized at April 1, 2016, the closing date of the Black Oak merger, a $12,754,553 contingent consideration liability associated with the contingent consideration paid pursuant to the Merger Agreement.
On April 1, 2017, the anniversary date of the acquisition and the settlement date of the contingent consideration, the final contingent consideration was approximately $16.5 million. A summary of the changes in the contingent consideration as well as the detail is below:
Amount Contingent Consideration Summary: Balance at December 31, 2016 Change in Fair Market Valuation of Contingent Consideration �� Balance at March 31, 2017 and April 1, 2017 Contingent Consideration Detail: Performance-Based Cash Contingent Consideration Market-Based Stock Contingent Consideration Balance at March 31, 2017 and April 1, 2017 $ 12,085,859 4,348,761 $ 16,434,620 $ 2,088,000 14,346,620 $ 16,434,620
Changes in the fair market valuation of the contingent consideration are recognized in the unaudited consolidated statements of operations. For the three and nine months ended September 30, 2017, the loss on fair market valuation of contingent consideration was $02021, respectively, and $4,426,047, respectively.
During April 2017, in final settlement of the contingent consideration, the Company issued approximately $4.7$4.76 million in shares of its common stock, or common stock equivalent of approximately 18.1and $1.26 million shares of its common stock, and made a cash payment of approximately $2.1 million. A summary is as follows:
Contingent Consideration Balance at March 31, 2017 Change in Fair Market Valuation of Contingent Consideration Payment of Contingent Consideration in Cash Settlement of Contingent Consideration in Stock Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital Gain on Settlement of Contingent Consideration Contingent Consideration Balance at June 30, 2017 and September 30, 2017 $ 16,434,620 77,286 (2,088,000 ) (4,739,638 ) (4,692,697 ) (4,991,571 ) $ -
Pursuant to the terms of the contingent consideration as outlined in the Merger Agreement, the Company was required to release from escrow shares worth approximately $14.4 million. Of those shares, 18.1 million shares, with a value of $4,789,638, were issued in final settlement of the Market-Based Contingent Consideration, and approximately 34.2 million shares were additionally clawed-back. The Market-Based Clawback associated with common stock equivalent of approximately 35.1 million shares were clawed-back pursuant to the appreciation of the quoted price of the Company’s stock underlying the market-based component of the contingent consideration. An additional common stock equivalent of approximately 34.2 million shares, with a value of $9,684,268, were clawed-back pursuant to disputes between the sellers of Black Oak and the Company with respect to certain operational and performance goals that would have impacted the appreciation of the quoted price of the Company’s common stock underlying the market-based component of the contingent consideration and, in effect, increasing the number of clawback shares. The Company applied the guidance of ASC 470-50-40-2, related to the additional $9,684,268 worth of shares that were clawed back. For the three and nine months ended September 30, 2017, the Company recognized a gain on settlement of contingent consideration of $0 and $4,991,571, respectively. The balance attributable to related parties was recorded in additional paid in capital.
See “Note 11 – Fair Value Measurements” for further information.
NOTE 11 – FAIR VALUE MEASUREMENTS
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of the dates indicated:
Fair Value at September 30, Fair Value Measurement Using Description 2017 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature $ 4,639,000 $ - $ - $ 4,639,000 $ 4,639,000 $ - $ - $ 4,639,000
Fair Value at December 31, Fair Value Measurement Using Description 2016 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature Liability – Contingent Consideration $ 6,987,000 $ - $ - $ 6,987,000 12,085,859 - - 12,085,859 $ 19,072,859 $ - $ - $ 19,072,859
The Company estimates the fair value of the derivative liabilities using the Black-Scholes-Merton option pricing model using the following assumptions:
September 30, December 31, 2017 2016 Stock Price $0.17 - $0.34 $0.29 - $0.49 Conversion and Exercise Price $0.12 - $0.44 $0.22 - $0.50 Annual Dividend Yield - - Expected Life (Years) 0.45 - 3.42 1.5 - 4.0 Risk-Free Interest Rate 1.04% - 2.50% 2.50% Expected Volatility 43.80% - 123.56% 120.30%-144.03%
Volatility is based on historical volatility of our common stock. Historical volatility was computed using weekly pricing observations for our common stock that correspond to the expected term. This method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants and conversion features.
No financial assets were measured on a recurring basis as of September 30, 2017 and December 31, 2016.
The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017:
Balance at December 31, 2016 Change in Fair Market Value of Conversion Feature Derivative Debt Converted into Equity Issuance of Debt Instruments with Derivatives Balance at September 30, 2017 $ 6,987,000 (1,122,050 ) (9,106,950 ) 7,881,000 $ 4,639,000
2022 and September 30, 2021, respectiv
ely. Short-term lease costs during the 2022 and 2021 fiscal quarters ended September 30, 2022 and 2021 were not material.| (in thousands) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Operating Lease Right-of-Use Assets | $ | 13,049 | $ | 24,448 | |||||||
| Operating Lease Liabilities | $ | 14,154 | $ | 24,436 | |||||||
| (in thousands) | |||||
Operating Leases | |||||
| 2022 (remaining) | $ | 699 | |||
| 2023 | 2,871 | ||||
| 2024 | 2,973 | ||||
| 2025 | 2,516 | ||||
| 2026 | 2,012 | ||||
| Thereafter | 10,777 | ||||
| Total Lease Payments | 21,848 | ||||
| Less: Discount | (7,694) | ||||
| Total Operating Lease Liabilities | $ | 14,154 | |||
| Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| Weighted Average Remaining Lease Term (Years) | 5.5 | 79 | ||||||
| Weighted Average Discount Rate | 11.4 | % | 11.6 | % | ||||
| (in thousands) | |||||||||||
| September 30, 2022 | December 31, 2021 | ||||||||||
| Promissory note dated January 18, 2018, issued for the purchase of real property. The promissory note was collateralized by the land and building purchased and matured January 18, 2022. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter. The full principal balance and accrued interest are due at maturity. In the event of default, the note is convertible at the holder's option. | $ | — | $ | 6,500 | |||||||
| Promissory note dated May 4, 2020, issued to Harvest Small Business Finance, LLC, an unaffiliated third party. Loan was part of the Paycheck Protection Program ("PPP Loan") offered by the U.S. Small Business Administration. The interest rate on the note was 1.0%. The note required interest and principal payments seven months from July 2020. The note matures in February 2025. | 13 | 562 | |||||||||
| Unsecured promissory note dated January 22, 2021, issued to Michael Nahass (a related party), which matured January 25, 2022, and bore interest at a rate of 3% per annum. | — | 1,050 | |||||||||
| Convertible promissory note dated January 25, 2021, issued to accredited investors, which matured July 22, 2022 and bears interest at a rate of 8% per annum. The conversion price is $0.175 per share. | 3,450 | 3,500 | |||||||||
| Promissory note dated July 27, 2021, issued to Arthur Chan which matures July 26, 2024, and bears interest at a rate of 12% per annum. | 2,500 | 2,500 | |||||||||
| Senior Secured Promissory Note dated November 22, 2021 issued to Dominion Capital LLC, which matured on February 22, 2022 and bore interest at a rate of 12% per annum. | — | 2,500 | |||||||||
| Unsecured promissory note without interest from a related party. The loan is paid in 20 equal installments and matured on August 1, 2022. | 60 | 90 | |||||||||
| Promissory note dated June 1, 2020, issued as part of the PPP Loan offered by the U.S. Small Business Administration. The interest rate on the note is 1.0%. The note matured on June 1, 2022. | 322 | 297 | |||||||||
| Line of credit agreement entered on March 31, 2021, which matured on March 31, 2022 and bore interest of 2.9% per 30 days. | — | 4,500 | |||||||||
| Promissory note dated October 1, 2021, issued to Sterling Harlan as part of the SilverStreak Solutions acquisition. The interest rate on the note was 3.0%. The note matured on April 1, 2022. | 2,000 | 2,000 | |||||||||
| Promissory note dated October 1, 2021, issued to Sterling Harlan as part of the SilverStreak Solutions acquisition. The interest rate on the note is 3.0%. The note matures on October 1, 2022. | 2,500 | 2,500 | |||||||||
| Secured promissory note dated November 22, 2021 issued to People's California, LLC, which matures on November 22, 2023 and bears interest at a rate of 8.0% per annum. Payments due include $2.00 million plus accrued interest for the first twelve months followed by payments of $1.00 million plus accrued interest until maturity. | 21,569 | 28,569 | |||||||||
| Promissory note dated May 1, 2019, assumed by the Company on July 1, 2021 in connection with the purchase of real property, from a related party. The note matures on May 15, 2039 and bears interest at a rate of 9.89% per year. | 2,899 | 2,954 | |||||||||
| Notes Payable - Promissory Notes | $ | 35,313 | $ | 57,522 | |||||||
| Vehicle Loans | 99 | 204 | |||||||||
| Less: Short-Term Debt | (26,454) | (45,749) | |||||||||
| Less: Debt Discount | (994) | (1,971) | |||||||||
| Net Long-Term Debt | $ | 7,964 | $ | 10,006 | |||||||
Balance at December 31, 2016 Change in Fair Market Valuation of Contingent Consideration Payment of Contingent Consideration in Cash Settlement of Contingent Consideration Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital Gain on Settlement of Contingent Consideration Balance at September 30, 2017 $ 12,085,859 4,426,047 (2,088,000 ) (4,739,638 ) (4,692,697 ) (4,991,571 ) $ -
Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis
Non-financial assets, such as property, equipment and leasehold improvements, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company recorded an impairment charge related to property during2022.
NOTE 12 – INCOME TAXES
For the three and nine months ended September 30, 2017 and 2016, the Company had no income tax expense (benefit).
The components of deferred income tax assets and (liabilities) consisted of the following:
September 30, December 31, 2017 Deferred Income Tax Assets: Warrants Expense Derivatives Expense Net Operating Losses Deferred Income Tax Liabilities: Depreciation Total Valuation Allowance Net Deferred Tax 2016 $ 5,074,000 $ 4,186,000 5,172,000 4,067,000 19,319,000 15,242,000 (1,544,000 ) (1,334,000 ) 28,021,000 22,161,000 (28,021,000 ) (22,161,000 ) $ - $ -
For the three and nine months ended September 30, 2017 and 2016, certain of the Company’s subsidiaries produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of Internal Revenue Code (“IRC”) Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product.
Permanent differences include ordinary and necessary business expenses deemed by the Company as a non-allowable deduction under IRC Section 280E, and tax deductions related to equity compensation that are less than the compensation recognized for financial reporting.
As of September 30, 2017 and December 31, 2016, the Company had net operating loss carryforwards of $43,108,000 and $34,940,000, respectively, which, if unused, will expire beginning in the year 2034. These tax attributes are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under IRC Section 382, which will limit their utilization. The Company has yet to assess the effect of these limitations, but expects these losses to be substantially limited. Accordingly, the Company has placed a reserve against any assets associated with these losses.
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years from 2013 to 2016 are subject to examination.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred through the period ended September 30, 2017. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. On the basis of this evaluation, as of September 30, 2017, a valuation allowance has been recorded against all deferred tax assets as these assets are more likely than not to be unrealized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
NOTE 13 – EQUITY
Preferred Stock
Series A Preferred Stock is convertible on a one-for-one basis into common stock and has all of the voting rights of the Company’s common stock.
Each share of Series B Preferred Stock: (i) is entitled to 100 votes for each share of common stock into which a share of Series B Preferred Stock is convertible and (ii) is convertible, at the option of the holder, on a 1 for 5.384325537 basis, into shares of the Company’s common stock.
On July 26, 2017, the Company filed a Certificate of Amendment to the Certificate of Designation of the Company’s Series B Preferred Stock (the “Amendment”) with the Secretary of State of the State of Nevada to provide for an adjustment of the Conversion Rate of the Company’s Series B Preferred Stock in the event of a reverse stock split or combination in the same ratio as the Company’s common stock. A copy of the Amendment was filed as Exhibit 3.14 to the Company’s Current Report on Form 8-K dated July 26, 2017.
During the nine months ended September 30, 2017,2022
During the nine months ended September 30, 2017,to third-party service providers. As a result, the Company cancelled 4,279,841 shares of Series B Preferred Stock that had been previously issued and held in escrow in connection with the contingent consideration related to the Black Oak acquisition, see “Note 10 – Contingent Consideration Liability” for further information.
During the nine months ended September 30, 2017, holders of the Series B Preferred Stock converted 33,146,112 of their shares to 178,469,472 shares of common stock.
During the nine months ended September 30, 2016, the Company issued 400,000 shares of Series B Preferred Stock for compensation in the amount of $715,039.
During the nine months ended September 30, 2016, the Company issued 23,832,962 shares of Series B Preferred Stock for purchase of Black Oak acquisition and converted 150,000 shares of Series B Preferred Stock to 807,649 shares of common stock.
Common Stock
During the nine months ended September 30, 2017, senior secured convertible promissory notes and accrued interest in the amount of $12,321,309 were converted into 75,744,005 shares of common stock with a value of $18,156,952, see “Note 9 – Notes Payable” for further information.
During the nine months ended September 30, 2017, the Company issued 30,676,773 shares of common stock for cash in the amount of $6,700,000 pursuant to an equity financing facility with an accredited investor.
During the nine months ended September 30, 2017, the Company issued 1,215,909 shares of common stock for director fees in the amount of $221,973, issued 4,886,586 shares of common stock for services performed in the amount of $1,036,427 and issued 2,383,007 shares of common stock to employees for compensation in the amount of $490,880.
During the nine months ended September 30, 2017, the Company issued 13,394,464 shares of the Company’s common stock for prepaid inventory valued at $1,935,500, see “Note 14 – Commitments” for further information.
During the nine months ended September 30, 2017, the Company issued 12,391,571 shares of the Company’s common stock with a value of $2,726,146 to acquire all the assets of Tech Center Drive, see “Note 4 – Acquisition” for further information.
During the nine months ended September 30, 2017, the Company cancelled 9,291,744 shares of common stock that had been previously issued and held in escrow in connection with the contingent consideration related to the Black Oak acquisition, see “Note 10 – Contingent Consideration Liability” for further information.
During the nine months ended September 30, 2016, the Company issued 106,890,000 shares of common stock for purchase of Black Oak acquisition.
During the nine months ended September 30, 2016, senior secured convertible promissory notes and accrued interest in the amount of $961,740 were converted into 13,906,149 shares of common stock.
During the nine months ended September 30, 2016, the Company issued 25,715,674 shares of common stock for cash in the net amount of $3,208,134 pursuant to an equity financing facility with an accredited investor.
During the nine months ended September 30, 2016, the Company issued 350,000 shares of common stock for director fees in the amount of $60,550 and issued 70,000 shares of common stock for services performed in the amount of $20,727.
During the nine months ended September 30, 2016, the Company issued 172,414 shares of common stock for purchase of certain assets valued at $100,000.
During the nine months ended September 30, 2016, the Company issued 22,981,647 shares of common stock for the excise of warrants and received $3,150,000.
Stock-Based Compensation Expense
A summaryrecorded $0.39 million of stock-based compensation expense for the three months ended September 30, 2017 and 2016 is as follows:
For the Three Months Ended September 30, 2017 September 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options Stock Grants: Employees (Common Stock) Employees (Series B Preferred Stock) Directors (Common Stock) Non–Employee Consultants (Common Stock) Total Stock–Based Compensation 1,980,769 $ 234,580 – $ 47,588 747,227 170,148 – – - - 400,000 715,039 - - – – 2,027,581 445,068 – – $ 849,796 $ 762,627
A summary of stock-based compensationservices for the nine months ended September 30, 2017 and 2016 is as follows:
For the Nine Months Ended September 30, 2017 September 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options Stock Grants: Employees (Common Stock) Employees (Series B Preferred Stock) Directors (Common Stock) Non–Employee Consultants (Common Stock) Total Stock–Based Compensation 10,230,769 $ 439,599 6,700,000 $ 142,766 2,383,007 490,880 – – 600,000 1,035,406 400,000 715,039 1,215,909 221,973 350,000 60,550 4,886,586 1,036,427 70,000 20,727 $ 3,224,285 $ 939,082
2022.
Operating Lease Commitments
STOCK-BASED COMPENSATION
| Awards Reserved for Issuance | Awards Exercised | Awards Outstanding | Awards Available for Grant | ||||||||||||||||||||
| 2016 Equity Incentive Plan | 999,906 | — | 499,953 | 499,953 | |||||||||||||||||||
| 2018 Equity Incentive Plan | 31,405,648 | 4,022,133 | 14,009,842 | 13,373,673 | |||||||||||||||||||
| 2019 Equity Incentive Plan | 108,892,137 | 34,884 | 73,053,116 | 35,804,137 | |||||||||||||||||||
| (in thousands, except for shares / options) | ||||||||||||||||||||||||||
| For the Three Months Ended | ||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
| Type of Award | Number of Shares or Options Granted | Stock-Based Compensation Expense | Number of Shares or Options Granted | Stock-Based Compensation Expense | ||||||||||||||||||||||
| Stock Options | — | $ | 276 | 83,020,303 | $ | 780 | ||||||||||||||||||||
| Stock Grants: | ||||||||||||||||||||||||||
| Directors (Common Stock) | — | $ | — | — | 32 | |||||||||||||||||||||
| Non–Employee Consultants (Common Stock) | 6,472,492 | $ | 268 | — | 873 | |||||||||||||||||||||
| Total Stock–Based Compensation Expense | $ | 544 | $ | 1,685 | ||||||||||||||||||||||
| (in thousands, except for shares / options) | ||||||||||||||||||||||||||
| For the Nine Months Ended | ||||||||||||||||||||||||||
| September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||
| Type of Award | Number of Shares or Options Granted | Stock-Based Compensation Expense | Number of Shares or Options Granted | Stock-Based Compensation Expense | ||||||||||||||||||||||
| Stock Options | 400,000 | $ | 3,450 | 5,909,716 | $ | 1,664 | ||||||||||||||||||||
| Stock Grants: | ||||||||||||||||||||||||||
| Employees (Common Stock) | 2,100,000 | $ | 352 | 250,000 | 68 | |||||||||||||||||||||
| Directors (Common Stock) | 943,128 | $ | 213 | 885,159 | 245 | |||||||||||||||||||||
| Non–Employee Consultants (Common Stock) | 7,197,492 | $ | 397 | 332,947 | 907 | |||||||||||||||||||||
| Total Stock–Based Compensation Expense | $ | 4,412 | $ | 2,884 | ||||||||||||||||||||||
Number of Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Life | Aggregate Intrinsic Value of In-the-Money Options | ||||||||||||||||||||
| Options Outstanding as of January 1, 2022 | 88,251,380 | $ | 0.20 | ||||||||||||||||||||
| Granted | 400,000 | $ | 0.23 | ||||||||||||||||||||
| Exercised | (146,212) | $ | 0.08 | ||||||||||||||||||||
| Forfeited | (17,836,303) | $ | 0.15 | ||||||||||||||||||||
| Expired | (11,825,348) | $ | 0.34 | ||||||||||||||||||||
| Options Outstanding as of September 30, 2022 | 58,843,517 | $ | 0.20 | 7.9 years | $ | — | |||||||||||||||||
| Options Exercisable as of September 30, 2022 | 49,998,358 | $ | 0.24 | 7.4 years | $ | — | |||||||||||||||||
Production Operating Agreement
expected term assumptions as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company stock-based compensation.
| Warrants | Weighted-Average Exercise Price | ||||||||||
| Warrants Outstanding as of January 1, 2022 | 85,826,872 | $ | 0.22 | ||||||||
| Exercised | (4,945,055) | $ | 0.01 | ||||||||
| Warrants Outstanding as of September 30, 2022 | 80,881,817 | $ | 0.07 | ||||||||
The Company and Panther Gap Farms also entered into a lease agreementStandard Offer, Agreement and Escrow Instructions for Purchase of Real Estate with FRO III/SMA Acquisitions, LLC to sell the real property located at 620 East Dyer Road, Santa Ana, CA (the “Dyer Property”) for $13.40 million in cash. On February 10, 2022, the Company announced the closing of the sale of the Dyer Property, resulting in the Company retiring $9.00 million of outstanding debt on the Dyer Property as disclosed in "
Edible Garden AG for a nominal fee. See “
Note 6 – Investments” for further information.| (in thousands, except for per share data) | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Total Revenues | $ | — | $ | 3,383 | $ | 2,605 | $ | 9,829 | |||||||||||||||
| Cost of Goods Sold | — | 1,422 | 520 | 6,013 | |||||||||||||||||||
| Gross Profit | — | 1,961 | 2,085 | 3,816 | |||||||||||||||||||
| Selling, General and Administrative Expenses | — | 1,721 | 1,862 | 4,756 | |||||||||||||||||||
| Gain on Sale of Assets | — | (6,589) | (3,729) | (6,583) | |||||||||||||||||||
| Income from Operations | — | 6,829 | 3,952 | 5,643 | |||||||||||||||||||
| Interest Expense | — | (268) | — | (745) | |||||||||||||||||||
| Other Income | 72 | — | 99 | — | |||||||||||||||||||
| Income from Discontinued Operations | $ | 72 | $ | 6,561 | $ | 4,051 | $ | 4,898 | |||||||||||||||
| Income from Discontinued Operations per Common Share Attributable to Unrivaled Brands, Inc. Common Stockholders - Basic And Diluted | $ | — | $ | 0.01 | $ | 0.01 | $ | 0.02 | |||||||||||||||
| (in thousands) | |||||
| December 31, 2021 | |||||
| $ | 1,544 | ||||
| Accounts Receivable, Net | 1,553 | ||||
| Inventory | 1,359 | ||||
| Prepaid Expenses and Other Assets | 39 | ||||
| Property, Equipment and Leasehold Improvements, Net | 17,661 | ||||
| Other Assets | 323 | ||||
| Assets of | $ | 22,479 | |||
| Accounts Payable and Accrued Expenses | $ | 1,170 | |||
| Income Tax Payable | 917 | ||||
| Long-Term Lease Liabilities | 184 | ||||
| Liabilities of Discontinued Operations | $ | 2,271 | |||
The Company’s operating and reportable segments are currently organized around the following products that it offers as part of its core business strategy:
|
| |
|
|
These two reportable segments, which are described in greater detail below, had previously been reported on a combined basis as they had been operated and evaluated as one operating segment.
Herbs and Produce Products
Either independently or in conjunction with third parties, the Company is a wholesale seller of locally grown hydroponic herbs, produce, and floral products, which are distributed through major grocery stores throughout the East and Midwest regions of the U.S.
segments:
Retail
– Either independently or in conjunction with third parties, the Company operates medical marijuana| (in thousands) | (in thousands) | ||||||||||||||||||||||||||||||||||||||||||||||
| Total Revenue | % of Total Revenue | Total Revenue | % of Total Revenue | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||
| Cannabis Retail | $ | 8,767 | $ | 7,242 | 81.5 | % | 36.1 | % | $ | 31,823 | $ | 11,259 | 64.9 | % | 45.1 | % | |||||||||||||||||||||||||||||||
| Cannabis Cultivation & Distribution | 1,995 | 12,810 | 18.5 | % | 63.9 | % | 17,219 | 13,721 | 35.1 | % | 54.9 | % | |||||||||||||||||||||||||||||||||||
| Total | $ | 10,762 | $ | 20,052 | 100.0 | % | 100.0 | % | $ | 49,042 | $ | 24,980 | 100.0 | % | 100.0 | % | |||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cannabis Retail | Cannabis Cultivation & Distribution | Corporate & Other | Total | Cannabis Retail | Cannabis Cultivation & Distribution | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Total Revenues | $ | 31,823 | $ | 17,219 | $ | — | $ | 49,042 | $ | 11,259 | $ | 13,721 | $ | — | $ | 24,980 | |||||||||||||||||||||||||||||||
| Cost of Goods Sold | 16,172 | 18,232 | — | 34,404 | 6,719 | 15,018 | — | 21,737 | |||||||||||||||||||||||||||||||||||||||
| Gross Profit | 15,651 | (1,013) | — | 14,638 | 4,540 | (1,297) | — | 3,243 | |||||||||||||||||||||||||||||||||||||||
| Selling, General & Administrative Expenses | 15,292 | 12,073 | 23,709 | 51,074 | 6,322 | 4,066 | 18,988 | 29,376 | |||||||||||||||||||||||||||||||||||||||
| Impairment Expense | — | — | 163,698 | 163,698 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| (Gain) Loss on Disposal of Assets | 711 | 1,359 | (198) | 1,872 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Loss from Operations | (352) | (14,445) | (187,209) | (202,006) | (1,782) | (5,363) | (18,988) | (26,133) | |||||||||||||||||||||||||||||||||||||||
| Other Income (Expense): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | — | (178) | (2,416) | (2,594) | (43) | (110) | (474) | (627) | |||||||||||||||||||||||||||||||||||||||
| Gain (Loss) on Extinguishment of Debt | — | — | 542 | 542 | — | 185 | (6,161) | (5,976) | |||||||||||||||||||||||||||||||||||||||
| Gain on Investments | — | — | — | — | — | — | 5,337 | 5,337 | |||||||||||||||||||||||||||||||||||||||
| Unrealized Gain on Investments | — | — | 470 | 470 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other Income | 200 | 750 | 779 | 1,729 | 85 | — | 282 | 367 | |||||||||||||||||||||||||||||||||||||||
| Total Other Income (Loss) | 200 | 572 | (625) | 147 | 42 | 75 | (1,016) | (899) | |||||||||||||||||||||||||||||||||||||||
| Loss Before Provision for Income Taxes | $ | (152) | $ | (13,873) | $ | (187,834) | $ | (201,859) | $ | (1,740) | $ | (5,288) | $ | (20,004) | $ | (27,032) | |||||||||||||||||||||||||||||||
| Total Assets | $ | 17,558 | $ | 14,228 | $ | 22,063 | $ | 53,849 | $ | 77,610 | $ | 37,850 | $ | 68,507 | $ | 183,967 | |||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cannabis Retail | Cannabis Cultivation & Distribution | Corporate & Other | Total | Cannabis Retail | Cannabis Cultivation & Distribution | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||||||
| Total Revenues | $ | 8,767 | $ | 1,995 | $ | — | $ | 10,762 | $ | 7,242 | $ | 12,810 | $ | — | $ | 20,052 | |||||||||||||||||||||||||||||||
| Cost of Goods Sold | 3,861 | 6,965 | — | 10,826 | 4,609 | 15,115 | — | 19,724 | |||||||||||||||||||||||||||||||||||||||
| Gross Profit | 4,906 | (4,970) | — | (64) | 2,633 | (2,305) | — | 328 | |||||||||||||||||||||||||||||||||||||||
| Selling, General & Administrative Expenses | 3,840 | 3,587 | 5,809 | 13,236 | 3,659 | 3,192 | 5,178 | 12,029 | |||||||||||||||||||||||||||||||||||||||
| Impairment Expense | — | — | 107,972 | 107,972 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Loss on Disposal of Assets | 170 | 1,359 | — | 1,529 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Income (Loss) from Operations | 896 | (9,916) | (113,781) | (122,801) | (1,026) | (5,497) | (5,178) | (11,701) | |||||||||||||||||||||||||||||||||||||||
| Other Income (Expense): | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | — | (2) | (382) | (384) | (43) | (110) | (362) | (515) | |||||||||||||||||||||||||||||||||||||||
| Loss on Extinguishment of Debt | — | — | — | — | — | 185 | — | 185 | |||||||||||||||||||||||||||||||||||||||
| Unrealized Loss on Investments | — | — | (493) | (493) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Other Income | — | 223 | 28 | 251 | 5 | — | — | 5 | |||||||||||||||||||||||||||||||||||||||
| Total Other Income (Loss) | — | 221 | (847) | (626) | (38) | 75 | (362) | (325) | |||||||||||||||||||||||||||||||||||||||
| Income (Loss) Before Provision for Income Taxes | $ | 896 | $ | (9,695) | $ | (114,629) | $ | (123,427) | $ | (1,064) | $ | (5,422) | $ | (5,540) | $ | (12,026) | |||||||||||||||||||||||||||||||
| Total Assets | $ | 17,558 | $ | 14,228 | $ | 22,063 | $ | 53,849 | $ | 77,610 | $ | 37,850 | $ | 68,507 | $ | 183,967 | |||||||||||||||||||||||||||||||
Summarized financial information concerningrelated business support and services related to the Company’s reportable segments is shownpresent and future challenges and opportunities. As compensation for the Adnant’s continued services and on achieving identified performance objectives as described in the engagement letter, Adnant will receive fees of $0.15 million monthly subject to the Company having available a cash balance greater than or equal to $1.20 million following tables. Total assetspayment of the fee and a performance bonus award subject to achievement of the performance objectives as set forth in more detail in the agreement. Pursuant to the engagement letter, the Board appointed Sabas Carrillo, the Founder and Chief Executive Officer ("CEO") of Adnant, as Interim Chief Executive Officer. On August 22, 2022 and September 12, 2022, the Company appointed Robert Baca as Interim Chief Legal Officer and Patty Chan as Interim Chief Financial Officer, respectively.
For the Three Months Ended September 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues Cost of Goods Sold Gross Profit Selling, General and Administrative Expenses Loss from Operations Other Income (Expense): Amortization of Debt Discount Impairment of Property Loss on Extinguishment of Debt Loss on Fair Market Valuation of Derivatives Interest (Expense) Income Total Other Income (Expense) Loss Before Provision for Income Taxes Total Assets at September 30, 2017 $ 1,432,500 $ 8,673,560 $ 15,315 $ 10,121,375 1,192,251 6,594,186 - 7,786,437 240,249 2,079,374 15,315 2,334,938 874,141 2,822,488 2,541,481 6,238,110 . (633,892 ) (743,114 ) (2,526,166 ) (3,903,172 ) - - (490,068 ) (490,068 ) - - (138,037 ) (138,037 ) - - (1,373,538 ) (1,373,538 ) - - (1,475,900 ) (1,475,900 ) - 51 (119,701 ) (119,650 ) - 51 (3,597,244 ) (3,597,193 ) $ (633,892 ) $ (743,063 ) $ (6,123,410 ) $ (7,500,365 ) $ 6,914,892 $ 68,290,922 $ 12,151,701 $ 87,357,515
For the Three Months Ended September 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues Cost of Goods Sold Gross Profit Selling, General and Administrative Expenses Loss from Operations Other Income (Expense): Amortization of Debt Discount Loss from Derivatives Issued with Debt Greater than Debt Carrying Value Gain on Fair Market Valuation of Derivatives Interest Expense Total Other Income (Expense) Loss Before Provision for Income Taxes Total Assets at September 30, 2016 $ 2,138,260 $ 4,769,912 $ 42,193 $ 6,950,365 1,921,093 3,747,841 25,355 5,694,289 217,167 1,022,071 16,838 1,256,076 642,441 1,920,468 3,379,727 5,942,636 . (425,274 ) (898,397 ) (3,362,889 ) (4,686,560 ) - - (610,089 ) (610,089 ) - - (867,000 ) (867,000 ) - - 771,000 771,000 - (250 ) (159,383 ) (159,633 ) - (250 ) (865,472 ) (865,722 ) $ (425,274 ) $ (898,647 ) $ (4,228,361 ) $ (5,552,282 ) $ 6,725,967 $ 2,390,233 $ 60,849,033 $ 69,965,233
For the Nine Months Ended September 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues Cost of Goods Sold Gross Profit Selling, General and Administrative Expenses Loss from Operations Other Income (Expense): Amortization of Debt Discount Impairment of Property Loss on Extinguishment of Debt Gain on Fair Market Valuation of Derivatives Interest (Expense) Income Loss on Fair Market Valuation of Contingent Consideration Gain on Settlement of Contingent Consideration Total Other Income (Expense) Loss Before Provision for Income Taxes Total Assets at September 30, 2017 $ 4,126,710 $ 20,609,917 $ 52,077 $ 24,788,704 3,487,795 17,100,535 - 20,588,330 638,915 3,509,382 52,077 4,200,374 2,389,203 7,659,968 8,604,526 18,653,697 . (1,750,288 ) (4,150,586 ) (8,552,449 ) (14,453,323 ) - - (1,616,338 ) (1,616,338 ) - - (138,037 ) (138,037 ) - - (4,052,133 ) (4,052,133 ) - - 1,122,050 1,122,050 - 51 (408,044 ) (407,993 ) - (4,426,047 ) - (4,426,047 ) - 4,991,571 - 4,991,571 - 565,575 (5,092,502 ) (4,526,927 ) $ (1,750,288 ) $ (3,585,011 ) $ (13,644,951 ) $ (18,980,250 ) $ 6,914,892 $ 68,290,922 $ 12,151,701 $ 87,357,515
For the Nine Months Ended September 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues Cost of Goods Sold Gross Profit Selling, General and Administrative Expenses Loss from Operations Other Income (Expense): Amortization of Debt Discount Loss on Extinguishment of Debt Loss from Derivatives Issued with Debt Greater than Debt Carrying Value Loss on Fair Market Valuation of Derivatives Interest Expense Total Other Income (Expense) Loss Before Provision for Income Taxes Total Assets at September 30, 2016 $ 9,413,121 $ 8,669,092 $ 116,228 $ 18,198,441 8,758,524 6,557,137 65,203 15,380,864 654,597 2,111,955 51,025 2,817,577 1,798,051 3,772,056 7,663,781 13,233,888 . (1,143,454 ) (1,660,101 ) (7,612,756 ) (10,416,311 ) - - (922,621 ) (922,621 ) - - (920,797 ) (920,797 ) - - (1,355,000 ) (1,355,000 ) - - (595,700 ) (595,700 ) - - (276,193 ) (276,193 ) - - (4,070,311 ) (4,070,311 ) $ (1,143,454 ) $ (1,660,101 ) $ (11,683,067 ) $ (14,486,622 ) $ 6,725,967 $ 2,390,233 $ 60,849,033 $ 69,965,233
issued 6,472,492 common shares under the performance bonus award valued at $0.27 million.
CONTINGENCIES
Equity Financing Facility
Subsequent
Debt and Interest Converted into Equity
Subsequent to September 30, 2017, senior convertible promissory notes and accrued interest in the amount of $1,640,000 and $69,777, respectively, were converted into 11,527,292 shares of common stock.
Other Events
On October 26, 2017, the Company entered into a joint venture agreement with NuLeaf to build and operate a cultivation and production facility for our IVXX brand of cannabis products in Nevada. Asintegral part of the agreement the Company made a convertible loanunaudited consolidated financial statements.
On November 6, 2017, Kenneth P. Krueger notified the Board of Directors (the “Board”) that he has resigned as a member of the Board, effective immediately.
third parties, we operate medical marijuana retail and adult use dispensaries, cultivation and production facilities in California and Oregon. 1 . Alaska 11 . Maine 21 . New York 2 . Arizona 12 . Maryland 22 . North Dakota 3 . Arkansas 13 . Massachusetts 23 . Ohio 4 . California 14 . Michigan 24 . Oregon 5 . Colorado 15 . Minnesota 25 . Pennsylvania 6 . Connecticut 16 . Montana 26 . Rhode Island 7 . Delaware 17 . Nevada 27 . Vermont 8 . Florida 18 . New Hampshire 28 . Washington 9 . Hawaii 19 . New Jersey 29 . West Virginia 10 . Illinois 20 . New Mexico Three Months Ended September 30, $1.9 million. following items: taxes, licensing and permitting decreased by $0.51 million and stock compensation expenses decreased by $1.14 million. attributable to a Expense Dyer Property and one of our Nevada dispensaries. Nine Months Ended September 30, 2022 and 2021 2021. 9.2% points. 673.0%. we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all. the unaudited consolidated financial statements. Cover Page Interactive Data File (formatted as Inline XBRL Patty ChanFORWARD-LOOKING STATEMENTSIn addition to historical information,may contain “forward-looking statements” within the meaning of Section 27A(this "Form 10-Q") and those discussed in Item 8 of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties, and other important factors that could cause actual results to differ include, among others, the risk, uncertainties and factors set forth under “Item 1A. Risk Factors” in ourCompany’s Annual Report on Form 10-K for the year ended December 31, 2016,(the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”), andSEC on April 15, 2022. Except for historical information, the discussion in this report, as such risk factors may be updatedsection contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov.We caution you thatthose discussed below for many reasons, including the risks uncertainties,described in “Cautionary Language Concerning Forward-Looking Statements,” Item 1A—”Risk Factors” and other factors set forth in our periodic filings with the SEC may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that: (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statementselsewhere in this report apply only as of the date of the report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise.31Table of ContentsTerra Techholdingmulti-state operator ("MSO") with retail, production, distribution, and cultivation operations, with an emphasis on providing the highest quality of medical and adult use cannabis products. From the acquisition of UMBRLA, the Company has multiple cannabis lifestyle brands. The Company is home to Korova, a brand of high potency products across multiple product categories, currently available in California, Oregon, Arizona, and Oklahoma. Other company brands include Cabana, a boutique cannabis flower brand, and Sticks, a mainstream value-driven cannabis brand, active in California and Oregon. With the acquisition of People’s First Choice, the Company operates a premier cannabis dispensary in Santa Ana, California. The Company also owns dispensaries in California which operate as The Spot in Santa Ana, Blum in Oakland and SilverStreak in San Leandro. The Company also has licensed distribution facilities in Portland, OR, Los Angeles, CA and Sonoma County, CA. As of September 30, 2022, the Company had 170 employees.the following subsidiaries:·Edible Garden Corp., a Nevada corporation (“Edible Garden”);·MediFarm, LLC, a Nevada limited liability company (“MediFarm”);·MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”);·MediFarm I Real Estate, LLC, a Nevada limited liability company (“MediFarm I RE”);·MediFarm II, LLC, a Nevada limited liability company (“MediFarm II”);·IVXX, LLC, a Nevada limited liability company (“IVXX LLC”);·IVXX, Inc., a California corporation (“IVXX Inc.”; together with IVXX LLC, “IVXX”);·Blüm San Leandro, a California corporation (“Blüm San Leandro”);·Black Oak Gallery, a California corporation (“Black Oak”);·GrowOp Technology Ltd., a Nevada corporation (“GrowOp Technology”);·EG Transportation, LLC, a Nevada limited liability company (“EG Transportation”); and·MediFarm So Cal, Inc., a California mutual benefit corporation (“MediFarm SoCal”)isare located at 2040 Main Street, Suite 225, Irvine,3242 S. Halladay St, Santa Ana, California 9261492705 and our telephone number is (855) 447-6967.(888) 909-5564. Our website addresses areaddress is as follows: www.terratechcorp.com, www.blumoak.com, www.letsblum.com, www.ivxx.com, and www.ediblegarden.com.www.unrivaledbrands.com. No information available on or through our websites shall be deemed to be incorporated into this Quarterly Report on Form 10-Q. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc.’sInc’s OTCQX tier under the symbol “TRTC”.History“UNRV.”BackgroundOn February 9, 2012, we completedas a reverse-triangular merger with GrowOp Technology whereby we acquired allmember of the issuedCompany’s Board of Directors (the "Board") effective immediately.outstandingrelated business support and services related to the Company’s present and future challenges and opportunities. Specifically, Adnant will provide a team of restructuring focused executives that may include, but not be limited to, CEO support, chief restructuring officer, executive vice president of finance, financial planning and analysis professional, and/or legal consulting. Adnant is expected to work closely with the Company and its internal teams, existing management, existing consultants and advisors, lenders, attorneys, and other relevant parties in connection with the implementation of the strategies most appropriate to achieve the Company's objectives and as directed and authorized by the Board.GrowOp Technology.the Company’s common stock.merger, GrowOp Technology became our wholly-owned subsidiary. Followingannual impairment assessment on September 30, 2022, the merger, we ceased our prior operationsCompany recorded an additional impairment of $107.97 million during the fiscal third quarter of 2022. For the nine months ended September 30, 2022, the Company recorded total impairment loss of $163.70 million as detailed below.are now solelygoodwill acquired from UMBRLA, Inc. in 2021. Management assessed the projected revenues based on current market conditions and revised the earnings forecast based on a holding company with eight wholly-owned subsidiaries. We also own interestsdecrease in four other subsidiaries.Our BusinessWe are a vertically integrated cannabis-focused agriculture company that is committedanticipated operating profits and cash flows.cultivatingthe intangible assets and providinggoodwill acquired from People’s First Choice LLC in 2021. Management noted forecasted revenues used at the highest quality medical cannabis, as well as other agricultural products, such as herbstime of acquisition were not achievable due to regulatory and leafy greens that are grown using classic Dutch hydroponic farming methods.Throughlicensing issues and revised the earnings forecast accordingly.we operate a medical marijuana retail dispensary, a medical marijuana cultivation, and have a second medical marijuana cultivation facility under construction (the “Hegenberger facility”), allGallery in Oakland, California. Through MediFarm SoCal, we operate a medical marijuana retail dispensary in Santa Ana, California. Through MediFarm, MediFarm I, and MediFarm II (together “MediFarm”), we operate four retail medical marijuana dispensary facilities in Nevada, and have in various stages of construction medical marijuana cultivation and production facilities in Nevada. Through MediFarm I RE, we own the real property in Nevada on which we plan to build a medical marijuana dispensary of which we are in the planning phase. All of our retail dispensaries in California and Nevada operate under the name Blüm, which offer a broad selection of medical cannabis products including flowers, concentrates and edibles. Through our newest medical marijuana retail dispensary in Santa Ana, California, we offer quality cannabis products. Through IVXX, we produce and sell a line of medical cannabis flowers, as well as a line of medical cannabis-extracted products, which include concentrates, cartridges, vape pens and wax products. Through Edible Garden, we are a wholesale seller of locally grown hydroponic produce, herbs and floral products. EG Transportation supports the distribution of Edible Garden products to major grocery stores such as ShopRite, Walmart, Winn-Dixie, Raley’s, Meijer, Kroger, and others throughout New Jersey, New York, Delaware, Maryland, Connecticut, Pennsylvania and the Midwest. EG Transportation is a company in good standing and no operations to date.32Table of ContentsWe have a “rollup” growth strategy, which includes the following components:·With our brand recognition and experienced management team, maximize productivity, provide economies of scale, and increase profitability through our public market vehicle;·Acquire unique products and niche players where barriers to entry are high and margins are robust, providing them with a broader outlet for their products; and·Acquire multiple production facilities to capture the market vertical from manufacturing to production up to retail.Marijuana Industry OverviewMarijuana cultivation refers to the planting, tending, improving and harvesting of the flowering plant Cannabis, primarily for the production and consumption of cannabis flowers, often referred to as “buds”. The cultivation techniques for marijuana cultivation differ than for other purposes such as hemp production and generally references to marijuana cultivation and production do not include hemp.Cannabis belongs to the genus Cannabis in the family Cannabaceae and for the purposes of production and consumption, includes three species, C. sativa (“Sativa”), C. indica (“Indica”), and C. ruderalis (“Ruderalis”). Sativa and Indica generally grow tall with some varieties reaching approximately four meters. The females produce flowers rich in tetrahydrocannabinol (“THC”). Ruderalis is a short plant and produces trace amounts of THC, but is very rich in cannabidiol (“CBD”) and which is an antagonist (inhibits the physiological action) to THC.As of September 2017, there are a total of 29 states, plus the District of Columbia, with legislation passed as it relates to medicinal cannabis. Of these states, 8 have decriminalized adult use cannabis legislation. These state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) (“CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as having a high potential for abuse, has no currently-accepted use for medical treatment in the U.S., and lacks acceptable safety for use under medical supervision.These 29 states, and the District of Columbia, have adopted laws that exempt patients who use medicinal cannabis under a physician’s supervision from state criminal penalties. These are collectively referred to as the states that have de-criminalized medicinal cannabis, although there is a subtle difference between de-criminalization and legalization, and each state’s laws are different.33Table of ContentsThe states that have legalized medicinal cannabis are as follows (in alphabetical order):Medical cannabis decriminalization is generally referred to as the removal of all criminal penalties for the private possession and use of cannabis by adults, including cultivation for personal use and casual, nonprofit transfers of small amounts. Legalization is generally referred to as the development of a legally controlled market for cannabis, where consumers purchase from a safe, legal, and regulated source.The dichotomy between federal and state laws has also limited the access to banking and other financial services by marijuana businesses. Recently the U.S. Department of Justice and the U.S. Department of Treasury issued guidance for banks considering conducting business with marijuana dispensaries in states where those businesses are legal, pursuant to which banks must now file a Marijuana Limited Suspicious Activity Report that states the marijuana business is following the government’s guidelines with regard to revenue that is generated exclusively from legal sales. However, since the same guidance noted that banks could still face prosecution if they provide financial services to marijuana businesses, it has led to the widespread refusal of the banking industry to offer banking services to marijuana businesses operating within state and local laws.In November 2016, California and Nevada voters both approved marijuana use for adults over the age of 21 without a physician’s prescription or recommendation, so called recreational marijuana, and permitted the cultivation and sale of marijuana, in each case subject to certain limitations. We have obtained the necessary permits and licenses to expand our existing business to cultivate and distribute marijuana in compliance with the laws in the state of Nevada and California. We have received provisional permits to operate a dispensary and production facility in the city of San Leandro, California, and upon project completion and inspection, to receive final operating permits. Although, there is no guarantee that we will be successful in doing so. Despite the changes in state laws, marijuana remains illegal under federal law.In November 2016, California voters approved Proposition 64, which is also known as the Adult Use of Marijuana Act (“the AUMA”), in a ballot initiative. Among other things, the AUMA makes it legal for adults over the age of 21 to use marijuana and to possess up to 28.5 grams of marijuana flowers and 8 grams of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, the AUMA establishes a licensing system for businesses to, among other things, cultivate, process and distribute marijuana products under certain conditions. Many of the provisions of the AUMA do not become effective until January 1, 2018 and the California Bureau of Marijuana Control is expected to enact regulations to implement the AUMA by that date.Nevada voters approved Question 2 in a ballot initiative in November 2016. Among other things, Question 2 makes it legal for adults over the age of 21 to use marijuana and to possess up to one ounce of marijuana flowers and one-eighth of an ounce of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, Question 2 authorizes businesses to cultivate, process and distribute marijuana products under certain conditions. On June 30, 2017, the State of Nevada Department of Taxation approved our Dual Use Marijuana business licenses. This approval allowed all four of our Blüm cannabis dispensaries in Nevada to commence sales of cannabis for adult-use beginning on July 1, 2017.34Table of ContentsIn an effort to provide guidance to federal law enforcement, the Department of Justice (the “DOJ”) has issued Guidance Regarding Marijuana Enforcement to all United States Attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA, but the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way.The August 29, 2013 memorandum provides updated guidance to federal prosecutors concerning marijuana enforcement in light of state laws legalizing medical and recreational marijuana possession in small amounts. The memorandum sets forth certain enforcement priorities that are important to the federal government:·Distribution of marijuana to children;·Revenue from the sale of marijuana going to criminals;·Diversion of medical marijuana from states where it is legal to states where it is not;·Using state authorized marijuana activity as a pretext of other illegal drug activity;·Preventing violence in the cultivation and distribution of marijuana;·Preventing drugged driving;·Growing marijuana on federal property; and·Preventing possession or use of marijuana on federal property.The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property, but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits.Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana.We are monitoring the Trump administration’s, the DOJ’s and Congress’ positions on federal marijuana law and policy. Based on public statements and reports, we understand that certain aspects of those laws and policies are currently under review, but no official changes have been announced. It is possible that certain changes to existing laws or policies could have a negative effect on our business and results of operations.We currently operate medical marijuana businesses in California and Nevada. Although the possession, cultivation and distribution of marijuana for medical use is permitted in California and Nevada, provided compliance with applicable state and local laws, rules, and regulations, marijuana is illegal under federal law. We believe we operate our business in compliance with applicable Nevada and California laws and regulations. Any changes in federal, state or local law enforcement regarding marijuana may affect our ability to operate our business. Strict enforcement of federal law regarding marijuana would likely result in the inability to proceed with our business plans, could expose us to potential criminal liability and could subject our properties to civil forfeiture. Any changes in banking, insurance or other business services may also affect our ability to operate our business.35Table of ContentsOur Medical Marijuana Dispensaries, Cultivation and ManufacturingBlack Oak GalleryOn April 1, 2016, we acquired Black Oak, which operates a medical marijuana dispensary in Oakland, California under the name Blüm. Black Oak opened its retail storefront in Oakland, California in November 2012.Black Oak sells a combination of our own cultivated products as well as high quality name-brand products from outside suppliers. In addition to multiple grades of medical marijuana, Black Oak sells “edibles”, which include cannabis-infused baked goods, chocolates, and candies; cannabis-infused topical products, such as lotions, massage oils and balms; clones of marijuana plants; and numerous kinds of cannabis concentrates, such as hash, shatter and wax.Black Oak’s target markets are those individuals located in the areas surrounding its dispensary and qualify as “patients” under state and local rules and regulations. Black Oak services approximately 1,000 patients per day and has over 42,000 registered patients. Collectively known as the Blüm Campus, Black Oak’s location consists of a retail dispensary storefront, indoor cultivation area, laboratory and a 20-car capacity parking lot.During March 2017, we executed a lease for 13,000 square feet of industrial space on over 30,000 square feet of land in Oakland’s industrial corridor. The Hegenberger facility is currently under construction, we expect to complete construction by early 2018.On May 11, 2017, we terminated the Operations and Asset Management Agreement (the “Agreement”) by and among the Company, Black Oak and Platinum Standard, LLC (“Platinum”), dated March 31, 2016. There is no relationship between the Company or its affiliates and Platinum, other than pursuant to the Agreement. Pursuant to the Agreement, the Company hired and appointed Platinum as the operator and asset manager of the Company’s licensed medical cannabis dispensary business located at 578 West Grand Avenue, in the City of Oakland, State of California, commonly known as Blüm Oakland, in exchange for certain payments to be made by the Company to Platinum, all as more fully set forth in the Agreement. We terminated the Agreementrespectively, as a result of current market conditions in California as market participants continue to compete with the default by Platinumillegal market.performanceindustry, and a commitment to investing in our team and specifically our company culture, we are encouraged that Unrivaled will emerge from its current restructuring efforts as an effective cannabis company. Additionally, the UMBRLA transaction resulted in the acquisition of several assets that have been underperforming and consequently, management is analyzing its options to spin-off, discontinue, unwind, or dissolve certain of its material obligations under the Agreement. We did not incur any early termination penalty in connection with terminating the Agreement. A copythose UMBRLA assets.Agreement was filed as Exhibit 10.29 tounaudited consolidated financial statements.Company’s Form 10-Q for the quarterly period ended March 31, 2016. See “Note 9 – Contingent Consideration Liability” for further information.Blüm San LeandroWe incorporated Blüm San Leandro on October 14, 2016. Blüm San Leandro has received the necessary governmental approvals and permitting to operate a medical marijuana dispensary and production facility in San Leandro, California. We have executed a lease for 13,300 square feetimpact of industrial space in San Leandro’s industrial corridor and are in the final planning and design stages of the retail dispensary and production facility. We also plan on incorporating community meeting space at this facility. We expect to complete construction of the dispensary, production facility, and community meeting space by early 2018.MediFarm SoCalWe incorporated MediFarm SoCal on August 17, 2017 to acquire all the assets of Tech Center Drive Management LLC. As a result of the acquisition, MediFarm SoCal now operates a medical marijuana dispensary under the name Blüm. MediFarm SoCal has the necessary governmental approvals and permitting to operate a medical marijuana dispensary in Santa Ana, California.MediFarm, MediFarm I, and MediFarm IIWe formed three subsidiaries for the purposes of cultivation or production of medical marijuana and/or operation of dispensary facilities in various locations in Nevada. MediFarm, MediFarm I, and MediFarm II have received four final dispensary licenses, two provisional cultivation licenses and two provisional production licenses from the State of Nevada, and we have received approval from local authorities with respect to all eight of such licenses. The receipt of both the provisional licenses from the State of Nevada and approval from local authorities were necessary to commence the final permitting process for the cultivation and production licenses. The receipt of final permits and licenses was necessary to commence the cultivation and production businesses of MediFarm, MediFarm I, and MediFarm II. Effectuation of the businesses of each of (i) MediFarm, (ii) MediFarm I, and (iii) MediFarm II is also dependent upon the continued legislative authorization of medical marijuana at the state level.Each subsidiary was formed with different investors, thus necessitating the need for multiple entities with different strategic partners and advisory board members. In addition, we anticipate each subsidiary will service a different geographical market in Nevada. We expect to allocate future business opportunities among MediFarm, MediFarm I, and MediFarm II based on the locations of such opportunities.36Table of ContentsWe formed MediFarm on March 19, 2014. Prior to August 2017, we owned 60% of the membership interests in MediFarm. The remaining membership interests were owned by Camden Goorjian (20%) and by Richard Vonfeldt (20%), two otherwise unaffiliated individuals. In August 2017, we acquired an additional 38% ownership in MediFarm for no additional consideration due to changes in the planned level of involvement of the two individuals inreclassifying the operations of MediFarm. We now own 98% of MediFarm. MediFarm has received the necessary governmental approvalsNuLeaf operations, Nevada dispensaries, OneQor, and permittingEdible Garden to operate medical marijuana cultivation, production, and/or dispensary facilities in Clark County, Nevada and a medical marijuana dispensary facility in the City of Las Vegas. As of September 30, 2017, MediFarm has three fully operational retail medical marijuana dispensaries in the greater Las Vegas region.We formed MediFarm I on July 18, 2014. We own 50%discontinued operations:
Comparison of the Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Revenue Continuing Operations $ 10,762 $ 20,052 $ (9,290) (46.3) % $ 49,042 $ 24,980 $ 24,062 96.3 % Discontinued Operations $ — $ 3,383 $ (3,383) (100.0) % $ 2,605 $ 9,829 $ (7,224) (73.5) % Total Revenue $ 10,762 $ 23,435 $ (12,673) (54.1) % $ 51,647 $ 34,809 $ 16,838 48.4 % Cost of Goods Sold Continuing Operations $ 10,826 $ 19,724 $ (8,898) (45.1) % $ 34,404 $ 21,737 $ 12,667 58.3 % Discontinued Operations $ — $ 1,422 $ (1,422) (100.0) % $ 520 $ 6,013 $ (5,493) (91.4) % Total Cost of Goods Sold $ 10,826 $ 21,146 $ (10,320) (48.8) % $ 34,924 $ 27,750 $ 7,174 25.9 % Gross Profit $ Continuing Operations $ (64) $ 328 $ (392) (119.5) % $ 14,638 $ 3,243 $ 11,395 351.4 % Discontinued Operations $ — $ 1,961 $ (1,961) (100.0) % $ 2,085 $ 3,816 $ (1,731) (45.4) % Total Gross Profit $ $ (64) $ 2,289 $ (2,353) (102.8) % $ 16,723 $ 7,059 $ 9,664 136.9 % Gross Profit % Continuing Operations (0.6) % 1.6 % (2.2) % 29.8 % 13.0 % 16.9 % Discontinued Operations — % 58.0 % (58.0) % — % 38.8 % (38.8) % Total Gross Profit % (0.6) % 9.8 % (10.4) % 32.4 % 20.3 % 12.1 % membership interests in MediFarm I. The remaining membership interests are owned by Forever Green NV, LLC (50%), an otherwise unaffiliated entity that also owns certain membership interests in MediFarm II. MediFarm I has the necessary governmental approvals and permitting to operate a medical marijuana dispensary in Reno, Nevada. As of September 30, 2017, MediFarm I has one fully operational retail medical marijuana dispensary in Reno, Nevada.We formed MediFarm II on July 30, 2014. We own 55% of the membership interests in MediFarm II. The remaining membership interests are owned by Nevada MF, LL (30%) and by Forever Green NV, LLC (15%), two otherwise unaffiliated entities. Forever Green NV, LLC also owns certain membership interests in MediFarm I. MediFarm II has received provisional licenses from the State of Nevada to operate a medical marijuana cultivation and production facility in Spanish Springs, Nevada.MediFarm, MediFarm I, and MediFarm II may face substantial competition in the operation of cultivation, production, and dispensary facilities in Nevada. Numerous other companies were also granted licenses, and, therefore, we anticipate that we will face competition with these other companies if such companies operate cultivation, production, and dispensary facilities in and around the locations at which we operate our facilities. Our management has extensive experience in successfully developing, implementing, and operating all facets of equivalent businesses in other markets. We believe this experience will provide MediFarm, MediFarm I, and MediFarm II with a competitive advantage over these other companies.MediFarm, MediFarm I, and MediFarm II rely on a combination of trademark laws, trade secrets, confidentiality provisions, and other contractual provisions to protect their proprietary rights. MediFarm, MediFarm I, and MediFarm II do not own any patents.IVXX and IVXX Branded ProductsOn September 16, 2014, Terra Tech formed IVXX for the purposes of producing a line of IVXX branded cannabis flowers as well as a complete line of IVXX branded pure cannabis concentrates including: oils, waxes, shatters, and clears.The science of cannabis concentrate extraction functions on the solubility of the cannabinoids and other active ingredients in the cannabis plant. Cannabinoids are not water soluble, so to extract them properly, the cannabinoids must be dissolved in a solvent. IVXX utilizes multiple proprietary extraction methods to produce its concentrates in its lab located in Oakland, California. The Company’s extractors process raw cannabis plants and separate the chemical cannabinoids from the cannabis plant material, producing a concentrate. IVXX also sells clothing, apparel, and other various branded products.IVXX currently sells its branded products at wholesale to multiple medical cannabis dispensaries throughout California. None of IVXX’s products cross state lines. IVXX continues to actively seek opportunities to sell its products to other retailers located throughout the State of California. IVXX anticipates expanding its business into other states in which the sale of marijuana is legally permitted. In order for such expansion to occur, IVXX must secure the necessary licenses and permits required to operate in any given state, the timing and occurrence of which there can be no assurance. Initially, IVXX anticipates selling its products in Nevada in the four dispensaries operated by MediFarm and MediFarm I. They will be produced at our extraction lab operated by MediFarm II once they are issued final permits and commence operations, as to the occurrence of which there can be no assurance.37Table of ContentsIVXX’s target markets are those individuals located in the areas surrounding the dispensaries that sell IVXX’s products and that qualify as “patients” under state and local rules and regulations.IVXX also intends to produce, market and sell their line of IVXX branded cannabis products in the adult use, recreational cannabis markets in both California and Nevada pursuant to Proposition 64 and Question 2, respectively, which made marijuana consumption legal, with certain restrictions and rules, for adults over the age of 21. IVXX is consistently engaged in research and development with respect to increasing the efficiency of the processes used to produce its products, as well as improving the quality of its products for the benefit of its patients.On May 24, 2017, we announced the launch of a new “Craft Cultivation” model to expand our cultivation capabilities and the signing of our first “Craft Cultivator” in Northern California. This farm, which is approved for up to one full acre (approximately 44,000 square feet) of cannabis cultivation and uses 22,000 square feet of engineered greenhouse space, is estimated to yield approximately one metric ton of our proprietary high grade “IVXX” cannabis on an annual basis.On September 19, 2017, we announced that we signed a second craft cultivator to grow our proprietary high grade "IVXX" cannabis flowers and oils. The craft cultivator, Cultivar Inc., is located in Salinas, California and is approved for up to six acres (approximately 244,000 square feet) of cannabis cultivation, to be grown in high tech, climate-controlled greenhouses.On October 26, 2017, the Company entered into a joint venture agreement with NuLeaf to build and operate a cultivation and production facility for our IVXX brand of cannabis products in Nevada. As part of the agreement the Company made a convertible loan of $4.5 million to NuLeaf bearing an interest rate of 6% per annum, payable quarterly. The convertible loan will automatically convert a 50% ownership in NuLeaf upon approval by the State of Nevada.MediFarm I REOn October 14, 2015, we formed MediFarm I RE. 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. MediFarm I RE is a real estate holding company that owns the real property and a building that is situated on such real property, at which in January 1, 2017 a medical marijuana dispensary facility is located and operates.Herbs and Produce ProductsEdible GardenEdible Garden was incorporated on April 9, 2013. Edible Garden is a retail seller of locally grown hydroponic produce, herbs, and floral products that are distributed throughout the Northeast and Midwest United States. Currently, Edible Garden’s products are sold at approximately 1,800 retailers throughout these markets. Most of the produce and herbs grown by Edible Garden are certified organic. Our target customers are those individuals seeking organic and fresh produce locally grown using environmentally sustainable methods.Pursuant to letter agreements with Gro-Rite Inc., a New Jersey corporation, and Heartland Growers Inc. (collectively the “Farmers”), have agreed to cultivate the various parts of the line of Edible Garden produce to be sold into the retail grocery channel. Pursuant to the terms of the agreements, Edible Garden will manage the marketing and sales, while the Farmers will be responsible for the cultivation, packaging, and shipping of the product for retail sale under the Edible Garden brand. The terms of the agreements are now month-to-month.There are numerous growers that are available to us, and therefore, we are not limited in the number of growers available nor are we dependent on any one grower. We completed construction of a greenhouse structure in 2014, which can be used to grow plants to satisfy selling demands; however, we may incur additional freight costs to distribute these plants until growers are replaced.Edible Garden’s main competitors are Shenandoah Growers and Sun Aqua Farms. To a lesser extent, Edible Garden competes with Green Giant, Del Monte, Rock Hedge Herbs, and Infinite Herbs. Edible Garden is an up and coming brand that has increased its retailers to approximately 1,800 retail sellers since we acquired Edible Garden in April 2013. Edible Garden believes the following three factors set it apart from its competitors: (1) its branding and marketing displays, which are predominately placed in high traffic areas on its proprietary racks; (2) it uses proprietary strands and seeds for its produce and its methodology for growing such produce; and (3) all of its produce is hydroponically grown and sold “alive” (i.e., the produce is sold “rooted”).38Table of ContentsEdible Garden relies on a combination of trademark laws, trade secrets, confidentiality provisions, and other contractual provisions to protect its proprietary rights, which are primarily its brand names, marks, and proprietary pods and seeds. Edible Garden owns trademarks, but does not own any patents. Edible Garden signed an exclusive license agreement with Nutrasorb LLC, a spin-off from Rutgers University, to grow and commercialize nutritionally-enhanced lettuce varieties. Under the terms of the agreement, Edible Garden has the right to grow and sell Green and Red Superleaf Lettuce across the North American and European continents as well as Australia. With five times more antioxidants than ordinary lettuce, the produce is high in vitamins A and C, magnesium, iron and potassium contents. It also has high levels of fiber and chlorogenic acid for superior digestion. These nutritionally-enhanced, proprietary Green and Red Superleaf Lettuces were developed by scientists at Rutgers University following years of intensive research. Edible Garden pays a license fee to Nutrasorb, LLC for each unit sold.Edible Garden’s produce is Global Food Safety Initiative certified. Edible Garden also obtained certain organic certifications for its products. No other governmental regulations or approvals are needed or affect its business.Edible Garden’s research and development activities have primarily focused on developing and testing new pods and seeds, as well as different fertilizers, nutrient blends, and lighting.On August 22, 2017, Edible Garden continued to expand its product range with the launch of a new line of fresh-cut herbs, under the name ‘Snip Its™’, for individuals seeking out healthier salad alternatives that are free of genetically modified organisms.Our OperationsWe are organized into two reportable segments:·Herbs and Produce Products – Includes herbs and leafy greens that are grown using classic Dutch hydroponic farming methods; and·Cannabis Dispensary, Cultivation and Production – Includes cannabis-focused retail, cultivation and production.Herbs and Produce ProductsEither independently or in conjunction with third parties, we are a retail seller of locally grown hydroponic herbs, produce, and floral products, which are distributed through major grocery stores throughout the West, East and Midwest regions of the U.S.Cannabis Dispensary, Cultivation and ProductionEither independently or in conjunction with third parties, we operate medical marijuana retail dispensaries and a medical marijuana cultivation in California. In addition, we operate four retail medical marijuana dispensary facilities in Nevada, and have in various stages of construction, medical marijuana cultivation and production facilities in Nevada. We own real property in Nevada on which we plan to build a medical marijuana dispensary. All of our retail dispensaries in California and Nevada offer a broad selection of medical cannabis products including flowers, concentrates and edibles. We also produce and sell a line of medical cannabis flowers, as well as a line of medical cannabis-extracted products, which include concentrates, cartridges, vape pens and wax products.2017 Compared to Three Months Ended September 30, 2016RevenuesFor2022 and 20212017,2022, the Company generated revenue from continuing operations of $10.76 million composed of retail revenue of $8.77 million and cultivation/distribution revenue of $2.00 million. This compared to revenue from continuing operations of $20.05 million for the quarter ended September 30, 2021, which included retail revenue of $7.24 million and cultivation/distribution revenue of $12.81 million. This was a decrease of $9.29 million or 46.3% in revenue from continuing operations.generated revenueseliminated third-party distribution operations in California which contributed $10.28 million of $10.12revenue in the prior year. We also began slowing down cultivation operations at a facility based in California which provided $0.75 million of revenue in the current year compared to $1.55 million in the prior year.$6.95a gross profit of $0.33 million for the three months ended September 30, 2016, an increase2021, a decrease of $3.17$0.39 million or 45.6 percent. On July 1, 2017, the State of Nevada allowed adult use cannabis sales, resulting in a $3.90 million increase in cannabis segment revenues generated from our MediFarm and MediFarm I dispensaries for119.5%. During the three months ended September 30, 2017 compared to the three months ended September 30, 2016.39Table of ContentsCost of Goods SoldFor the three months ended September 30, 2017,2022, cost of goods sold was $7.79from continuing operations of $10.83 million comparedoutpaced revenue from continuing operations of $10.76 million primarily related to $5.69 million forour distribution operations in California in which we had minimal revenue during the three months ended September 30, 2016,current quarter and recorded an increaseinventory write-off of $2.09 million or 36.7 percent. The increase in cost of goods sold was primarily attributable to an increase of $2.85 million from the cannabis segment, which had $6.59 million and $3.75 million cost of goods sold for the three months ended September 30, 2017 and 2016, respectively. On July 1, 2017, the State of Nevada allowed adult use cannabis sales, which drove the increase in revenues and resulting cost of goods sold for the three months ended September 30, 2017 compared to the three months ended September 30, 2016.Gross ProfitOur gross profit for the three months ended September 30, 2017 was $2.33 million, compared to a gross profit of $1.26 million for the three months ended September 30, 2016, an increase of $1.08 million or 85.9 percent. Gross margin for the three months ended September 30, 2017 was 23.1 percent, compared to 18.1 percent for the three months ended September 30, 2016. The increase in gross profit was primarily attributable to the cannabis segment, which had $2.08 million and $1.02 million gross profit for the three months ended September 30, 2017 and 2016, respectively, or 24.0 percent and 21.4 percent gross margin for the three months ended September 30, 2017 and 2016, respectively. The cannabis segment increase in gross profit was primarily due to adult use cannabis sales going live on July 1, 2017 in the State of Nevada. The cannabis segment increase in gross profit margin was primarily due to increase in sales prices and sales of higher margin products for the three months ended September 30, 2017 compared to prior year period.and& Administrative Expensesgeneralgeneral and administrative expenses for the three months ended September 30, 20172022 were $6.24$13.24 million, compared to $5.94$12.03 million for the three months ended September 30, 2016,2021, an increase of $0.30$1.21 million or 5.0 percent. The increase was due to general increases in operation costs10.0%. For the three months ended September 30, 2022, amortization and having one additional dispensary in thedepreciation expenses increased by $1.67 million and facilities related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, increased by $2.33 million over third quarter of 2017 compared to2021. Those increases were partially offset by decreases in third quarter 2022 of the same period in the prior year.Income (Loss)WeLoss$3.90$122.80 million for the three months ended September 30, 2017,2022 compared to an operating loss of $4.69$11.70 million for the three months ended September 30, 2016, a decrease2021, an increase of $0.78$111.10 million or 16.7 percent949.5%. This increase was primarily resulting from improved gross profits from our cannabis segment.Income (Expense)20172022 was $3.60$0.63 million compared to $0.87$0.33 million recognized in the three months ended September 30, 2021, an increase of $0.30 million. This increase in other expense was attributed to the mark-to-market adjustment for the Company's investment in Edible Garden which resulted in a $0.49 million unrealized loss on investments during the current period.2016, an increase of $2.73 million or 315.5 percent. This increase was primarily attributable to: (i) an increase in gain (loss) on fair market valuation of derivatives of $2.25 million, which was a loss of $1.482022 compared to $6.56 million for the three months ended September 30, 2017, compared to a gain of $0.77 million in thecomparative prior year period; (ii) an increase in loss on extinguishment of debt of $1.37 million, which was $1.37 million for the three months ended September 30, 2017, compared to zero in the prior year period; offset by (iii)period, a decrease of $0.87$(6.49) million in loss. In the third quarter of 2021, the Company realized income of $6.56 million resulting from derivatives issued with debt greater than debt carrying value which was zero for the three months ended September 30, 2017, compared to a losssale of $0.87 million for the three months ended September 30, 2016.40Table of ContentsTerra Tech Corp.We incurred aUnrivaled Brands, Inc.Terra Tech Corp. of $7.79Unrivaled Brands, Inc. was $119.91 million, or $0.01 loss$(0.21) per share, for the three months ended September 30, 2017,2022, compared to atotal net loss attributable to Terra Tech Corp. of $5.59$5.35 million, or $0.02 loss$(0.01) per share, for the three months ended September 30, 2016.2021. The primary reasons for the increase were an increase in total net loss was primarily attributable to the $107.97 million impairment on fair market valuationintangible assets and goodwill related to the UMBRLA, People’s, and SilverStreak acquisitions during the fiscal third quarter of derivatives of $2.25 million, an increase in loss on extinguishment of debt of $1.37 million, offset by a decrease in loss from derivatives issued with debt greater than debt carrying value of $0.87 million.Management will continue its efforts to lower operating expenses and increase revenue. We will continue to invest in further expanding our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and our products. Given the fact that most2022.operating expenses are fixed or have a quasi-fixed character, management expects that, as revenue increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can be no assurance that we will be able to increase our revenues in succeeding quarters.2017 Compared to Nine Months Ended September 30, 2016For2017, we2022, the Company generated revenuesrevenue from continuing operations of $24.79$49.04 million composed of retail revenue of $31.82 million and cultivation/distribution revenue of $17.22 million. This compared to $18.20 million revenue from continuing operations of $24.98 for the nine months ended September 30, 2016,2021 which included retail revenue of $11.26 million and cultivation/distribution revenue of $13.72 million. This was an increase of $6.59$24.06 million or 36.2 percent. 96.3% in revenue from continuing operations.increase was primarily due toaccompanying notes are an $11.94 million increase inintegral part of the cannabis segment offset by a $5.29 million decrease in the herbs and produce segment. On July 1, 2017, the Stateunaudited consolidated financial statements. for Black Oak, MediFarm and MediFarm I dispensaries were recognized in the nine months ended September 30, 2017 compared to six months of revenue for Black Oak and MediFarm for the nine months ended September 30, 2016. MediFarm I did not begin operations until January 2017. The herbs and produce segment decrease was related2022 dramatically outpaced the first nine months of the prior year by $20.56 million due to the expirationretail assets acquired in the Company's 2021 acquisitions of UMBRLA, People's First Choice and SilverStreak Solutions.We operated five retail stores and a non-storefront delivery service in 2022 compared to prior year when the Company was operating four retail stores.On a comparable store basis, we saw a 7% decrease over the fiscal third quarter of 2021 for the one comparable stores, Blum Oakland. The increase in retail revenue was due to the newly acquired or opened retail locations as a result of the floral product contractCompany’s acquisition strategy in 2021 that have become fully operational during the current fiscal year. floral products that expired at December 31, 2016.Cost of Goods SoldFor the nine months ended 2017, cost2022 increased by $3.50 million as a result of goods sold was $20.59 million, compared to $15.38the Company’s merger with UMBRLA, with its distribution network in California and Oregon. Despite the shutdown of third-party distribution operations during the fiscal third quarter of 2022, the additive distribution assets provided a net benefit of $2.66 million for the nine months ended September 30, 2016, an increase of $5.21 million or 33.9 percent. The increase in cost of goods sold was attributable to: (i) an increase of $10.54 million from the cannabis segment, which had $17.10 million and $6.56 million cost of goods sold for the nine months ended September 30, 2017 and 2016, respectively; offset by (ii) a decrease of $5.27 million from the herbs and produce segment, which had $3.49 million and $8.76 million cost of goods sold for the nine months ended September 30, 2017 and 2016, respectively. On July 1, 2017, the State of Nevada allowed adult use cannabis sales, contributing to the increase in the cannabis segment revenues and related cost of goods sold for the nine months ended September 30, 20172022 when compared to the nine months ended September 30, 2016. In addition, nine months of cost of goods sold for Black Oak, MediFarm and MediFarm I dispensaries were recognized in the nine months ended September 30, 2017 compared to six months of cost of goods sold for Black Oak and MediFarm for the nine months ended September 30, 2016. MediFarm I did not begin operations until January 2017. The herbs and produce segment decrease was related to the expiration of the floral product contract for floral products that expired at December 31, 2016.Our20172022, was $4.20$14.64 million, compared to a gross profit of $2.82$3.24 million for the nine months ended September 30, 2016,2021, an increase of $1.38$11.40 million or 49.1 percent. Our351.4%. The Company’s gross margin percentagewas 29.8% compared with 13.0% for the nine months ended September 30, 2017 was 16.9 percent, compared to 15.5 percent for the nine months ended September 30, 2016. The increase in gross profit was attributable to: (i) the cannabis segment, which had $3.512021.Retail operations drove most of this improvement as it saw year-over-year increases of $11.11 million and $2.11 million gross profit for the nine months ended September 30, 2017 and 2016, respectively, or 17.0 percent and 24.4 percent gross margin for the nine months ended September 30, 2017 and 2016, respectively, offset by (ii) the herbs and produce segment, which had $0.64 million and $0.65 million gross profit for the nine months ended September 30, 2017 and 2016, respectively, or 15.5 percent and 7.0 percent gross margin for the nine months ended September 30, 2017 and 2016, respectively.41Table of ContentsThe cannabis segment increase in gross profit was related to a full nine months of gross profit for Black Oak, MediFarm and MediFarm I dispensaries recognized in the nine months ended September 30, 2017 compared to six months of gross profit for Black Oak and MediFarm for the nine months ended September 30, 2016. MediFarm I did not begin operations until Jan 2017. The decrease in the gross margin percentage for the cannabis segment for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was due to discounting the products sold at the new dispensaries in an effort to gain market share. The herbs and produce segment gross profit decrease during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, was related to the expiration of the floral product contract for floral products that expired at December 31, 2016 while the gross margin percentage increased as a result of the Company focusing on selling higher margin produce.and& Administrative Expenses20172022, were $18.65$51.07 million, compared to $13.23$29.38 million for the nine months ended September 30, 2016,2021, an increase of $5.42$21.70 million or 41.0 percent. The increase was primarily due to: (i) an increase in salaries and wages for operations at the MediFarm dispensaries, and at corporate which includes a $1.27 million increase in equity compensation expense issued to employees during74%. For the nine months ended September 30, 2017, compared to2022, amortization and depreciation expenses increased by $7.31 million and facilities related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, increased by $7.10 million over the nine months ended September 30, 2016;2021. In addition, taxes, licensing and (ii) an increasepermitting increased by $2.70 million and advertising increased by $1.50 million over prior year as a direct result of $1.03larger operations from the acquisitions. Further, allowance for doubtful accounts increased by $2.89 million in depreciation and amortization expense. over prior year.increase in depreciation and amortization for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, was primarily due to Black Oak and MediFarm, which began operations in the second quarter of 2016, and MediFarm I, which began operations in the first quarter of 2017.Operating Income (Loss)WeCompany realized an operating loss from continuing operations of $14.45$202.01 million for the nine months ended September 30, 2017,2022 compared to an operating loss of $10.42$26.13 million for the nine months ended September 30, 2016,2021, an increase of $4.04$175.87 million or 38.8 percent.expenseincome for the nine months ended September 30, 20172022 was $4.53$0.15 million, compared to $4.07the $(0.90) million forexpense recognized in the nine months ended September 30, 2016,2021, an increase of $0.46 million or 11.2 percent.$1.05 million. This increase in other income was primarily attributable to: (i)attributed to a $4.43 million loss on fair market valuation of contingent consideration; (ii) an increase in loss on extinguishment of debt of $3.13$5.98 million whichas a result of the amendment of the 7.5% Senior Convertible Promissory Notes and a gain on investments of $5.34 million from the sale of Hydrofarm Holdings Group, Inc. ("Hydrofarm") in the prior year.2017,2022 compared to $0.92$4.90 million infor the comparative prior year period; (iii) an increase in amortizationperiod. The decrease of debt discount of $0.69$0.85 million which was $1.62 million forover the nine months ended September 30, 2017, compared to $0.92 million in the prior year period, offset by (iv) a $4.99 million gain on settlement of contingent consideration related2021 was primarily due to the Black Oak acquisition (see “Note 10 – Contingent Consideration Liability” for further information); (v)disposal of the Dyer Property and the NuLeaf operations during fiscal year 2022.increase in gain (loss) on fair market valuationintegral part of derivativesthe unaudited consolidated financial statements.Terra Tech Corp.We incurred aUnrivaled Brands, Inc.Terra Tech Corp. of $18.36Unrivaled Brands, Inc. was $192.50 million, or $0.03 loss$(0.33) per share, for the nine months ended September 30, 2017,2022, an increase of $0.26 per share compared to atotal net loss attributable to Terra Tech Corp. of $14.65$21.53 million, or $0.04 loss$(0.07) per share, for the nine months ended September 30, 2016.2021. The primary reasonsdramatic increase in net loss was primarily attributable to an impairment charge of $163.70 million on intangible assets and goodwill relating to the UMBRLA, People’s, and SilverStreak acquisitions during nine months ended September 30, 2022.increase wereCompany's working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.$5.42non-GAAP basis, the Company recorded Non-GAAP Adjusted EBITDA Loss of $5.66 million increase in selling, general and administrative expenses offset by a $1.38for the three months ended September 30, 2022 compared to $1.67 million increase in gross profit duringfor the three months ended September 30, 2021. For the nine months ended September 30, 2017,2022, the Company recorded Non-GAAP Adjusted EBITDA Loss of $10.06 million compared to $5.77 million for the prior year period.Management will continue its efforts to lower operatingnine months ended September 30, 2021. The details of those expenses and increase revenue. non-GAAP reconciliation of these non-cash items are set forth below:(in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Net Loss Attributable to Unrivaled Brands, Inc. $ (119,906) $ (5,347) $ (192,498) $ (21,530) Non-GAAP Adjustments: Amortization of Intangible Assets 2,361 1,124 7,126 1,500 Depreciation Expense 921 480 2,839 1,140 Stock-Based Compensation Expense 544 1,685 4,412 2,884 Impairment of Assets 107,972 — 163,698 — Interest Expense 384 515 2,594 627 Severance Expense for Series A Share Repurchases 42 63 913 9,053 Gain on Sale of Investments — — — (5,337) Unrealized Loss (Gain) on Investments 493 — (470) — Loss on Disposal of Assets 1,529 — 1,872 — Gain for Debt Forgiveness — — — (86) Loss (Gain) on Extinguishment of Debt — (185) (542) 5,976 Non-GAAP Adjusted EBITDA Loss $ (5,660) $ (1,665) $ (10,056) $ (5,773) will continueincurred net losses for the three and nine months ended September 30, 2022 and 2021 and have an accumulated deficit of $443.62 million and $250.02 million at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022, we had a working capital deficit of $67.33 million, including $1.99 million of cash compared to invest in further expandinga working capital deficit of $62.44 million, including $6.89 million of cash, as of December 31, 2021. Current assets were approximately 0.10 times current liabilities as of September 30, 2022, compared to approximately 0.29 times current liabilities as of December 31, 2021.a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and our products. Given the fact that most of thegenerate cash from operating expenses are fixed or have a quasi-fixed character, management expects that, as revenue increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can beactivities. There is no assuranceguarantee that we will be able to increasegenerate enough revenue and/or raise capital to support our revenues in succeeding quarters.42Table of ContentsDISCLOSURE ABOUT OFF-BALANCE SHEET ARRANGEMENTSWeoperations.have any transactions, agreementsoperationally improve, we may be required to do an earlier than expected impairment analysis of our intangible assets and goodwill may result in impairments of our long-lived assets.contractual arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the end of 2022. However, we continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that constitute off-balance sheet arrangements.-– Summary of Significant Accounting Policies” of the notes to unaudited consolidated financial statements included in this report.LIQUIDITY AND CAPITAL RESOURCESWeForm 10-Q.never reported net income. We incurred net losses for the nine months ended September 30, 2017, and have an accumulated deficit of $91.23 million as of September 30, 2017, compared to an accumulated deficit of $72.87 million at December 31, 2016. As of September 30, 2017, we had working capital of $8.85 million, compared to a working capital deficit of $9.56 million at December 31, 2016. At September 30, 2017, we had a cash balance of $6.65 million, compared to a cash balance of $9.75 million at December 31, 2016.We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of preferred stock, common stock, and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.We anticipate requiring additional capital for the commercial development of our subsidiaries. Black Oak, Blüm San Leandro and the Hegenberger facility, together, will require approximately $2.5 million in capital to complete. Construction for the completion of the packaging facility for Edible Garden will require approximately $1.4 million. The estimated construction budget for the development of the cultivation and production facilities under MediFarm II is approximately $2.0 million. Forever Green NV, LLC, a member of MediFarm II, has agreed to contribute approximately $750,000 in the form of debt to MediFarm II. We will be obligated to contribute the remaining amount.We will be required to raise additional funds through public or private financing, additional collaborative relationshipsany transactions, agreements or other contractual arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the third quarter of 2018. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to us on acceptable terms, on an acceptable schedule, or at all.43Table of ContentsThe issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.Operating ActivitiesCash used in operating activities for the nine months ended September 30, 2017 was $12.88 million, compared to $5.19 million for the nine months ended September 30, 2016, an increase of $7.69 million, or 148.3 percent. Increases in cash used in operating activities were due to: (i) a gain on settlement of contingent consideration of $4.99 million, (ii) an increase in prepaid expenses and other assets of $4.25 million; (iii) an increase in net loss of $3.70 million; (iv) a decrease of $1.72 million in gain (loss) on fair value market valuation of derivatives; (iii) a decrease of $1.36 million in loss on equity instrument issued with debt greater than debt carrying value; and (iv) an increase in inventory of $1.10 million. Offsets to the increase in cash used in operating activities were due to: (i) an increase of $4.43 million in loss on fair market valuation of contingent consideration; (ii) an increase of $3.13 million loss on extinguishment of debt; and (iii) an increase of $2.29 million in equity compensation expense to employees and service providers.Investing ActivitiesCash used in investing activities for the nine months ended September 30, 2017 was $6.06 million, compared to cash used in investing activities of $3.12 million for the nine months ended September 30, 2016, an increase of $2.94 million, or 94.1 percent. During the first nine months of 2017, cash used in investing activities was primarily comprised of expenditures related to: (i) the construction of the San Leandro and Oakland facilities; (ii) capital expenditures at Edible Garden in Belvidere, N.J.; and (iii) payment of $4.11 million for acquisition of all the assets of Tech Center Drive-Management.Financing ActivitiesCash provided by financing activities for the nine months ended September 30, 2017 was $15.84 million, compared to $11.29 million for the nine months ended September 30, 2016, an increase of $4.55 million, or 40.3 percent. Cash provided by financing activities for the nine months ended September 30, 2017 was primarily due to: (i) $11.50 million from the issuance of debt; (ii) $6.70 million from the sale of common stock; partially offset by (iii) payment of $2.09 million for the contingent consideration related to the Black Oak acquisition.Our primary market risksattributable to fluctuations in commodity prices and interest rates. These fluctuations can affect revenues and cash flow from operating, investing and financing activities.Commodity Price RiskOur most significant market risk relates to fluctuations in marijuana prices. Management expectsan integral part of the pricesunaudited consolidated financial statements.these commodities to remain volatile and unpredictable. As these prices decline or rise significantly, revenues and cash flow will also decline or rise significantly.Interest Rate RiskAs of September 30, 2017, we had no outstanding variable-rate debt and $5.90 million of principal fixed-rate debt.44Table of ContentsCredit RiskOur exposure to non-payment or non-performance by our customers and counterparties presents a credit risk. Generally, non-payment or non-performance results from a customer’s or counterparty’s inability to satisfy obligations. We may also be exposed to credit risk due to the concentration of our customers in the medical marijuana industry, as our customers may be similarly affected by changes in regulatory and legal conditions in the states and municipalities in which we operate.the September 30, 2017. Disclosure controls and procedures means that the material information required to be included in our SEC reports is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms relating to our company, including any consolidating subsidiaries, and was made known to us by others within those entities, particularly during the period when this report was being prepared.2022. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were not entirely effective to a reasonable level as of September 30, 2017.As2022.2016, management assessed2021 based on such criteria due to material weaknesses in internal control over financial reporting described below:effectivenessfinancially relevant systems and data to appropriate Company personnel were not operating effectively. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency.reporting. Management concluded, as of the year ended December 31, 2016, thatreporting and enhance our controls in response to internal controlscontrol assessments and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management concluded that our internal controls were adversely affected by deficiencies in the design or operation of our internal controls, which management considered to be material weaknesses. These material weaknesses include the following:·lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors (“Board”), resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;·inadequate segregation of duties consistent with control objectives; and·ineffective controls over period end financial disclosure and reporting processes.The failure to implementexternal audit and maintain proper and effective internal controls and disclosure controls could result in material weaknesses in our financial reporting, such as errors in our financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.We do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate becauseregulatory recommendations. No changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.In addition, we did not assess the effectiveness of internal control over financial reporting have been identified in connection with the evaluation of Black Oak Gallery because ofdisclosure controls and procedures during the timing of its acquisition.45Table of ContentsPlan for Remediation of the Material WeaknessesWe are implementing and are continuing to implement a number of measures to address the material weaknesses identified. The remediation activities undertaken by the Company included the following:·We are reorganizing and restructuring Corporate Accounting by (1) revising the reporting structure and establishing clear roles, responsibilities, and accountability, (2) hiring additional technical accounting personnel, with appropriate GAAP technical accounting experience, which enables further segregation of duties and allows additional levels of internal review and supervision within our accounting organization to address complex accounting and financial reporting requirements, and (3) assessing the technical accounting capabilities in the operating units to ensure the right complement of knowledge, skills, and training;·We designed additional controls around identification, documentation and application of technical accounting guidance with particular emphasis on events outside the ordinary course of business. These controls are expected to include the implementation of additional supervision and review activities by qualified personnel, the preparation of formal accounting memoranda to support our conclusions on technical accounting matters, and the development and use of checklists and research tools to assist in compliance with GAAP with regard to complex accounting issues;·We are improving period-end closing procedures by (1) requiring all significant non-routine transactions to be reviewed by Corporate Accounting, (2) ensuring that account reconciliations and analyses for significant financial statement accounts are reviewed for completeness and accuracy by qualified accounting personnel, (3) implementing a process that ensures the timely review and approval of complex accounting estimates by qualified accounting personnel and subject matter experts, where appropriate, and (4) developing better monitoring controls at Corporate Accounting and the operating units;·We are currently in the process of implementing a new ERP system. The new ERP integrated system will enhance senior level management’s oversight over the financial reporting process; and·We performed a formal assessment process to identify risks and to reevaluate the design of control activities.There are no assurances that the measures we have taken to date, or any measures we may take in the future, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) as ofquarter ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting, except as disclosed in Remediationreporting.Material Weakness above.46Table of ContentsFromtime, we may become subject to litigation or proceedings in connection with our business, as either a plaintiff or defendant. There are no such pendingtime. See “Note 19 – Commitments and Contingencies” and “Note 20 – Subsequent Events" for further information about legal proceedings to which we are a party that, in the opinion of management, is likely to have a material adverse effect on our business, financial condition or results of operations.activity.2016,2021, except for the risk factorfactors noted below. Please refer to that section for disclosures regarding the risk and uncertainties relating to our business.Our management concluded thatinternal control over financial reporting was not effective asbusiness.December 31, 2016 and our auditors expressed an adverse opinion, which could resultstores are located in material weaknesses in our financial reporting,areas with a high amount of foot traffic. Any threat of terrorist attacks or actual terrorist events, or other types of violence, such as errorsshootings or riots, could lead to lower consumer traffic and a decline in sales. Decreased sales could have a material adverse effect on our business, financial statementscondition and results of operations.accompanying footnote disclosures,future, we may incur significant impairment charges.require restatements.Ashave the effect of December 31, 2016, management assessedreducing goodwill with a corresponding impairment expense and may have a material effect upon our reported results. The additional expense may reduce our reported profitability or increase our reported losses in future periods and could negatively affect the effectivenessvalue of our internal controls over financial reporting. Management concluded, assecurities, our ability to obtain other sources of the year ended December 31, 2016, thatcapital, and may generally have a negative effect on our internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules. Management concluded that our internal controls were adversely affected by deficiencies in the design or operation of our internal controls, which management considered to be material weaknesses. These material weaknesses include the following:·lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors (“Board”), resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;·inadequate segregation of duties consistent with control objectives; and·ineffective controls over period end financial disclosure and reporting processes.The failure to implement and maintain proper and effective internal controls and disclosure controls could result in material weaknesses in our financial reporting, such as errors in our financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.We do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.In addition, we did not assess the effectiveness of internal control over financial reporting of Black Oak Gallery because of the timing of its acquisition.None.ExhibitExhibit Description 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 2.12 2.13 2.14 2.12 3.1 Reference is made to Exhibits 2.7 through 2.12. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 10.1 31.1 31.2 Certificationfication of Michael C. James, Patty Chan, Interim Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *32.1 32.2 101 The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Cash Flow, (iv) Consolidated Statements of Stockholders Equity, and (v) Notes to Unaudited Consolidated Financial Statements.* 101.INSXBRL Instance Document *101.SCHTaxonomy Extension Schema Document and contained in Exhibit 101).*101.CALXBRL Taxonomy Extension Calculations Linkbase Document *101.DEFXBRL Taxonomy Extension Definition Linkbase Document *101.LABXBRL Taxonomy Extension Label Linkbase Document *101.PREXBRL Taxonomy Presentation Linkbase Document *_________(1) Incorporated by referenceCurrent Report on Form 8-K filed withthis agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC on September 14, 2017.(2) Incorporated by reference to Current Report on Form 8-K filed with the SEC on August 22, 2017.48Table of ContentsTERRA TECH CORP.Date: November 9, 2017By:/s/ Michael C. JamesUNRIVALED BRANDS, INC. Michael C. JamesDate: November 14, 2022 By: /s/ Patty Chan Interim Chief Financial Officer Chief
(Principal Accounting Officer and
Principal Financial Officer)49