trtc-20220630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2022

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

For the Transition Period From ____________ to ____________

Commission File Number: 000-54258


			UNRIVALED BRANDS, INC.
			(Exact Name of Registrant as Specified in its Charter)


Nevada						26-3062661
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)


3242 S. Halladay Street Santa Ana, California						92705
(Address of Principal Executive Offices)						(Zip Code)

(888) 909-5564

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

None

UNRV

OTCQX

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”

“accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
Emerging growth company	o

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

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

As of August 10, 2022, there were 530,456,383 shares outstanding, 83,661,093 shares of common stock issuable upon the exercise of all our outstanding warrants and 53,129,423 shares of common stock issuable upon the exercise of all vested options.

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UNRIVALED BRANDS, INC.

INDEX TO FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED JUNE 30, 2022


	PART I FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	6
	Consolidated Statements of Stockholders Equity for the Three Months Ended June 30, 2022 and 2021 (Unaudited)	7
	Consolidated Statements of Stockholders Equity for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
	Company Overview	34
	Results of Operations	35
	Disclosure About Off-Balance Sheet Arrangements	38
	Critical Accounting Policies and Estimates	38
	Liquidity and Capital Resources	38

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

	PART II OTHER INFORMATION

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

Signatures		46

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UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except shares)

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	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Current Assets:
Cash	$	7,263	$	6,891
Accounts receivable, net	855		4,677

Inventory, net	6,038		7,179
Prepaid expenses and other assets	3,084		1,272
Notes receivable	375		750
Current assets held for sale	582		4,495
Total current assets	18,197		25,264

Property, equipment and leasehold improvements, net	21,416		23,728
Intangible assets, net	102,772		129,637
Goodwill	14,506		48,132
Other assets	19,359		26,915
Investments	1,214		163
Long-term assets held for sale	2,791		17,984
TOTAL ASSETS	$	180,255	$	271,824

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Current liabilities:
Accounts payable and accrued expenses	$	37,148	$	31,904

Short-term debt	26,532		45,749
Income taxes payable	9,913		7,969
Current liabilities held for sale	1,851		2,087
Total current liabilities	75,444		87,708

Long-term liabilities:
Long-term debt, net of discounts	7,638		10,006
Deferred tax liabilities	3,986		6,123
Long-term lease liabilities	14,471		21,316
Long-term liabilities held for sale	1,465		184
Total long-term liabilities	27,560		37,629
Total liabilities	103,004		125,337

STOCKHOLDERS’ EQUITY:
Common stock, par value $0.001:
990,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 532,514,791 and 498,546,291 shares outstanding as of June 30, 2022 and December 31, 2021, respectively	554		521
Additional paid-in capital	401,214		392,930
Treasury stock: 2,308,408 shares of common stock as of June 30, 2022 and December 31, 2021	(808)		(808)
Accumulated deficit	(323,710)		(250,015)
Total Unrivaled Brands, Inc. Stockholders’ Equity	77,251		142,628
Non-controlling interest	—		3,859
Total stockholders’ equity	77,251		146,487
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	180,255	$	271,824

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

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UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except for shares and per-share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Total revenues	$	17,556	$	2,872	$	38,280	$	4,928
Cost of goods sold	9,286		147		23,578		2,013
Gross profit	8,270		2,725		14,702		2,915

Selling, general and administrative expenses	19,070		4,698		37,837		17,347

Impairment of assets	55,726		—		55,726		—
Loss on sale of assets	542		—		343		—
Loss from operations	(67,068)		(1,973)		(79,204)		(14,432)

Other income (expense):
Gain (loss) on extinguishment of debt	—		—		542		(6,161)
Interest expense, net	(443)		(39)		(2,210)		(112)
Unrealized gain on investments	963		—		963		—
Other income	443		17		1,477		362
Gain (loss) on investments	—		(874)		—		5,337
Total other income (expense)	963		(896)		773		(574)

Loss from continuing operations, before provision for income taxes	(66,105)		(2,869)		(78,432)		(15,006)
Provision for income tax benefit for continuing operations	449		—		2,136		—
Net loss from continuing operations	(65,655)		(2,869)		(76,295)		(15,006)

Income (loss) from discontinued operations, before provision for income taxes	1,843		(2,101)		3,979		(1,663)
Provision for income tax benefit for discontinued operations	95		—		—		—
Net income (loss) from discontinued operations	1,938		(2,101)		3,979		(1,663)

NET LOSS	(63,718)		(4,970)		(72,317)		(16,669)

Less: Loss attributable to non-controlling interest from continuing operations	—		(868)		—		(486)
Less: Income attributable to non-controlling interest from discontinued operations	—		—		275		—
NET LOSS ATTRIBUTABLE TO UNRIVALED BRANDS, INC.	$	(63,718)	$	(4,102)	$	(72,592)	$	(16,183)

Loss from continuing operations per common share attributable to Unrivaled Brands, Inc. common stockholders – basic and diluted	$	(0.11)	$	(0.01)	$	(0.13)	$	(0.06)
Net Loss per common share attributable to Unrivaled Brands, Inc. common stockholders – basic and diluted	$	(0.11)	$	(0.02)	$	(0.13)	$	(0.07)

Weighted-average number of common shares outstanding – basic and diluted	575,973,609		258,897,777		572,176,041		248,066,926

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

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UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six Months Ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(72,317)	$	(16,669)
Less: Net income (loss) from discontinued operations	3,979		(1,663)
Net loss from continuing operations	(76,295)		(15,006)
Adjustments to reconcile net loss to net cash used in operating activities:
Provision for income taxes	(2,136)		—
Bad debt expense	1,220		—
Depreciation and amortization	6,683		1,035

Gain on sale of assets	343		—

Gain on debt forgiveness	—		(86)
Gain on sale of investments	—		(5,337)
Amortization of operating lease right-of-use asset	1,127		385
Gain (loss) on extinguishment of debt	(542)		6,161
Non-cash interest expense	676		30
Non-cash portion of severance expense	—		7,990
Stock-based compensation	3,868		1,198
Unrealized gain on investments	(963)		—
Impairment expense	55,726		—
Change in operating assets and liabilities:
Accounts receivable	2,595		(813)
Inventory	1,131		72
Prepaid expenses and other current assets	(1,958)		(735)
Other assets	(2,584)		(127)
Accounts payable and accrued expenses	10,156		1,033
Operating lease liabilities	121		(240)
Net cash used in operating activities - continuing operations	(833)		(4,440)
Net cash used in operating activities - discontinued operations	(489)		(2,296)
NET CASH USED IN OPERATING ACTIVITIES	(1,322)		(6,736)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements	(2,129)		(482)
Repayment of notes receivable	375		—




Proceeds from sale of investments	—		39,382
Proceeds from sales of assets	450		—
Net cash (used in) / provided by investing activities - continuing operations	(1,304)		38,900
Net cash provided by investing activities - discontinued operations	20,709		4,822
NET CASH PROVIDED BY INVESTING ACTIVITIES	19,405		43,722




CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable	—		3,500
Payments of debt principal	(21,645)		(1,012)
Cash paid for debt discount	—		(178)
Proceeds from issuance of common stock	4,375		—




Net cash (used in) / provided by financing activities - continuing operations	(17,270)		2,310

NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES	(17,270)		2,310

NET CHANGE IN CASH	814		39,296

Cash at beginning of period	6,891		217

Cash reclassified to discontinued operations	(442)		—
CASH AT END OF PERIOD	$	7,263	$	39,513

SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:
Cash paid for interest	$	1,558	$	430

SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:
Debt principal and accrued interest converted into common stock	$	52	$	3,596
Net assets transferred to held for sale	$	1,328	$	—
Stock options exercised on a net share basis	$	—	$	2


Promissory note issued for severance	$	—	$	2,100

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

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UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

(in thousands, except for shares)


				Additional Paid-In Capital		Treasury		Accumulated Deficit		Non- Controlling Interest		Total
	Common Stock					Stock
	Shares	Amount				Amount
Balance at March 31, 2022	530,329,995	$	552	$	399,536	$	(808)	$	(258,888)	$	4,134	$	144,526

Stock compensation - employees	1,200,000	1		169		—		—		—		170
Stock compensation - directors	259,796	0		29		—		—		—		29
Stock compensation - services expense	725,000	1		128		—		—		—		129



Stock option expense	—	—		1,352		—		—		—		1,352

Disposition of non-controlling interest	—	—		—		—		(1,103)		(4,134)		(5,237)
Net loss attributable to Unrivaled Brands, Inc.	—	—		—		—		(63,718)		—		(63,718)
Balance at June 30, 2022	532,514,791	$	554	$	401,214	$	(808)	$	(323,710)	$	—	$	77,251

				Additional Paid-In Capital		Treasury		Accumulated Deficit		Non- Controlling Interest		Total
	Common Stock					Stock
	Shares	Amount				Amount
Balance at March 31, 2021	235,491,198	$	256	$	290,225	$	(808)	$	(230,825)	$	4,845	$	63,693
Stock compensation - employees	250,000	—		68		—		—		—		68
Stock compensation - directors	343,493	1		93		—		—		—		94
Stock option exercises	470,717	1		(1)		—		—		—		—
Stock option expense	—	—		641		—		—		—		641
Net loss attributable to non-controlling interest	—	—		—		—		—		(868)		(868)
Net loss attributable to Unrivaled Brands, Inc.	—	—		—		—		(4,102)		—		(4,102)
Balance at June 30, 2021	236,555,408	$	258	$	291,026	$	(808)	$	(234,927)	$	3,977	$	59,526

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

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(UNAUDITED)

(in thousands, except for shares)

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	Preferred Stock						Additional Paid-In Capital		Treasury		Accumulated Deficit		Non- Controlling Interest		Total
	Convertible Series A			Common Stock					Stock
	Shares	Amount		Shares	Amount				Amount
Balance at December 31, 2021	—	$	—	498,546,291	$	521	$	392,930	$	(808)	$	(250,015)	$	3,859	$	146,487
Warrants exercise	—	—		4,759,708	4		(5)		—		—		—		(1)
Stock compensation - employees	—	—		2,100,000	2		350		—		—		—		352
Stock compensation - directors	—	—		943,128	1		212		—		—		—		213
Stock compensation - services expense	—	—		725,000	1		128		—		—		—		129
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
Stock option expense	—	—		—	—		3,174		—		—		—		3,174
Disposition of non-controlling interest	—	—		—	—		—		—		(1,103)		(4,134)		(5,237)
Net income attributable to non-controlling interest	—	—		—	—		—		—		—		275		275
Net loss attributable to Unrivaled Brands, Inc.	—	—		—	—		—		—		(72,592)		—		(72,592)
Balance at June 30, 2022	—	$	—	532,514,791	$	554	$	401,214	$	(808)	$	(323,710)	$	—	$	77,251

	Preferred Stock						Additional Paid-In Capital		Treasury		Accumulated Deficit		Non- Controlling Interest		Total
	Convertible Series A			Common Stock					Stock
	Shares	Amount		Shares	Amount				Amount
Balance at December 31, 2020	12	$	—	196,512,867	$	218	$	275,060	$	(808)	$	(219,803)	$	4,463	$	59,130
Adoption of ASU 2020-06	—	—		—	—		(1,071)		—		1,059		—		(12)
Debt conversion - common stock	—	—		20,391,774	20		3,990		—		—		—		4,010
Warrants issued to Dominion	—	—		—	—		5,978		—		—		—		5,978
Stock compensation - employees	—	—		250,000	—		67		—		—		—		67
Stock compensation - directors	—	—		885,159	1.00		213		—		—		—		214
Stock compensation - services expense	—	—		332,947	—		32		—		—		—		32
Stock option exercises	—	—		1,696,947	2		(2)		—		—		—		—
Acquisition of A shares	(8)	—		16,485,714	17		5,874		—		—		—		5,891
Elimination of Preferred Stock	(4)	—		—	—		—		—		—		—		—
Stock option expense	—	—		—	—		885		—		—		—		885
Net loss attributable to non-controlling interest	—	—		—	—		—		—		—		(486)		(486)
Net loss attributable to Unrivaled Brands, Inc.	—	—		—	—		—		—		(16,183)		—		(16,183)
Balance at June 30, 2021	—	$	—	236,555,408	$	258	$	291,026	$	(808)	$	(234,927)	$	3,977	$	59,526

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

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UNRIVALED BRANDS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS

References in this document to “the Company”, “Unrivaled”, “we”, “us”, or “our” are intended to mean Unrivaled Brands, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis. Effective July 7, 2021, the Company changed its corporate name from “Terra Tech Corp.” to “Unrivaled Brands, Inc.” in connection with the Company’s acquisition of UMBRLA, Inc. (“UMBRLA”).

Unrivaled is a holding company with the following subsidiaries:

•620 Dyer LLC, a California corporation (“Dyer”)

•1815 Carnegie LLC, a California limited liability company (“Carnegie”)

•Black Oak Gallery, a California corporation (“Black Oak”)

•Blüm San Leandro, a California corporation (“Blüm San Leandro”)

•MediFarm, LLC, a Nevada limited liability company (“MediFarm”)

•MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”)

•121 North Fourth Street, LLC, a Nevada limited liability company ("121 North Fourth")

•OneQor Technologies, Inc., a Delaware corporation ("OneQor")

•UMBRLA, Inc., a Nevada corporation ("UMBRLA")

•Halladay Holding, LLC, a California limited liability company (“Halladay”)

•People's First Choice, LLC, a California limited liability company ("People's")

•Silverstreak Solutions, Inc., a California corporation ("Silverstreak")

The Company is a multi-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 Orange County, 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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to U.S. Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933 and reflect the accounts and operations of the Company and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of FASB or ASC 810, “Consolidation,” we consolidate any variable interest entity (“VIE”) of which we are the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We evaluate our relationships with all the VIEs on an ongoing basis to reassess if we continue to be the primary beneficiary.

All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of June 30, 2022 and December 31, 2021, and the consolidated results of operations and cash flows for the quarters ended June 30, 2022 and 2021 have been included. These interim unaudited condensed consolidated financial statements do not include all disclosures required by GAAP for complete financial

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statements and, therefore, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2021. The December 31, 2021 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2021. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

Going Concern

The accompanying financial statements have been prepared assuming that we will continue as a going concern. In an effort to achieve liquidity that would be sufficient to meet all of our commitments, we have undertaken a number of actions, including minimizing capital expenditures and reducing recurring expenses. However, we believe that even after taking these actions, we will not have sufficient liquidity to satisfy all of our future financial obligations. The risks and uncertainties surrounding our ability to raise capital, our limited capital resources, and the weak industry conditions impacting our business raise substantial doubt as to our ability to continue as a going concern. See Note 20, "Going Concern" of the Notes to Consolidated Financial Statements for additional information.

Non-Controlling Interest

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

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns, inventory valuation, stock-based compensation expense, goodwill and purchased intangible asset valuations, derivative liabilities, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss, revenues or stockholders’ equity. See Note 17, "Discontinued Operations" for further discussion regarding discontinued operations.

Trade and Other Receivables

The Company extends non-interest bearing trade credit to its customers in the ordinary course of business which is not collateralized. Accounts receivable are shown on the face of the consolidated balance sheets, net of an allowance for doubtful accounts. The Company analyzes the aging of accounts receivable, historical bad debts, customer creditworthiness and current economic trends, in determining the allowance for doubtful accounts. The Company does not accrue interest receivable on past due accounts receivable. The allowance for doubtful accounts was $4.76 million and $3.68 million as of June 30, 2022 and December 31, 2021, respectively.

Investments

Investments in unconsolidated affiliates are accounted for under the cost or the equity method of accounting, as appropriate. The Company accounts for investments in limited partnerships or limited liability corporations, whereby the Company owns a minimum of 5% of the investee’s outstanding voting stock, under the equity method of accounting. These investments are recorded at the amount of the Company’s investment and adjusted each period for the Company’s share of the investee’s income or loss, and dividends paid. As investments accounted for under the cost method do not have readily

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determinable fair values, the Company only estimates fair value if there are identified events or changes in circumstances that could have a significant adverse effect on the investment’s fair value.

Publicly held equity securities are recorded at fair value with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statements of operations.

Inventory

Inventory is stated at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method of accounting. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items and reserves. The reserve estimate for excess and obsolete inventory is based on expected future use. The reserve estimates have historically been consistent with actual experience as evidenced by actual sale or disposal of the goods.

Prepaid Expenses and Other Current Assets

Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance, and service or other contracts requiring upfront payments.

Property, Equipment and Leasehold Improvements, Net

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The approximate useful lives for depreciation of our property, equipment and leasehold improvements are as follows:


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

Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. 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, and Equipment.” When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. See Note 8, “Property, Equipment and Leasehold Improvements, Net” for further information.

Intangible Assets

Intangible assets continue to be subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment,” intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows:


Customer relationships			3 to 5 years
Trademark and patent			2 to 8 years
Dispensary licenses			14 years

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The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.

Intangible assets that have indefinite useful lives (e.g. trade names) are tested annually for impairment and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair value.

Goodwill

Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired, and liabilities assumed in a business acquisition. 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 September 30, and whenever events or changes in circumstances indicate carrying amount may not be recoverable. In the 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.

The carrying amount of each reporting unit is determined based upon the assignment of our assets and liabilities, including existing goodwill and other intangible assets, to the identified reporting units. Where an acquisition benefits only one reporting unit, the Company allocates, as of the acquisition date, all goodwill for that acquisition to the reporting unit that will benefit. Where the Company has had an acquisition that benefited more than one reporting unit, The Company has assigned the goodwill to our reporting units as of the acquisition date such that the goodwill assigned to a reporting unit is the excess of the fair value of the acquired business, or portion thereof, to be included in that reporting unit over the fair value of the individual assets acquired and liabilities assumed that are assigned to the reporting unit.

If the carrying amount of a reporting unit is in excess of its fair value, the Company recognizes an impairment charge equal to the amount in excess.

Notes Receivable

The Company reviews all outstanding notes receivable for collectability as information becomes available pertaining to the Company’s inability to collect. An allowance for notes receivable is recorded for the likelihood of non-collectability. The Company accrues interest on notes receivable based net realizable value. The allowance for uncollectible notes was nil as of June 30, 2022 and December 31, 2021, respectively.

Assets Held for Sale and Discontinued Operations

Assets held for sale represent furniture, equipment, and leasehold improvements less accumulated depreciation as well as any other assets that are held for sale in conjunction with the sale of a business. The Company records assets held for sale in accordance with ASC 360, “Property, Plant, and Equipment,” at the lower of carrying value or fair value less costs to sell. Fair value is based on the estimated proceeds from the sale of the facility utilizing recent purchase offers, market comparables and/or data. Our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility’s acceptable sale price. The reclassification takes place when the assets are available for immediate sale and the sale is highly probable. These conditions are usually met from the date on which a letter of intent or agreement to sell is ready for signing. The Company follows the guidance within ASC 205, “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity” when assets held for sale represent a strategic shift in the Company’s operations and financial results. For long-lived assets or disposals groups that

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are classified as held for sale but do not meet the criteria for discontinued operations, the assets and liabilities are presented separately on the balance sheet of the initial period in which it is classified as held for sale.

Revenue Recognition and Performance Obligations

Revenue from our retail dispensaries is recorded at the time customers take possession of the product. Revenue from our retail dispensaries is recognized net of discounts, promotional adjustments, and returns. We collect taxes on certain revenue transactions to be remitted to governmental authorities, which may include sales, excise and local taxes. These taxes are not included in the transaction price and are, therefore, excluded from revenue. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase.

The Company recognizes revenue from cultivation, manufacturing and distribution product sales when our customers obtain control of our products. Revenue is recorded when the customer is determined to have taken control of the product. This determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with collected taxes recorded as current liabilities until remitted to the relevant government authority.

Disaggregation of Revenue

The table below includes revenue disaggregated by geographic location for the periods presented:


	(in thousands)
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
California	$	15,608	$	2,872	$	34,053	$	4,928
Oregon	1,947		—		4,227		—
Total	$	17,556	$	2,872	$	38,280	$	4,928

Contract Balances

Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets or liabilities that fall under the scope of ASC Topic 606.

Contract Estimates and Judgments

The Company’s revenues accounted for under ASC Topic 606, generally, do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.

Cost of Goods Sold

Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and delivery costs. It also includes the labor and overhead costs incurred in cultivating and producing cannabis flower and cannabis-derived products. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.

Advertising Expenses

The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses from continuing operations totaled $0.77 million and $1.69 million for the three and six months ended June 30, 2022, respectively, and $0.08 million and $0.11 million for the three and six months ended June 30, 2021, respectively.

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Stock-Based Compensation

The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation – Stock Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors, including restricted stock awards. For stock options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The fair value of restricted stock awards is based upon the quoted market price of the common shares on the date of grant. The fair value is then expensed over the requisite service periods of the awards, net of estimated forfeitures, which is generally the performance period and the related amount is recognized in the consolidated statements of operations.

The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future. The Company accounts for forfeitures of stock-based awards as they occur.

Income Taxes

The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. The Company files a consolidated United States federal income tax return. The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. At June 30, 2021, such net operating losses were offset entirely by a valuation allowance. No valuation allowance remained at June 30, 2022.

The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.

Loss Per Common Share

In accordance with the provisions of ASC 260, “Earnings Per Share”, net loss per share is computed by dividing net loss by the weighted-average shares of common stock outstanding during the period. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock, and convertible debt are not considered in the diluted loss per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the three and six months ended June 30, 2022 and 2021. Therefore, the basic and diluted weighted-average shares of common stock outstanding were the same for all periods presented.

Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):


	Six Months Ended June 30,
	2022	2021

Common stock warrants	85,826,872	16,076,556
Common stock options	88,126,615	16,721,567
	173,953,487	32,798,123

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NOTE 3 – CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances in several financial institutions that are insured by either the Federal Deposit Insurance Corporation or the National Credit Union Association up to certain federal limitations. At times, the Company’s cash balance exceeds these federal limitations, and it maintains significant cash on hand at certain of its locations. The Company has not historically experienced any material loss from carrying cash on hand. The amount in excess of insured limitations was at $0.89 million and $5.42 million as of June 30, 2022 and December 31, 2021, respectively.

The Company provides credit in the normal course of business to customers located throughout the U.S. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. There were no customers that comprised more than 10.0% of the Company's revenue for the three and six months ended June 30, 2022 and 2021.

The Company sources cannabis products for retail, cultivation and production from various vendors. However, as a result of regulations in the State of California, the Company’s California retail, cultivation and production operations must use vendors licensed by the State. As a result, the Company is dependent upon the licensed vendors in California to supply products. If the Company is unable to enter into a relationship with sufficient members of properly licensed vendors, the Company’s sales may be impacted. During the three and six months ended June 30, 2022 and 2021, we did not have any concentration of vendors for inventory purchases. However, this may change depending on the number of vendors who receive appropriate licenses to operate in the State of California.

NOTE 4 – VARIABLE INTEREST ENTITIES

On October 26, 2017, the Company entered into operating agreements with NuLeaf, Inc. and formed NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC (collectively, “NuLeaf”) to build and operate cultivation and production facilities for our IVXX brand of cannabis products in Nevada. The agreements were subject to approval by the State of Nevada, the City of Sparks and the City of Reno in Nevada. Under the terms of the agreements, the Company remitted to NuLeaf an upfront investment of $4.50 million in the form of convertible loans bearing an interest rate of 6% per annum. On June 28, 2018, the Company received approval from the State of Nevada. The remaining required approvals from local authorities were received in July 2018. As a result, the notes receivable balance was converted into a 50% ownership interest in NuLeaf. The investment in NuLeaf was initially recorded at cost and accounted for using the equity method.

In February 2019, we amended and restated the NuLeaf agreements and obtained control of the operations of NuLeaf. The Company has determined these entities are variable interest entities in which the Company is the primary beneficiary by reference to the power and benefits criterion under ASC 810, “Consolidation.” The provisions within the amended agreement granted the Company the power to manage and make decisions that affect the operation of these entities. As the primary beneficiary of NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC, the Company began consolidating the accounts and operations of these entities on March 1, 2019. All intercompany transactions are eliminated in the consolidated financial statements. Effective March 1, 2019, we remeasured our equity method investment in NuLeaf to fair value and consolidated the results of NuLeaf within our consolidated financial statements.

In November 2021, Nuleaf entered a definitive agreement with Jushi Holdings Inc. to acquire NuLeaf, Inc., together with its subsidiaries and affiliated companies and the Company classified the Nuleaf operations as classified as held for sale as of December 31, 2021. The transaction closed in April 2022 and the Nuleaf operations are classified as discontinued operations for all periods presented. See Note 17, "Discontinued Operations" for further information.

During the three and six months ended June 30, 2022, revenue attributed to NuLeaf was $— million and $2.81 million, respectively, and net loss attributed to NuLeaf was $8.12 million and $8.19 million, respectively. During the three and six months ended June 30, 2021, revenue attributed to NuLeaf was $3.39 million and $6.45 million, respectively, and net loss attributed to NuLeaf was $1.73 million and $0.97 million, respectively. The aggregate carrying values of Sparks

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Cultivation, LLC and NuLeaf Reno Production, LLC assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows:


	(in thousands)
	December 31, 2021
Current assets:
Cash	$	1,544
Accounts receivable, net	1,553
Inventory	1,359
Prepaid expenses and other current assets	39
Total current assets	4,495

Property, equipment and leasehold improvements, net	5,099
Other assets	295
TOTAL ASSETS	$	9,889

Liabilities:
Total current liabilities	$	350
Total long-term liabilities	184
TOTAL LIABILITIES	$	534

During the six months ended June 30, 2022, the Company sold its interest in NuLeaf and no assets and liabilities remained as of June 30, 2022. See Note 17, "Discontinued Operations" for further discussions.

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NOTE 5 – ASSETS HELD FOR SALE

Assets held for sale consist of those classified as discontinued operations and those that do not meet the criteria for discontinued operations under ASC 205. See Note 17, "Discontinued Operations" for further information. Subsidiaries classified as held for sale that do not qualify as discontinued operations as of June 30, 2022 consist of the following:


	(in thousands)
	June 30, 2022
Cash	$	439
Accounts receivable, net	6
Inventory	7
Prepaid expenses and other assets	130
Total current assets held for sale	582

Property, equipment and leasehold improvements, net	1,132
Other assets	1,659
Total long-term assets held for sale	2,791

TOTAL ASSETS OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE	$	3,373

Accounts payable and accrued expenses	$	1,851
Total current liabilities held for sale	1,851

Long-term lease liabilities	1,465
Total long-term liabilities held for sale	1,465

TOTAL LIABILITIES OF SUBSIDIARIES CLASSIFIED AS HELD FOR SALE	$	3,316

During the fiscal second quarter of 2022, the Company decided to divest two operating dispensaries in the state of California. In June 2022, the Company permanently closed Blüm San Leandro and is actively marketing the retail location for sale. The transaction is expected to close within the next year. The assets are classified as held for sale as of June 30, 2022 but do not meet the criteria for discontinued operation.

On June 18, 2022, the Company entered into a settlement agreement and transferred 100% of the membership interests in the People's dispensary in Los Angeles, CA wherein all operational control and risk of loss was transferred to the Buyer and the Company had no further obligations except for the operating lease payments. As consideration received, a promissory note of $1.4 million with the Buyer was forgiven. The Company recognized a loss upon sale of assets of $0.54 million for the difference between the aggregate consideration and the book value of the assets as of the disposition date which is recognized in the consolidated statements of operations during the three months ended June 30, 2022. All assets and liabilities related to the dispensary are excluded from the consolidated balance sheet as of June 30, 2022, except for the lease related assets and liabilities. All profits or losses subsequent to June 18, 2022 are excluded from the consolidated statements of operations.

NOTE 6 – INVESTMENTS IN UNCONSOLIDATED AFFILIATES

On March 30, 2020, Edible Garden Corp. (“Edible Garden”), a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with Edible Garden Incorporated (the “Purchaser”), pursuant to which Edible Garden Corp. sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). The consideration paid for the Business included two option agreements to purchase up to a 20% interest in the Purchaser for a nominal fee. The first option gives the Company the right to purchase a 10% interest in the Purchaser for one dollar at any time between the one and five-year anniversary of the transaction, or at

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any time should a change in control event or public offering occur. The second option gives the Company the right to purchase an additional 10% interest in the Purchaser for one dollar at any point prior to the five-year anniversary of the transaction. During the year ended December 31, 2021, the Company exercised its options and acquired 5,000,000 shares of Edible Garden's common stock for a nominal fee. During the fourth quarter of 2021, management concluded that the investment was impaired and recorded an impairment charge of $0.33 million, representing the total amount of the investment.

On May 3, 2022, Edible Garden completed a 1-for-5 reverse stock split of its outstanding common stock. As a result, the Company held 1,000,000 shares in Edible Garden. On May 5, 2022, Edible Garden announced the pricing of its initial public offering of 2,930,000 shares of its common stock and accompanying warrants to purchase up to 2,930,000 shares of common stock for an exercise price of $5.00 per share. Each share of common stock is being sold together with one warrant at a combined offering price of $5.00, for gross proceeds of approximately $14.70 million. The Company holds a 20% interest in Edible Garden. As a result of the initial public offering, the Company reassessed its write down on the investment and recorded a write up to its fair value, which is categorized within the fair value hierarchy as Level 2. As a result, the Company recorded a gain on investment of $0.96 million for the three and six months ended June 30, 2022.

NOTE 7 – INVENTORY

Raw materials consist of materials and packaging for manufacturing of products owned by Unrivaled Brands. Work-in-progress consists of cultivation materials and live plants grown at Black Oak Gallery and Hegenberger. Finished goods consists of cannabis products sold in retail and distribution. Inventory as of June 30, 2022 and December 31, 2021 consisted of the following:


	(in thousands)
	June 30, 2022		December 31, 2021

Raw materials	$	1,848	$	2,258
Work-in-progress	1,686		1,077
Finished goods	2,504		3,844
Total inventory	$	6,038	$	7,179

NOTE 8 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

Property, equipment, and leasehold improvements as of June 30, 2022 and December 31, 2021 consisted of the following:


	(in thousands)
	June 30, 2022		December 31, 2021

Land and building	$	7,581	$	7,787
Furniture and equipment	3,970		3,873
Computer hardware	341		348
Leasehold improvements	11,454		14,409
Vehicles	1,143		1,142
Construction in progress	2,436