UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended September 30, 2021

 

or

 

     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 ☒     No ☐

 

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 ☒     No ☐

 

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

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

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

 

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

 

As of November 10, 2021, there were 445,293,039 shares of common stock issued and 447,601,447 shares outstanding, 86,413,070 shares of common stock issuable upon the exercise of all our outstanding warrants and 8,484,181 shares of common stock issuable upon the exercise of all vested options.

 

 

   

UNRIVALED BRANDS, INC.

INDEX TO FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

 

PART I FINANCIAL INFORMATION

 

 

 

  

 

Page

 
Item 1.Financial Statements

 

  
 Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020

 

3

 
 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

4

 
 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

5

 
 Consolidated Statements of Stockholders Equity for the Three Months Ended September 30, 2021 and 2020 (Unaudited)

 

6

 
 Consolidated Statements of Stockholders Equity for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)

 

7

 
 Notes to Unaudited Consolidated Financial Statements

 

8

 
  

 

  
Item 2.Management s Discussion and Analysis of Financial Condition and Results of Operations

 

32

 
 Company Overview

 

32

 
 Results of Operations

 

33

 
 Disclosure About Off-Balance Sheet Arrangements

 

36

 
 Critical Accounting Policies and Estimates

 

36

 
 Liquidity and Capital Resources

 

37

 
  

 

 

 
Item 3.Quantitative and Qualitative Disclosures About Market Risk

 

39

 
  

 

  
Item 4.Controls and Procedures

 

39

 
  

 

  

PART II OTHER INFORMATION

 

  

 

  
Item 1.Legal Proceedings

 

40

 
  

 

  
Item 1A.Risk Factors

 

40

 
  

 

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

 

40

 
  

 

  
Item 3.Defaults Upon Senior Securities

 

40

 
  

 

  
Item 4.Mine Safety Disclosures

 

40

 
  

 

  
Item 5.Other Information

 

40

 
  

 

  
Item 6.Exhibits

 

41

 
  

 

  
Signatures 

 

44

 

 

 

2

Table of Contents

 

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands, except shares)

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash

 

$15,238

 

 

$888

 

Accounts receivable, net

 

 

8,433

 

 

 

835

 

Short term investments

 

 

-

 

 

 

34,045

 

Inventory

 

 

15,865

 

 

 

1,602

 

Prepaid expenses and other assets

 

 

3,260

 

 

 

234

 

Notes Receivables

 

 

750

 

 

 

-

 

Current assets of discontinued operations

 

 

-

 

 

 

2

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

43,546

 

 

 

37,606

 

 

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

40,848

 

 

 

32,480

 

Intangible assets, net

 

 

135,752

 

 

 

7,714

 

Goodwill

 

 

23,575

 

 

 

6,171

 

Other assets

 

 

15,054

 

 

 

13,040

 

Investments

 

 

437

 

 

 

330

 

Assets of discontinued operations

 

 

109

 

 

 

2,953

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$259,321

 

 

$100,294

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$24,428

 

 

$8,622

 

Deferred Gain on Sale of Assets

 

 

139

 

 

 

-

 

Short-term debt

 

 

8,648

 

 

 

8,033

 

Current liabilities of discontinued operations

 

 

8,632

 

 

 

9,768

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

41,847

 

 

 

26,423

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of discounts

 

 

13,545

 

 

 

6,632

 

Long-term lease liabilities

 

 

8,065

 

 

 

8,082

 

Long-term liabilities of discontinued operations

 

 

-

 

 

 

28

 

Total long-term liabilities

 

 

21,610

 

 

 

14,741

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

63,457

 

 

 

41,164

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Common stock, par value 0.001:

 

 

460

 

 

 

218

 

990,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 432,886,195 shares issued and 430,557,787 shares outstanding as of September 30, 2021; 196,512,867 shares issued and 194,204,459 shares outstanding as of December 31, 2020.

 

 

 

 

 

 

 

 

Additional paid-in capital

 

 

373,878

 

 

 

275,060

 

Treasury Stock (2,308,408 shares of common stock, 4 shares of Preferred Stock Convertible Series A)

 

 

(808 )

 

 

(808 )

Accumulated deficit

 

 

(240,274 )

 

 

(219,803 )

 

 

 

 

 

 

 

 

 

Total Unrivaled Brands, Inc. Stockholders’ Equity

 

 

133,256

 

 

 

54,667

 

Non-controlling interest

 

 

62,608

 

 

 

4,463

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

195,864

 

 

 

59,130

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$259,321

 

 

$100,294

 

 

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

 

 
3

Table of Contents

 

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$23,434

 

 

$3,053

 

 

$34,809

 

 

$9,806

 

Cost of goods sold

 

 

21,146

 

 

 

1,615

 

 

 

27,750

 

 

 

4,796

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

2,288

 

 

 

1,438

 

 

 

7,059

 

 

 

5,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

13,516

 

 

 

5,588

 

 

 

33,841

 

 

 

20,409

 

Impairment of assets

 

 

-

 

 

 

9,792

 

 

 

-

 

 

 

19,910

 

(Gain) / Loss on sale of assets

 

 

-

 

 

 

-

 

 

 

6

 

 

 

(35 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(11,227 )

 

 

(13,943 )

 

 

(26,788 )

 

 

(35,273 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) / Loss on Extinguishment of Debt

 

 

185

 

 

 

-

 

 

 

(5,976 )

 

 

-

 

Interest expense, net

 

 

(740 )

 

 

(529 )

 

 

(1,344 )

 

 

(1,885 )

Other income/loss

 

 

5

 

 

 

372

 

 

 

367

 

 

 

349

 

Gain (loss) on investments

 

 

-

 

 

 

-

 

 

 

5,337

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(550 )

 

 

(157 )

 

 

(1,616 )

 

 

(1,536 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) from continuing operations

 

 

11,777

 

 

 

(14,100 )

 

 

(28,404 )

 

 

(36,809 )

Income (Loss) from discontinued operations, net of tax

 

 

6,312

 

 

 

(4,199 )

 

 

6,270

 

 

 

(17,342 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

5,465

 

 

 

(18,299 )

 

 

(22,134 )

 

 

(54,151 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:  Income (Loss) attributable to non-controlling interest from continuing operations

 

 

(118 )

 

 

(138 )

 

 

(604 )

 

 

(479 )

Less:  Income (Loss) attributable to non-controlling interest from discontinued operations

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO UNRIVALED BRANDS, INC.

 

$(5,347

 

$(18,161 )

 

$(21,530 )

 

$(53,672 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income / ( Loss) from continuing operations per common share attributable to Unrivaled Brands, Inc. common stockholders – basic and diluted

 

$0.03

 

 

$(0.07 )

 

$(0.09 )

 

$(0.20 )

Net Loss per common share attributable to Unrivaled Brands, Inc. common stockholders – basic and diluted

 

$0.01

 

 

$(0.09 )

 

$(0.07 )

 

$(0.29 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average number of common shares outstanding – basic and diluted

 

 

457,745,655

 

 

 

206,828,614

 

 

 

317,491,979

 

 

 

186,295,127

 

  

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

 

 
4

Table of Contents

 

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$(22,134 )

 

$(54,151 )

 Less: Net Income (loss) from discontinued operations

 

 

6,270

 

 

 

(17,342 )

    Net loss from continuing operations

 

 

(28,404 )

 

 

(36,809 )

    Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Bad debt expense

 

 

-

 

 

 

650

 

Gain from debt forgiveness

 

 

(86 )

 

 

-

 

(Gain) loss on sale of assets

 

 

6

 

 

 

(35 )

Amortization of debt discount

 

 

-

 

 

 

845

 

Depreciation and amortization

 

 

4,480

 

 

 

5,062

 

Operating lease expense

 

 

633

 

 

 

680

 

Stock based compensation

 

 

2,884

 

 

 

1,672

 

Impairment loss

 

 

-

 

 

 

19,910

 

Gain on sale of investments

 

 

(5,337 )

 

 

-

 

Non-cash portion of severance expense

 

 

7,990

 

 

 

-

 

Loss (gain) on extinguishment of debt

 

 

5,976

 

 

 

-

 

Non cash interest expense

 

 

30

 

 

 

-

 

 Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

          Accounts receivable

 

 

(1,766 )

 

 

292

 

          Inventory

 

 

3,100

 

 

 

(518 )

          Prepaid expenses and other current assets

 

 

(1,392 )

 

 

218

 

         Other assets

 

 

338

 

 

 

(1,024 )

         Accounts payable and accrued expenses

 

 

(3,798 )

 

 

1,567

 

         Operating lease liabilities

 

 

(45 )

 

 

(380 )

   Net cash provided by / (used in) operating activities - continuing operations

 

 

(15,391 )

 

 

(7,870 )

   Net cash provided by / (used in) operating activities - discontinued operations

 

 

(925 )

 

 

(5,020 )

                  NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES

 

 

(16,316)

 

 

(12,890)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

        Purchase of property, equipment and leasehold improvements

 

 

(6,442 )

 

 

(46 )

        Purchase of equity investment

 

 

-

 

 

 

243

 

        Proceeds from sale of investments

 

 

39,382

 

 

 

-

 

        Cash outflow for loans

 

 

-

 

 

 

(250 )

        Cash paid for acquisitions

 

 

(15,000)

 

 

-

 

        Cash from acquisitions

 

 

2,258

 

 

 

57

 

        Proceeds from sales of assets

 

 

72

 

 

 

35

 

  Net cash provided by / (used in) investing activities - continuing operations

 

 

20,271

 

 

 

39

 

  Net cash provided by / (used in) investing activities - discontinued operations

 

 

8,350

 

 

 

11,189

 

                  NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES

 

 

28,621

 

 

 

11,228

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

       Proceeds from issuance of notes payable

 

 

6,000

 

 

 

2,954

 

       Payments of debt principal

 

 

(3,778 )

 

 

(430 )

       Cash paid for debt discount

 

 

-

 

 

 

(8 )

       Proceeds from issuance of common stock

 

 

-

 

 

 

250

 

       Cash contribution from non-controlling interest

 

 

-

 

 

 

152

 

       Cash paid for debt issuance cost

 

 

(178 )

 

 

-

 

       Cash distribution to non-controlling interest

 

 

-

 

 

 

(145 )

       Purchase of treasury stock

 

 

-

 

 

 

-

 

  Net cash provided by / (used in) financing activities - continuing operations

 

 

2,044

 

 

 

2,773

 

  Net cash provided by / (used in) financing activities - discontinued operations

 

 

-

 

 

 

-

 

                 NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES

 

 

2,044

 

 

 

2,773

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

14,350

 

 

 

1,112

 

 

 

 

 

 

 

 

 

 

Cash at beginning of period

 

 

888

 

 

 

1,226

 

 

 

 

 

 

 

 

 

 

CASH AT END OF PERIOD

 

$15,238

 

 

$2,338

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$705

 

 

$892

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Debt principal and accrued interest converted into common stock

 

$5,056

 

 

$2,252

 

Stock Issued for the acquisition of OneQor

 

$-

 

 

$9,305

 

Stock options exercised on a net share basis

 

$3

 

 

$-

 

Stock, stock options and warrants issued for the acquisition of UMBRLA

 

$79,032

 

 

$-

 

Assumption of Halladay mortgage

 

$2,986

 

 

$-

 

Promissory note issued for severance

 

$2,100

 

 

$-

 

Fixed assets in accounts payable

 

$100

 

 

$792

 

Non-cash contribution from non-controlling interest

 

$-

 

 

$702

 

Net assets acquired from acquisitions of Umbrla and People's

 

$153,571

 

 

$-

 

 

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

 

 
5

Table of Contents

 

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021

(UNAUDITED)

(in thousands, except for shares)

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Series A

 

 

Common Stock

 

 

Paid-In

 

 

Treasury Stock

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

 Interest

 

 

Total

 

Balance at June 30, 2021

 

 

-

 

 

$-

 

 

 

234,237,000

 

 

$258

 

 

$291,026

 

 

 

2,308,420

 

 

$(808)

 

$(234,927)

 

$3,977

 

 

$59,526

 

Stock compensation - employees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock compensation - directors

 

 

-

 

 

 

-

 

 

 

124,998

 

 

 

0

 

 

 

32

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32

 

Stock compensation - services expense

 

 

-

 

 

 

-

 

 

 

3,234,428

 

 

 

3

 

 

 

870

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

874

 

Stock option exercise

 

 

-

 

 

 

-

 

 

 

1,434,608

 

 

 

1

 

 

 

(1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(0)

Debt conversion - common stock

 

 

-

 

 

 

-

 

 

 

4,548,006

 

 

 

5

 

 

 

1,041

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,046

 

Stock issued for Umbrla acquisition

 

 

-

 

 

 

-

 

 

 

191,772,781

 

 

 

192

 

 

 

80,130

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

80,322

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

780

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

780

 

Net assets attributable to non-controlling interest

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

-

 

 

 

 58,749

 

 

 

58,749

 

Net income attributable to non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(118)

 

 

(118)

Net loss attributable to Unrivaled Brands, Inc.

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,347)

 

 

-

 

 

 

(5,347)

Balance at September 30, 2021

 

 

-

 

 

$-

 

 

 

435,351,821

 

 

$460

 

 

$373,878

 

 

 

2,308,420

 

 

$(808)

 

$(240,274)

 

$62,608

 

 

$195,864

 

  

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

Series A

 

 

Common Stock

 

 

Paid-In

 

 

Treasury Stock

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

 Interest

 

 

Total

 

Balance at December 31, 2020

 

 

8

 

 

$-

 

 

 

194,204,459

 

 

$218

 

 

$275,060

 

 

 

2,308,412

 

 

$(808)

 

$(219,803)

 

$4,463

 

 

$59,130

 

Adoption of ASU 2020-06

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,071)

 

 

 

 

 

 

-

 

 

 

1,059

 

 

 

-

 

 

 

(12)

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

 

 

 

1

 

 

 

245

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

246

 

Stock compensation - services expense

 

 

-

 

 

 

-

 

 

 

3,557,375

 

 

 

4

 

 

 

903

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

907

 

Stock option exercises

 

 

-

 

 

 

-

 

 

 

3,131,555

 

 

 

3

 

 

 

(1)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

Acquisition of A shares

 

 

(8)

 

 

-

 

 

 

16,485,714

 

 

 

16

 

 

 

5,873

 

 

 

8

 

 

 

(0)

 

 

-

 

 

 

-

 

 

 

5,889

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,664

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,664

 

Stock issued for Umbrla Acquisition

 

 

-

 

 

 

-

 

 

 

191,772,781

 

 

 

192

 

 

 

80,130

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

80,322

 

Net assets attributable to non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

58,749

 

 

 

58,749

 

Net income attributable to non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(604)

 

 

(604)

Net loss attributable to Unrivaled Brands, Inc.

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(21,530)

 

 

-

 

 

 

(21,530)

Balance at September 30, 2021

 

 

-

 

 

$-

 

 

 

435,351,821

 

 

$460

 

 

$373,878

 

 

 

2,308,420

 

 

$(808)

 

$(240,274)

 

$62,607

 

 

$195,864

 

    

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

 

 
6

Table of Contents

 

UNRIVALED BRANDS, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

 

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020

 

(UNAUDITED)

 

(in thousands, except for shares)

 

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Convertible Series A

 

 

Common Stock

 

 

Paid-In

 

 

Treasury Stock 

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

 Interest

 

 

Total

 

Balance at June 30, 2020

 

 

8

 

 

$

  -

 

 

 

204,777,168

 

 

$207

 

 

$273,526

 

 

 

2,308,412

 

 

$(808)

 

$

  (225,198

)

 

$4,923

 

 

$52,651

 

Debt conversion - common stock

 

 

-

 

 

 

-

 

 

 

5,627,487

 

 

 

6

 

 

 

417

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

423

 

Stock compensation - employees

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock compensation - directors

 

 

-

 

 

 

-

 

 

 

1,082,700

 

 

 

1

 

 

 

118

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

119

 

Stock compensation - services expense

 

 

-

 

 

 

-

 

 

 

84,615

 

 

 

0

 

 

 

11

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

11

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

298

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

298

 

Net contribution from non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(48)

 

 

(48)
Net income attributable to non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(138)

 

 

(138)
Net loss attributable to Unrivaled Brands, Inc.

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,161)

 

 

-

 

 

 

(18,161)
Balance at September 30, 2020

 

 

8

 

 

$-

 

 

 

211,571,970

 

 

$214

 

 

$274,370

 

 

 

2,308,412

 

 

$(808)

 

$(243,358)

 

$4,738

 

 

$35,156

 

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Non-

 

 

 

 

 

 

Convertible Series A

 

 

Common Stock

 

 

Paid-In

 

 

Treasury Stock 

 

 

Accumulated

 

 

Controlling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

 Interest

 

 

Total

 

Balance at December 31, 2019

 

 

8

 

 

$-

 

 

 

118,004,978

 

 

$120

 

 

$260,516

 

 

 

2,308,412

 

 

$(808 )

 

$(189,686)

 

$5,184

 

 

$75,327

 

Debt conversion - common stock

 

 

-

 

 

 

-

 

 

 

27,694,543

 

 

 

28

 

 

 

2,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,252

 

Stock compensation - employees

 

 

-

 

 

 

-

 

 

 

3,179,544

 

 

 

3

 

 

 

431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

434

 

Stock compensation - directors

 

 

-

 

 

 

-

 

 

 

909,090

 

 

 

1

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Stock compensation - services expense

 

 

-

 

 

 

-

 

 

 

1,159,615

 

 

 

1

 

 

 

151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

152

 

Stock issued for cash

 

 

-

 

 

 

-

 

 

 

2,470,173

 

 

 

2

 

 

 

248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250

 

Stock issued for OneQor acquisition

 

 

-

 

 

 

-

 

 

 

58,154,027

 

 

 

58

 

 

 

9,246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,304

 

Stock option expense

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

1,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,536

 

Net contribution from non-controlling interest

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

33

 

 

 

33

 

Net income attributable to non-controlling interest

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(479)

 

 

(479)
Net loss attributable to Unrivaled Brands, Inc.

 

 

-

 

 

 

-

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

(53,672)

 

 

-

 

 

 

(53,672)
Balance at September 30, 2020

 

 

8

 

 

$-

 

 

 

211,571,970

 

 

$214

 

 

$274,370

 

 

 

2,308,412

 

 

$(808)

 

$(243,358)

 

$4,738

 

 

$35,156

 

 

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

 

 
7

Table of Contents

 

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 (“Halladay”)

 

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 Management Services Agreement and pending acquisition of People’s First Choice, the Company operates the premier cannabis dispensary in Orange County California. The Company also owns dispensaries in California which operate as The Spot in Santa Ana and Blum in Oakland and San Leandro. The Company also has licensed distribution facilities in Portland, Los Angeles, and Sonoma County.

    

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 September 30, 2021 and December 31, 2020, and the consolidated results of operations and cash flows for the quarters ended September 30, 2021 and 2020 have been included. These interim unaudited condensed consolidated financial statements do not include all disclosures required by GAAP for complete financial statements and, therefore, should be read in conjunction with the more detailed audited consolidated financial statements for the year ended December 31, 2020. The December 31, 2020 balances reported herein are derived from the audited consolidated financial statements for the year ended December 31, 2020. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

 

 
8

Table of Contents

 

Going Concern

 

The accompanying financial statements have been prepared assuming that we will continue as a going concern. The risks and uncertainties on the future of our business due to COVID-19 and regulatory uncertainty, combined with the fact that we have historically lost money, have in the past, raised substantial doubt as to our ability to continue as a going concern. However, management believes that the acquisition of UMBRLA and consolidation of People’s, management’s on-going efforts to trim costs and management’s recent efforts to boost sales will lead to cash sustainability. Therefore, management believes that there is no material uncertainty as to the Company’s ability to continue as a going concern. See Note 6 – Investments in Unconsolidated Affiliates for more details about the Hydrofarm investment.

   

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 noninterest 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 zero as of September 30, 2021 and December 31, 2020.

 

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 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.

 

 
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Table of Contents

 

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: thirty-two years for buildings; three to eight years for furniture and equipment; three to five years for computer and software; five years for vehicles and the shorter of the estimated useful life or the underlying lease term for leasehold improvements. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.

 

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

 

 

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.

   

 
10

Table of Contents

 

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.

 

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.

 

Fair Value of Financial Instruments

 

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. 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 liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

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. The Company has not elected the fair value option for any eligible financial instruments.

 

The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of September 30, 2021 and December 31, 2020:

 

 
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September 30, 2021

 

Investments:

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Option to acquire Edible Garden Inc

 

 

330

 

 

 

-

 

 

 

-

 

 

 

330

 

Total

 

$330

 

 

$-

 

 

$-

 

 

$330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2020

Investments:

 

Amount

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Warrants to acquire shares of HydroFarm

 

$10,195

 

 

$-

 

 

$10,195

 

 

$-

 

Shares in HydroFarm

 

 

23,850

 

 

 

-

 

 

 

23,850

 

 

 

-

 

Option to acquire Edible Garden Inc

 

 

330

 

 

 

-

 

 

 

-

 

 

 

330

 

Total

 

$34,375

 

 

$-

 

 

$34,045

 

 

$330

 

 

Business Combinations

 

The Company accounts for its business acquisitions in accordance with ASC 805-10, “Business Combinations.” The Company allocates the total cost of the acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions regarding multiple, highly subjective variables, including those with respect to future cash flows, discount rates, asset lives, and the use of different valuation models, and therefore require considerable judgment. The Company’s estimates and assumptions are based, in part, on the availability of listed market prices or other transparent market data. These determinations affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain.

 

Revenue Recognition and Performance Obligations

 

Cannabis Dispensary, Cultivation and Production

 

The Company recognizes revenue from manufacturing and distribution product sales when our customers obtain control of our products. 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, rebates, promotional adjustments, price adjustments and returns, and net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase.

 

Revenue related to distribution customers 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 shows the revenue break between California, Nevada and Oregon and Nevada operations for the nine months ended September 30, 2021 and 2020:

 

 
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(in thousands)

 

 

 

2021

 

 

2020

 

California

 

$21,640

 

 

$6,138

 

Nevada

 

 

9,829

 

 

 

3,668

 

Oregon

 

 

3,340

 

 

 

-

 

Total

 

$34,809

 

 

$9,806

 

 

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

 

Cannabis Dispensary, Cultivation and Production

 

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 recognized totaled $0.42 million and $0.21 million for the nine months ended September 30, 2021 and 2020, respectively.

 

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 September 30, 2021 and 2020, such net operating losses were offset entirely by a valuation allowance.

 

 
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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 nine months ended September 30, 2021 and 2020. Therefore, the basic and diluted weighted-average shares of common stock outstanding were the same for both years.

 

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):

 

 

 

Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Common stock warrants

 

 

85,336,515

 

 

 

1,088,278

 

Common stock options

 

 

99,504,369

 

 

 

16,259,670

 

 

 

 

 

 

 

 

 

 

 

 

 

184,840,884

 

 

 

17,347,948

 

 

Warrants issued that are exercisable for little to no cost are included in the denominator of basic earnings per share.

 

Recently Adopted Accounting Standards

 

FASB ASU No. 2020-06 “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” – Issued in August 2020, ASU 2020-06 simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and the interest rate on convertible debt instruments will typically be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those years. The Company adopted ASU 2020-06 as of January 1, 2021, utilizing the modified retrospective method of adoption. As a result of adoption of the new standard, previously recognized beneficial conversion features for convertible debt instruments outstanding as of January 1, 2021 were removed from additional paid-in capital and the debt discount. A cumulative impact adjustment was recorded to account for a reduction in interest expense due to a decrease in the discount, which is recognized as interest expense upon conversion of the convertible notes. The January 1, 2021 cumulative effect adjustment to the Company’s financial position was as follows:

 

 

 

As Reported December 31,

2020

 

 

Cumulative

Effect

Adjustment

 

 

As Reported

January 1,

2021

 

Additional Paid-In Capital

 

$275,060

 

 

 

1,071

 

 

$276,131

 

Accumulated Deficit

 

 

219,803

 

 

 

(1,059)

 

 

218,744

 

Debt Discount

 

 

50

 

 

 

(12)

 

 

38

 

 

 
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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 $12.91 million as of September 30, 2021 and was approximately $0.06 million as of December 31, 2020.

 

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 nine months ended September 30, 2021 and 2020.

 

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 nine months ended September 30, 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

 

NuLeaf, Inc.

 

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 recorded at cost and accounted for using the equity method as of December 31, 2019.

 

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 unaudited 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.

 

During the nine months ended September 30, 2021, revenue and net loss attributed to NuLeaf was $9.83 and $0.45 million, respectively. The aggregate carrying values of Sparks 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:

 

 
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Table of Contents

 

 

 

(in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Current assets:

 

 

 

 

 

 

Cash

 

$1,127

 

 

$671

 

Accounts receivable, net

 

 

1,174

 

 

 

483

 

Inventory

 

 

1,761

 

 

 

3,118

 

Prepaid expenses and other current assets

 

 

78

 

 

 

21

 

Total current assets

 

 

4,140

 

 

 

4,293

 

 

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

5,696

 

 

 

7,442

 

Other assets

 

 

321

 

 

 

395

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$10,157

 

 

$12,130

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Total current liabilities

 

$366

 

 

$396

 

Total long-term liabilities

 

 

216

 

 

 

307

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

$582

 

 

$703

 

 

NOTE 5 – BUSINESS COMBINATIONS

 

Umbrla, Inc.

 

On July 1, 2021, the Company completed the acquisition of Umbrla, Inc. Pursuant to Articles of Merger filed by the Company with the Nevada Secretary of State, which became effective upon filing on July 1, 2021. UMBRLA became a wholly owned subsidiary of the Company. The acquisition of Umbrla was accounted for in accordance with ASC 805-10, “Business Combinations.” The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending the finalization of a third-party valuation. The multi-period excess earnings method, an income approach, was utilized to estimate the fair value of UMBRLA customer relationships. The relief-from-royalty method, an income approach, was utilized to estimate the fair value of UMBRLA trade name.

 

Consideration for the merger consisted of 191,772,781shares of common stock issued on the acquisition date, 23,424,674 shares of common stock reserved for issuance in one year, and the assumption of all of UMBRLA’s stock options and warrants outstanding as of July 1, 2021. The fair value of the components of the purchase price is summarized below (in thousands):

 

Purchase Price (in thousands):

 

 

 

 

 

 

 

Stock

 

$52,929

 

Liability for holdback shares

 

 

6,465

 

Stock options assumed

 

 

9,695

 

Warrants assumed

 

 

10,733

 

Total consideration

 

$79,822

 

 

 
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The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending finalization of a third-party valuation. The relief-from-royalty method, an income approach, was utilized to estimate the fair value of Umbrla’s trade name. The multi-period excess earnings method was utilized to estimate the fair value of Umbrla’s licenses. The following table summarizes the preliminary allocation of the purchase price (in thousands):

 

 

 

(in thousands)

 

Assets acquired

 

 

 

Cash

 

$1,290

 

Accounts receivable

 

 

5,831

 

Inventory

 

 

16,702

 

Prepaid & other current assets

 

 

1,543

 

Fixed assets

 

 

1,450

 

Notes receivable

 

 

750

 

Other long-term assets

 

 

3

 

Right-of-use asset

 

 

460

 

Trade name

 

 

28,980

 

Licenses

 

 

32,950

 

Goodwill

 

 

11,881

 

Total assets acquired

 

$101,840

 

 

 

 

 

 

Liabilities assumed

 

 

 

 

Accounts payable/accrued expenses

 

$15,350

 

Short-term lease liability

 

 

379

 

Long-term lease liability

 

 

80

 

Short-term debt

 

 

4,796

 

Long-term debt

 

 

624

 

Deferred income

 

 

288

 

Contingent liabilities

 

 

500

 

Total liabilities assumed

 

$22,017

 

 

During the three months ended September 30, 2021, the Company recognized $15.9 million of revenue and a net loss of $2.0 million from UMBRLA. In the view of management, goodwill reflects the future cash flow expectations for UMBLRA market position in the cannabis industry, synergies and the assembled workforce. Goodwill recorded for the UMBRLA transaction is non-deductible for tax purposes.

 

People’s California

 

On August 15, 2021, the Company entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with People’s California, LLC, a California limited liability company (“People’s California”) and People’s First Choice, LLC, a California limited liability company and wholly owned subsidiary of People’s California (the “Target”), which operates cannabis dispensary operations. Upon the terms and subject to the satisfaction of the conditions described in the Purchase Agreement, the Company will acquire 100% of the outstanding equity of the Target in two separate closings (the “Acquisition”), with 80% of the equity of the Target transferred at the first closing and the remaining 20% of the equity transferred at the second closing.

 

At the first closing of the Acquisition, People’s California shall receive from the Company: (a) a cash payment of $24,000,000 less certain outstanding indebtedness and transaction expenses related to the Acquisition; (b) a secured note in an aggregate principal amount of $36,000,000 less certain indebtedness; and (c) 40,000,000 shares of Company common stock valued at $0.40 per share, subject to terms and conditions of a stockholder’s agreement by and between the Company and People’s California, which includes a one-year lockup of the shares. The Purchase Agreement is subject to customary indemnification provisions.

 

On August 4, 2021, in connection with the Acquisition, People’s California issued senior secured indebtedness to the Company, pursuant to the terms of a certain Secured Promissory Note (the “Deposit Note”). The Deposit Note provided for a one-time advance of $6.00 million (the “Loan”) by the Company to People’s California at a flat rate of 3% per annum. The Deposit Note matures on August 4, 2022.

 

The full principal balance and all outstanding but unpaid interest is due and payable at the maturity date of August 4, 2022; provided that, if the Company consummates the first closing, pursuant to the terms of the Purchase Agreement, then the principal amount of the Deposit Note, but not the accrued interest, shall be deemed repaid, satisfied, or otherwise applied to the cash consideration paid for the equity of the Target and the Deposit Note shall be deemed satisfied.

 

On September 1, 2021, in connection with the Acquisition, People’s California issued senior secured indebtedness to the Company, pursuant to the terms of a certain Secured Promissory Note (the “Second Deposit Note”). The Second Deposit Note provided for a one-time advance of $9.00 million (the “Loan”) by the Company to People’s California at a flat rate of 3% per annum. The Second Deposit Note matures on September 1, 2022.

 

The full principal balance and all outstanding but unpaid interest is due and payable at the maturity date of September 1, 2022; provided that, if the Company consummates the first closing, pursuant to the terms of the Purchase Agreement, then the principal amount of the Second Deposit Note, but not the accrued interest, shall be deemed repaid, satisfied, or otherwise applied to the cash consideration paid for the equity of the Target and the Second Deposit Note shall be deemed satisfied.

 

As of November 15, 2021, this transaction has not yet been completed.

 

 

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On September 1, 2021, the Company entered into a Management Agreement with the Target, which provided the Company with control over the Target’s operation and finances. Management concluded that effective September 1, 2021, the Company became the primary beneficiary of the Target as a result of the Management Agreement, and began consolidating the Target’s financial results. The Company applied acquisition accounting on September 1, 2021 and allocated the fair value of the Target to its assets and liabilities. The preliminary valuation of the Target was based on the purchase price described below (in thousands):

  

Purchase Price (in thousands):

 

 

 

 

 

 

 

Cash

 

$24,000

 

Note payable

 

 

33,749

 

Common stock

 

 

16,000

 

Total consideration

 

$73,749

 

  

The preliminary allocation was based upon the Company’s estimates and assumptions of the assets acquired and liabilities assumed are subject to change within the measurement period pending the finalization of a third-party valuation. The following table summarizes the preliminary allocation of the purchase price:

 

 

 

(in thousands)

 

Assets acquired

 

 

 

Cash

 

$968

 

Inventory

 

 

662

 

Prepaids

 

 

91

 

Fixed Assets

 

 

437

 

Right-of-use asset

 

 

2,105

 

Trade name

 

 

21,630

 

Licenses

 

 

45,990

 

Goodwill

 

 

5,522

 

Total assets acquired

 

$77,405

 

 

 

 

 

 

Liabilities assumed

 

 

 

 

Accounts Payable/Accruals

 

$1,551

 

Short-term lease liability

 

 

540

 

Long-term lease liability

 

 

1,565

 

Total liabilities assumed

 

$3,656

 

 

Supplemental Pro-Forma Information

 

Supplemental information on an unaudited pro-forma basis is reflected as if the Umbrla and People’s California acquisitions had occurred at the beginning of 2020, after giving effect to certain pro forma adjustments primarily related to amortization of acquired intangible assets.

  

The unaudited pro-forma supplemental information is based on estimates and assumptions that the Company believes are reasonable. The supplemental unaudited pro-forma financial information is presented for comparative purposes only and is not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Company completed the acquisitions at the dates indicated, nor is it intended to project the future financial position or operating results of the Company as a result of the Purchase Agreement.

 

 

 

Three Months Ended,

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(unaudited)

 

Pro-forma revenues

 

$52,413

 

 

$23,455

 

Pro-forma net loss from continuing operations

 

$(17,536)

 

$(30,243)

 

 

 

Nine Months Ended,

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

(unaudited)

 

Pro-forma revenues

 

$118,992

 

 

$71,658

 

Pro-forma net loss from continuing operations

 

$(91,343)

 

$(79,739)

 

 

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NOTE 6 – INVESTMENTS IN UNCONSOLIDATED AFFILIATES

 

Hydrofarm

 

On August 28, 2018, the Company entered into a Subscription Agreement with Hydrofarm Holdings Group, Inc. (“Hydrofarm”), one of the leading independent providers of hydroponic products in North America, pursuant to which the Company agreed to purchase from Hydrofarm and Hydrofarm agreed to sell to the Company 2,000,000 “Units”, each Unit consisting of one share of common stock and one warrant to purchase one-half of a share of common stock for an initial exercise price of $5.00 per share, for $2.50 per Unit for an aggregate purchase price of $5.00 million.

 

On November 24, 2020, Hydrofarm’s board of directors and stockholders approved an amendment to their amended and restated certificate of incorporation effecting a 1-for-3.3712 reverse stock split of their issued and outstanding shares of common stock. Subsequent to the reverse split, the Company owned 593,261 shares of common stock in Hydrofarm, with an acquisition price of $8.43 per share, and 296,630 warrants to purchase one share of common stock, with an exercise price of $16.86 per share.

  

On December 14, 2020, Hydrofarm announced the closing of its initial public offering; shares of Hydrofarm began trading on the Nasdaq Global Select Market under the ticker symbol “HYFM.” Hydrofarm’s common shares outstanding on the closing date were 31,720,727; the Company’s ownership percentage in Hydrofarm was approximately 1.9%.

 

Upon closing of Hydrofarm’s initial public offering, the Company determined that the investment in Hydrofarm no longer qualified to be stated at cost, as the equity security had a readily determinable value and therefore should be recorded at fair value. In the fourth quarter of 2020, the Company recorded its investment in Hydrofarm of 593,261 common shares at fair value, and the warrants to acquire an additional 296,630 shares of Hydrofarm common stock at an exercise price of $16.86, at their respective fair values. The Company marked the investment in Hydrofarm to market as of December 31, 2020 and March 31, 2021 and recorded the change in fair value in those period’s earnings.

 

On June 16, 2021, the Company completed disposition of 593,261 shares of Hydrofarm common stock and warrants to purchase 296,630 shares of Hydrofarm common stock at a current exercise price of $16.86 per share, for aggregate gross proceeds of $40.76 million in cash pursuant to a Securities Purchase Agreement (the “SPA”) between the Company and two accredited investors. There is no material relationship between the Company or its affiliates and either of the investors other than in respect of the transactions contemplated by the SPA.

 

NOTE 7 – INVENTORY

 

Raw materials consist of material for NuLeaf and IVXX’s line of cannabis pure concentrates. Work-in-progress consists of cultivation materials and live plants grown at NuLeaf and Black Oak Gallery. Finished goods consists of cannabis products sold in retail.

 

Inventory as of September 30, 2021 and December 31, 2020 consisted of the following:

 

 

 

(in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Raw materials

 

$2,320

 

 

$39

 

Work-in-progress

 

 

2,171

 

 

 

1,196

 

Finished goods

 

 

11,374

 

 

 

367

 

 

 

 

 

 

 

 

 

 

Total inventory

 

$15,865

 

 

$1,602

 

  

NOTE 8 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

 

Property, equipment, and leasehold improvements as of September 30, 2021 and December 31, 2020 consisted of the following: