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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 March 31, 2022
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
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UNRIVALED BRANDS, INC. |
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(Exact Name of Registrant as Specified in its Charter) |
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Nevada |
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26-3062661 |
(State or Other Jurisdiction
of Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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3242 S. Halladay Street
Santa Ana, California
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92705
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(Address of Principal Executive Offices) |
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(Zip Code) |
(888) 909-5564
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange
on which registered |
None |
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UNRV |
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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):
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Large accelerated filer |
o
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Accelerated filer |
o |
Non-accelerated filer |
x |
Smaller reporting company |
x |
Emerging growth company |
o
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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 May 9, 2022, there were 530,331,383 shares outstanding,
85,826,871 shares of common stock issuable upon the exercise of all
our outstanding warrants and 43,336,824 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 MARCH 31, 2022
UNRIVALED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
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March 31,
2022 |
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December 31,
2021 |
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(Unaudited)
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ASSETS
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Current Assets: |
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Cash |
$ |
3,666 |
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$ |
6,891 |
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Accounts receivable, net |
4,026 |
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4,677 |
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Inventory, net |
7,724 |
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7,179 |
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Prepaid expenses and other assets |
2,195 |
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1,272 |
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Notes receivable |
375 |
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750 |
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Current assets of discontinued operations |
5,643 |
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4,495 |
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Total current assets |
23,629 |
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25,264 |
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Property, equipment and leasehold improvements, net |
23,457 |
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23,728 |
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Intangible assets, net |
127,294 |
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129,637 |
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Goodwill |
48,132 |
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48,132 |
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Other assets |
22,235 |
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26,915 |
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Investments |
239 |
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163 |
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Assets of discontinued operations |
4,817 |
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17,984 |
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TOTAL ASSETS |
$ |
249,802 |
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$ |
271,824 |
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LIABILITIES
AND STOCKHOLDERS’ EQUITY |
LIABILITIES: |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ |
36,483 |
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$ |
31,904 |
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Short-term debt |
29,566 |
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45,749 |
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Income taxes payable |
8,124 |
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7,969 |
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Current liabilities of discontinued operations |
2,210 |
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2,087 |
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Total current liabilities |
76,383 |
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87,708 |
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Long-term liabilities: |
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Long-term debt, net of discounts |
7,308 |
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10,006 |
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Deferred tax liabilities |
4,435 |
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6,123 |
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Long-term lease liabilities |
17,000 |
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21,316 |
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Long-term liabilities of discontinued operations |
150 |
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184 |
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Total long-term liabilities |
28,893 |
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37,629 |
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Total liabilities |
105,276 |
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125,337 |
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STOCKHOLDERS’ EQUITY: |
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Common stock, par value $0.001:
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990,000,000 shares authorized as of March 31, 2022 and December 31,
2021; 530,330,007 shares issued and 528,021,587 shares outstanding
as of March 31, 2022; 498,546,295 shares issued and 496,237,883
shares outstanding as of December 31, 2021.
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552 |
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521 |
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Additional paid-in capital |
399,536 |
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392,930 |
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Treasury stock |
(808) |
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(808) |
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Accumulated deficit |
(258,888) |
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(250,015) |
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Total Unrivaled Brands, Inc. Stockholders’ Equity |
140,392 |
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142,628 |
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Non-controlling interest |
4,134 |
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3,859 |
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Total stockholders’ equity |
144,526 |
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146,487 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ |
249,802 |
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$ |
271,824 |
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The accompanying notes are an integral part of the unaudited
consolidated financial statements.
UNRIVALED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except for shares and per-share data)
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Three Months Ended
March 31, |
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2022 |
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2021 |
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Total revenues |
$ |
20,725 |
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$ |
2,057 |
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Cost of goods sold |
14,292 |
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1,866 |
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Gross profit |
6,433 |
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191 |
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Selling, general and administrative expenses |
18,767 |
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12,650 |
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Gain on sale of assets |
(198) |
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— |
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Loss from operations |
(12,136) |
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(12,459) |
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Other income (expense): |
|
|
|
Gain (loss) on extinguishment of debt |
542 |
|
|
(6,161) |
|
Interest expense, net |
(1,766) |
|
|
(71) |
|
Other income |
1,034 |
|
|
345 |
|
Gain on investments |
— |
|
|
6,212 |
|
Total other income (expense) |
(190) |
|
|
325 |
|
|
|
|
|
Loss from continuing operations, before provision for income
taxes |
(12,326) |
|
|
(12,134) |
|
Provision for income taxes for continuing operations |
1,688 |
|
|
— |
|
Net income (loss) from continuing operations |
(10,638) |
|
|
(12,134) |
|
|
|
|
|
Income from discontinued operations, before provision for income
taxes |
2,135 |
|
|
438 |
|
Provision for income taxes for discontinued operations |
(95) |
|
|
— |
|
Net income (loss) from discontinued operations |
2,040 |
|
|
438 |
|
|
|
|
|
NET LOSS |
(8,598) |
|
|
(11,696) |
|
|
|
|
|
Less: Income (loss) attributable to non-controlling interest from
continuing operations |
— |
|
|
— |
|
Less: Income (loss) attributable to non-controlling interest from
discontinued operations |
275 |
|
|
381 |
|
NET LOSS ATTRIBUTABLE TO UNRIVALED BRANDS, INC. |
$ |
(8,873) |
|
|
$ |
(12,077) |
|
|
|
|
|
Loss from continuing operations per common share attributable to
Unrivaled Brands, Inc. common stockholders – basic and
diluted |
$ |
(0.02) |
|
|
$ |
(0.05) |
|
Net Loss per common share attributable to Unrivaled Brands, Inc.
common stockholders – basic and diluted |
$ |
(0.02) |
|
|
$ |
(0.05) |
|
|
|
|
|
Weighted-average number of common shares outstanding – basic and
diluted |
561,818,857 |
|
|
237,752,273 |
|
|
|
|
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
UNRIVALED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
2022 |
|
2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
Net loss |
$ |
(8,598) |
|
|
$ |
(11,696) |
|
Less: Net income (loss) from discontinued operations |
2,040 |
|
|
438 |
|
Net loss from continuing operations |
(10,638) |
|
|
(12,134) |
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
Provision for income taxes |
(1,688) |
|
|
— |
|
Bad debt expense |
1,220 |
|
|
— |
|
Depreciation and amortization |
3,289 |
|
|
529 |
|
|
|
|
|
Gain on sale of assets |
(198) |
|
|
— |
|
|
|
|
|
Gain on debt forgiveness |
— |
|
|
(86) |
|
Gain on sale of investments |
— |
|
|
(6,212) |
|
Amortization of operating lease right-of-use asset |
580 |
|
|
195 |
|
Loss (gain) on extinguishment of debt |
(542) |
|
|
6,161 |
|
Non-cash interest expense |
346 |
|
|
27 |
|
Non-cash portion of severance expense |
— |
|
|
7,990 |
|
Stock-based compensation |
2,187 |
|
|
398 |
|
Change in operating assets and liabilities: |
|
|
|
Accounts receivable |
(570) |
|
|
(148) |
|
Inventory |
(544) |
|
|
299 |
|
Prepaid expenses and other current assets |
(922) |
|
|
(290) |
|
Other assets |
(638) |
|
|
(23) |
|
Accounts payable and accrued expenses |
5,707 |
|
|
882 |
|
Operating lease liabilities |
(624) |
|
|
(133) |
|
Net cash provided by / (used in) operating activities - continuing
operations |
(3,035) |
|
|
(2,545) |
|
Net cash provided by / (used in) operating activities -
discontinued operations |
(62) |
|
|
(366) |
|
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES |
(3,097) |
|
|
(2,911) |
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
Purchase of property, equipment and leasehold
improvements |
(926) |
|
|
(50) |
|
Repayment of notes receivable |
375 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of assets |
450 |
|
|
— |
|
Net cash provided by / (used in) investing activities - continuing
operations |
(101) |
|
|
(50) |
|
Net cash provided by / (used in) investing activities -
discontinued operations |
14,209 |
|
|
— |
|
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES |
14,108 |
|
|
(50) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
Proceeds from issuance of notes payable |
— |
|
|
3,500 |
|
Payments of debt principal |
(18,611) |
|
|
(6) |
|
Cash paid for debt discount |
— |
|
|
(178) |
|
Proceeds from issuance of common stock |
4,375 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by / (used in) financing activities - continuing
operations |
(14,236) |
|
|
3,316 |
|
|
|
|
|
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES |
(14,236) |
|
|
3,316 |
|
|
|
|
|
NET CHANGE IN CASH |
(3,225) |
|
|
355 |
|
|
|
|
|
Cash at beginning of period |
6,891 |
|
|
217 |
|
|
|
|
|
CASH AT END OF PERIOD |
$ |
3,666 |
|
|
$ |
572 |
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: |
|
|
|
Cash paid for interest |
$ |
1,445 |
|
|
$ |
182 |
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE FOR NON-CASH INVESTING AND FINANCING
ACTIVITIES: |
|
|
|
Debt principal and accrued interest converted into common
stock |
$ |
52 |
|
|
$ |
3,596 |
|
|
|
|
|
Stock options exercised on a net share basis |
$ |
— |
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
Promissory note issued for severance |
$ |
— |
|
|
$ |
2,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 THREE MONTHS ENDED MARCH 31, 2022
(UNAUDITED)
(in thousands, except for shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
|
|
|
Additional
Paid-In Capital |
|
|
|
|
|
Accumulated
Deficit |
|
Non-
Controlling
Interest |
|
Total |
|
Convertible
Series A |
|
Common Stock |
|
|
Treasury Stock |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
|
|
Balance at December 31, 2021
|
8 |
|
|
$ |
— |
|
|
496,237,883 |
|
|
$ |
521 |
|
|
$ |
392,930 |
|
|
2,308,420 |
|
|
$ |
(808) |
|
|
$ |
(250,015) |
|
|
$ |
3,859 |
|
|
$ |
146,487 |
|
Warrants exercise |
— |
|
|
— |
|
|
4,759,708 |
|
|
5 |
|
|
(5) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Stock compensation - employees |
— |
|
|
— |
|
|
900,000 |
|
|
1 |
|
|
181 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
182 |
|
Stock compensation - directors |
— |
|
|
— |
|
|
683,332 |
|
|
1 |
|
|
183 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercise |
— |
|
|
— |
|
|
146,212 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Debt conversion - common stock |
— |
|
|
— |
|
|
294,452 |
|
|
— |
|
|
75 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
75 |
|
Stock issued for cash |
— |
|
|
— |
|
|
25,000,000 |
|
|
24 |
|
|
4,351 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,375 |
|
Stock option expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,821 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
275 |
|
|
275 |
|
Net loss attributable to Unrivaled Brands, Inc. |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(8,873) |
|
|
— |
|
|
(8,873) |
|
Balance at March 31, 2022
|
8 |
|
|
$ |
— |
|
|
528,021,587 |
|
|
$ |
552 |
|
|
$ |
399,536 |
|
|
2,308,420 |
|
|
$ |
(808) |
|
|
$ |
(258,888) |
|
|
$ |
4,134 |
|
|
$ |
144,526 |
|
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 THREE MONTHS ENDED MARCH 31, 2021
(UNAUDITED)
(in thousands, except for shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
|
|
|
Additional Paid-In Capital |
|
|
|
|
|
Accumulated Deficit |
|
Non-
Controlling
Interest |
|
Total |
|
Convertible Series A |
|
Common Stock |
|
|
Treasury Stock |
|
|
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
Shares |
|
Amount |
|
|
|
Balance at December 31, 2020
|
— |
|
|
$ |
— |
|
|
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 |
— |
|
|
— |
|
|
20,391,774 |
|
|
20 |
|
|
3,989 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,009 |
|
Warrants issued to Dominion |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,978 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,978 |
|
Stock compensation - directors |
— |
|
|
— |
|
|
541,666 |
|
|
1 |
|
|
121 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
122 |
|
Stock compensation - services expense |
— |
|
|
— |
|
|
322,947 |
|
|
— |
|
|
32 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
32 |
|
Stock option exercises |
— |
|
|
— |
|
|
1,226,230 |
|
|
1 |
|
|
(1) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Acquisition of A shares |
— |
|
|
— |
|
|
16,485,714 |
|
|
16 |
|
|
5,873 |
|
|
8 |
|
|
— |
|
|
— |
|
|
— |
|
|
5,889 |
|
Stock option expense |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
244 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
244 |
|
Net income attributable to non-controlling interest |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
381 |
|
|
381 |
|
Net loss attributable to Unrivaled Brands, Inc. |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,077) |
|
|
— |
|
|
(12,077) |
|
Balance at March 31, 2021
|
— |
|
|
$ |
— |
|
|
233,172,790 |
|
|
$ |
256 |
|
|
$ |
290,225 |
|
|
2,308,420 |
|
|
$ |
(808) |
|
|
$ |
(230,821) |
|
|
$ |
4,844 |
|
|
$ |
63,696 |
|
The accompanying notes are an integral part of the unaudited
consolidated financial statements
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 People's in Los Angeles, 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 March 31, 2022 and
December 31, 2021, and the consolidated results of operations
and cash flows for the quarters ended March 31, 2022 and 2021
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, 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 19,
"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 16,
"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 March 31, 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
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 7,
“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.
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 March 31,
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.
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 three months ended March 31, 2022 and
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2022 |
|
2021 |
California |
$ |
18,445 |
|
|
$ |
2,057 |
|
Oregon |
2,280 |
|
|
— |
|
Total |
$ |
20,725 |
|
|
$ |
2,057 |
|
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 $0.93
million and $0.03 million for the three months ended
March 31, 2022 and 2021, 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 March 31, 2022 and 2021, such net operating losses were
offset entirely by a valuation allowance.
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 months ended
March 31, 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
2022 |
|
2021 |
|
|
|
|
Common stock warrants |
24,945,055 |
|
|
16,076,556 |
|
Common stock options |
87,851,618 |
|
|
11,937,987 |
|
|
112,796,673 |
|
|
28,014,543 |
|
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
$0.22 million and $5.42 million as of March 31, 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 months ended March 31, 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 months ended March 31, 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 with an expected closing in 2022. Nuleaf
operations are considered held for sale as of March 31, 2022
and are therefore included in Discontinued Operations as of and for
the three months ended March 31, 2022 and 2021.
During the three months ended March 31, 2022, revenue and net
loss attributed to NuLeaf was $2.81 million and $0.07 million,
respectively. During the three months ended March 31, 2021,
revenue and net loss attributed to NuLeaf was $3.06 million and
$0.76 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2022 |
|
December 31,
2021 |
Current assets: |
|
|
|
Cash |
$ |
863 |
|
|
$ |
1,544 |
|
Accounts receivable, net |
2,261 |
|
|
1,553 |
|
Inventory |
1,718 |
|
|
1,359 |
|
Prepaid expenses and other current assets |
85 |
|
|
39 |
|
Total current assets |
4,927 |
|
|
4,495 |
|
|
|
|
|
Property, equipment and leasehold improvements, net |
4,516 |
|
|
5,099 |
|
Other assets |
262 |
|
|
295 |
|
TOTAL ASSETS |
$ |
9,705 |
|
|
$ |
9,889 |
|
|
|
|
|
Liabilities: |
|
|
|
Total current liabilities |
$ |
378 |
|
|
$ |
350 |
|
Total long-term liabilities |
150 |
|
|
184 |
|
TOTAL LIABILITIES |
$ |
528 |
|
|
$ |
534 |
|
NOTE 5 – 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 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 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.
NOTE 6 – 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 March 31, 2022 and
December 31, 2021 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2022 |
|
December 31,
2021 |
|
|
|
|
Raw materials |
$ |
2,371 |
|
|
$ |
2,258 |
|
Work-in-progress |
340 |
|
|
1,077 |
|
Finished goods |
5,013 |
|
|
3,844 |
|
Total inventory |
$ |
7,724 |
|
|
$ |
7,179 |
|
NOTE 7 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
NET
Property, equipment, and leasehold improvements as of
March 31, 2022 and December 31, 2021 consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2022 |
|
December 31,
2021 |
|
|
|
|
Land and building |
$ |
7,581 |
|
|
$ |
7,787 |
|
Furniture and equipment |
4,508 |
|
|
3,873 |
|
Computer hardware |
407 |
|
|
348 |
|
Leasehold improvements |
14,518 |
|
|
14,409 |
|
Vehicles |
1,142 |
|
|
1,142 |
|
Construction in progress |
1,910 |
|
|
1,832 |
|
Subtotal |
30,066 |
|
|
29,391 |
|
Less accumulated depreciation |
(6,609) |
|
|
(5,663) |
|
Property, equipment and leasehold improvements, net |
$ |
23,457 |
|
|
$ |
23,728 |
|
Depreciation expense related to property, equipment and leasehold
improvements for the three months ended March 31, 2022 and
March 31, 2021 was $0.95 million and $0.34 million,
respectively.
On January 21, 2022, the Company sold its land in Spanish Springs,
Nevada for $0.45 million to an unrelated third
party.
NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Intangible Assets, Net
Intangible assets, net consisted of the following as of
March 31, 2022 and December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
March 31, 2022 |
|
December 31, 2021 |
|
Estimated
Useful
Life in
Years |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Net
Carrying
Value |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Net
Carrying
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships |
3 to 5
|
|
$ |
7,400 |
|
|
$ |
(7,400) |
|
|
$ |
— |
|
|
$ |
7,400 |
|
|
$ |
(7,400) |
|
|
$ |
— |
|
Trademarks and Patent |
2 to 8
|
|
4,500 |
|
|
(1,303) |
|
|
3,197 |
|
|
4,500 |
|
|
(750) |
|
|
3,750 |
|
Operating Licenses |
14 |
|
100,701 |
|
|
(8,654) |
|
|
92,047 |
|
|
100,701 |
|
|
(6,864) |
|
|
93,837 |
|
Total Amortizing Intangible Assets |
|
|
112,601 |
|
|
(17,357) |
|
|
95,244 |
|
|
112,601 |
|
|
(15,014) |
|
|
97,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Amortizing Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name |
Indefinite |
|
32,050 |
|
|
— |
|
|
32,050 |
|
|
32,050 |
|
|
— |
|
|
32,050 |
|
Total Non-Amortizing Intangible Assets |
|
|
32,050 |
|
|
— |
|
|
32,050 |
|
|
32,050 |
|
|
— |
|
|
32,050 |
|
Total Intangible Assets, Net |
|
|
$ |
144,651 |
|
|
$ |
(17,357) |
|
|
$ |
127,294 |
|
|
$ |
144,651 |
|
|
$ |
(15,014) |
|
|
$ |
129,637 |
|
Amortization expense for the three months ended March 31, 2022
and 2021 was $2.34 million and $0.19 million,
respectively.
Goodwill
Goodwill arises from the purchase price for acquired businesses
exceeding the fair value of tangible and intangible assets acquired
less assumed liabilities.
The Company conducts its annual goodwill impairment assessment on
September 30, and between annual tests if the Company becomes aware
of an event or a change in circumstances that would indicate the
carrying value may be impaired. Management did not identify any
impairment triggers during the first quarter of 2022 and concluded
there was no impairment of goodwill.
For the purpose of the goodwill impairment assessment, the Company
has the option to perform a qualitative assessment (commonly
referred to as “step zero”) to determine whether further
quantitative analysis for impairment of goodwill or
indefinite-lived intangible assets is necessary or a quantitative
assessment (“step one”) where the Company estimates the fair value
of each reporting unit using a discounted cash flow method (income
approach). Goodwill is assigned to the reporting unit, which is the
operating segment level or one level below the operating segment.
The balance of goodwill at March 31, 2022 and
December 31, 2021 remained unchanged at $48.13
million.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
March 31,
2022 |
|
December 31,
2021 |
|
|
|
|
Accounts Payable |
$ |
19,185 |
|
|
$ |
16,804 |
|
Tax Liabilities |
7,452 |
|
|
5,147 |
|
Accrued Payroll and Benefits |
1,283 |
|
|
1,409 |
|
Current Lease Liabilities |
2,200 |
|
|
3,120 |
|
Other Accrued Expenses |
6,363 |
|
|
5,424 |
|
Total Accounts Payable and Accrued Expenses |
$ |
36,483 |
|
|
$ |
31,904 |
|
NOTE 10 – NOTES PAYABLE
Notes payable as of March 31, 2022 and December 31, 2021
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2022 |
|
December 31,
2021 |
Promissory note dated January 18, 2018, issued for the purchase of
real property. The promissory note was collateralized by the land
and building purchased and matured January 18, 2022. The promissory
note bears interest at 12.0% for year one and escalates 0.5% per
year thereafter. The full principal balance and accrued interest
are due at maturity. In the event of default, the note is
convertible at the holder's option.
|
$ |
— |
|
|
$ |
6,500 |
|
Promissory note dated May 4, 2020, issued to Harvest Small Business
Finance, LLC, an unaffiliated third party. Loan was
part of the Paycheck Protection Program ("PPP Loan") offered by the
U.S. Small Business Administration. The interest rate
on the note was 1.0%. The note required interest and
principal payments seven months from July 2020. The
note matured in two years on May 4, 2022. |
20 |
|
|
562 |
|
Unsecured promissory note dated January 22, 2021, issued to Michael
Nahass (a related party), which matured January 25, 2022, and bore
interest at a rate of 3% per annum.
|
— |
|
|
1,050 |
|
Convertible promissory note dated January 25, 2021, issued to
accredited investors, which matures July 22, 2022 and bears
interest at a rate of 8% per annum. The conversion price is $0.175
per share.
|
3,450 |
|
|
3,500 |
|
Promissory note dated July 27, 2021, issued to Arthur Chan which
matures July 26, 2024, and bears interest at a rate of 12% per
annum.
|
2,500 |
|
|
2,500 |
|
Senior Secured Promissory Note dated November 22, 2021 issued to
Dominion Capital LLC, which matured on February 22, 2022 and bore
interest at a rate of 12% per annum.
|
— |
|
|
2,500 |
|
Unsecured promissory note without interest from a related party.
The loan is paid in 20 equal installments and matures on August 1,
2022. |
60 |
|
|
90 |
|
Promissory note dated June 1, 2020, issued as part of the Paycheck
Protection Program ("PPP Loan") offered by the U.S. Small Business
Administration. The interest rate on the note is 1.0%. The note
matures on June 1, 2022. |
297 |
|
|
297 |
|
Line of credit agreement entered on March 31, 2021, which matured
on March 31, 2022 and bore interest of 2.9% per 30
days.
|
— |
|
|
4,500 |
|
Promissory note dated October 1, 2021, issued to Sterling Harlan as
part of the SilverStreak Solutions acquisition. The interest rate
on the note was 3.0%. The note matured on April 1,
2022.
|
2,000 |
|
|
2,000 |
|
Promissory note dated October 1, 2021, issued to Sterling Harlan as
part of the SilverStreak Solutions acquisition. The interest rate
on the note is 3.0%. The note matures on October 1,
2022.
|
2,500 |
|
|
2,500 |
|
Secured promissory note dated November 22, 2021 issued to People's
California, LLC, which matures on November 22, 2023 and bears
interest at a rate of 8.0% per annum. Payments due include $2.00
million plus accrued interest for the first twelve months followed
by payments of $1.00 million plus accrued interest until
maturity.
|
24,569 |
|
|
28,569 |
|
Promissory note dated May 1, 2019, assumed by the Company on July
1, 2021 in connection with the purchase of real property, from a
related party. The note matures on May 15, 2039 and bears interest
at a rate of 9.89% per year.
|
2,944 |
|
|
2,954 |
|
Notes payable - promissory notes |
$ |
38,340 |
|
|
$ |
57,522 |
|
Vehicle loans |
184 |
|
|
204 |
|
Less: Short-term debt |
(29,566) |
|
|
(45,749) |
|
Less: Debt discount |
(1,650) |
|
|
(1,971) |
|
Net Long-Term Debt |
$ |
7,308 |
|
|
$ |
10,006 |
|
During the three months ended March 31, 2022, the Company
converted debt and accrued interest into 294,452 shares of the
Company’s common stock. See Note 12, "Stockholders'
Equity"
for further information.
Series A Preferred Stock Purchase Agreement
On January 22, 2021, the Company entered into an unsecured
promissory note in the amount of $1.05 million in connection
with the Series A Preferred Stock Purchase Agreement with Michael
A. Nahass. The promissory note bears interest at the rate of 3% and
matures on or about January 25, 2022. On February 8, 2022, the
Company paid the outstanding principal and interest on the
$1.05 million promissory note held by Mr. Nahass. This payment
satisfied the obligation and retired the note.
Debt Related to Dyer Property
On January 18, 2018, the Company entered into a $6.50 million
promissory note for the purchase of land and building in Santa Ana,
CA (the "Dyer Property"). On November 22, 2021, the Company issued
a senior secured promissory note to Dominion Capital LLC in the
amount of $2.50 million, which matures on February 22, 2022
and bears interest at a rate of 12% per annum. As a result of the
sale of the Dyer Property on February 10, 2022, the Company retired
a total of $9.00 million in outstanding debt related to the
Dyer Property. See Note 16, "Discontinued
Operations"
for further information.
Forgiveness of PPP Note
On May 4, 2020, OneQor Technologies, Inc entered into a promissory
note (the “PPP Note”) with Harvest Small Business Finance, LLC (the
“Lender”), pursuant to which the Lender agreed to make a loan to
the Company under the Paycheck Protection Program (“PPP”) offered
by the U.S. Small Business Administration in a principal amount of
$0.56 million. The PPP Note incurs interest at a fixed rate of
1% per annum and matures on May 4, 2022. On February 16, 2022, the
Company received notice of forgiveness of approximately $0.54
million of the PPP Note. The remainder is to be paid off over the
next three years.
Debt Assumed in the UMBRLA Acquisition
On July 1, 2021, upon the closing of the UMBRLA acquisition, the
Company assumed a line of credit agreement with Bespoke Financial,
Inc. for the lesser of a maximum draw amount of $4.50 million
and a borrowing base consisting of eligible accounts receivable
inventory and cash that serves as collateral. The line of credit
accrues interest at a rate of 2.9% every 30 days and expires on
March 31, 2022. On March 9, 2022, the Company paid the outstanding
principal and interest due on the line of credit facility. The
payment satisfied the obligation and retired the debt.
NOTE 11 – LEASES
A lease provides the lessee the right to control the use of an
identified asset for a period of time in exchange for
consideration. Operating lease right-of-use assets are included in
other assets while lease liabilities are a line item on the
Company’s Consolidated Balance Sheets. Right-of-use assets
represent the Company’s right to use an underlying asset for the
lease term and operating lease liabilities represent the Company’s
obligation to make lease payments arising from the lease. The
Company determines if an arrangement is a lease at inception.
Right-of-use assets and liabilities are recognized at the lease
commencement date based on the present value of lease payments over
the lease term. Most operating leases contain renewal options that
provide for rent increases based on prevailing market conditions.
The terms used to calculate the right-of-use assets for certain
properties include the renewal options that the Company is
reasonably certain to exercise.
The discount rate used to determine the commencement date present
value of lease payments is the interest rate implicit in the lease,
or when that is not readily determinable, the Company utilizes its
secured borrowing rate. Right-of-use assets include any lease
payments required to be made prior to commencement and exclude
lease incentives. Both right-of-use assets and lease liabilities
exclude variable payments not based on an index or rate, which are
treated as period costs. The Company’s lease agreements do not
contain significant residual value guarantees, restrictions or
covenants.
The Company occupies office facilities under lease agreements that
expire at various dates. In addition, office, production and
transportation equipment is leased under agreements that expire at
various dates. The Company does not have any significant finance
leases. Total operating lease costs for the three months ended
March 31, 2022 and March 31, 2021 were
$1.21 million and $0.41 million, respectively. Short-term lease
costs during the 2022 and 2021 fiscal quarters ended March 31
were not material.
As of March 31, 2022 and December 31, 2021, short term
lease liabilities of $2.20 million and $3.12 million are included
in “Accounts
Payable and Accrued Expenses” on the consolidated
balance sheets, respectively. The table below presents total
operating lease right-of-use assets and lease liabilities as of
March 31, 2022 and December 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2022 |
|
December 31,
2021 |
Operating lease right-of-use assets |
$ |
18,739 |
|
|
$ |
24,448 |
|
Operating lease liabilities |
$ |
19,200 |
|
|
$ |
24,436 |
|
The table below presents the maturities of operating lease
liabilities as of March 31, 2022:
|
|
|
|
|
|
|
(in thousands)
|
|
Operating
Leases
|
2022 (remaining)
|
$ |
2,771 |
|
2023 |
3,652 |
|
2024 |
3,727 |
|
2025 |
3,292 |
|
2026 |
2,675 |
|
Thereafter |
10,777 |
|
Total lease payments |
26,894 |
|
Less: discount |
(7,694) |
|
Total operating lease liabilities |
$ |
19,200 |
|
The table below presents the weighted average remaining lease term
for operating leases and weighted average discount rate used in
calculating operating lease right-of-use assets:
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
March 31,
2022 |
March 31,
2021 |
Weighted average remaining lease term (years) |
6.3 |
8.2 |
Weighted average discount rate |
11.3 |
% |
11.6 |
% |
NOTE 12 – EQUITY
Common Stock
The Company authorized 990,000,000 shares of common stock with
$0.001 par value per share. As of March 31, 2022 and
December 31, 2021, 528,021,587 and 496,237,883 shares of
common stock were outstanding, respectively.
On February 1, 2022 the Company granted 294,452 shares Common Stock
to Apollo Management Group, Inc. in exchange for the $0.05 million
Convertible Promissory Note that Apollo Management Group, Inc.
held
and its’ accrued interest. The fair value of the shares was $0.08
million.
On February 28, 2022, the Company sold 25,000,000 shares for an
aggregate sales price of $4.35 million to Arthur Chan, an unrelated
party. The shares were restricted.
During the
three months ended
March 31, 2022
, the Company issued 4,759,708 and 146,212 common shares for the
cashless exercise of warrants and options,
respectively.
During the
three months ended
March 31, 2022,
the Company issued 900,000 and 683,332 common shares to employees
and directors, respectively. As a result, the Company recorded
stock compensation of $0.18 million and $0.18 million,
respectively.
NOTE 13 – STOCK-BASED COMPENSATION
Equity Incentive Plans
In the first quarter of 2016, the Company adopted the 2016 Equity
Incentive Plan. In the fourth quarter of 2018, the Company adopted
the 2018 Equity Incentive Plan. In July 2021, the Company assumed
the 2019 Equity Incentive Plan as part of the acquisition of
UMBRLA. The following table contains information about the
Company's equity incentive plans as of March 31,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards Reserved for Issuance |
|
Awards Exercised |
|
Awards Outstanding |
|
Awards Available for Grant |
|
|
|
|
|
|
|
|
2016 Equity Incentive Plan |
999,906 |
|
|
— |
|
|
499,953 |
|
|
499,953 |
|
2018 Equity Incentive Plan |
30,159,437 |
|
|
4,080,088 |
|
|
14,009,842 |
|
|
12,069,507 |
|
2019 Equity Incentive Plan |
101,475,719 |
|
|
54,383 |
|
|
73,014,714 |
|
|
28,406,622 |
|
Stock Options
The following table summarizes the Company’s stock option activity
and related information for the three months ended March 31,
2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-
Average Exercise
Price Per Share |
|
Weighted-
Average
Remaining
Contractual
Life |
|
Aggregate
Intrinsic
Value of
In-the-Money
Options |
|
|
|
|
|
|
|
|
Options outstanding as of January 1, 2022 |
88,251,380 |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
(146,212) |
|
$ |
0.08 |
|
|
|
|
|
Forfeited |
(223,788) |
|
$ |
0.15 |
|
|
|
|
|
Expired |
(29,762) |
|
$ |
0.34 |
|
|
|
|
|
Options outstanding as of March 31, 2022
|
87,851,618 |
|
$ |
0.20 |
|
|
8.5 years |
|
$ |
526 |
|
Options exercisable as of March 31, 2022
|
41,296,676 |
|
$ |
0.26 |
|
|
7.4 years |
|
$ |
1,338 |
|
As of March 31, 2022, there was $6.37 million total
unrecognized stock-based compensation. Such costs are expected to
be recognized over a weighted-average period of approximately 1.6
years.
The Company recognizes compensation expense for stock option awards
on a straight-line basis over the applicable service period of the
award. The service period is generally the vesting
period.
The Company does not have sufficient historical information to
develop reasonable expectations about future exercise patterns and
post-vesting employment termination behavior. Hence, the Company
uses the “simplified method” described in Staff Accounting Bulletin
107 to estimate the expected term of share option
grants.
The expected stock price volatility assumption was determined by
examining the historical volatilities for the Company’s common
stock. The Company will continue to analyze the historical stock
price volatility and expected term assumptions as more historical
data for the Company’s common stock becomes available.
The risk-free interest rate assumption is based on the U.S.
treasury instruments whose term was consistent with the expected
term of the Company’s stock options.
The expected dividend assumption is based on the Company’s history
and expectation of dividend payouts. The Company has never paid
dividends on its common stock and does not anticipate paying
dividends on its common stock in the foreseeable future.
Accordingly, the Company has assumed no dividend yield for purposes
of estimating the fair value of the Company stock-based
compensation.
Stock-Based Compensation Expense
The following table sets forth the total stock-based compensation
expense resulting from stock options and restricted grants of
common stock to employees, directors and non-employee consultants
in the consolidated statement of operations which are included in
selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except for shares / options) |
|
|
For the Three Months Ended |
|
|
March 31, 2022 |
|
March 31, 2021 |
Type of Award |
|
Number of
Shares or
Options
Granted |
|
Stock-Based
Compensation
Expense |
|
Number of
Shares or
Options
Granted |
|
Stock-Based
Compensation
Expense |
|
|
|
|
|
|
|
|
|
Stock options |
|
114,006,195 |
|
$ |
1,821 |
|
|
500,000 |
|
$ |
244 |
|
|
|
|
|
|
|
|
|
|
Stock grants: |
|
|
|
|
|
|
|
|
Employees (common stock) |
|
900,000 |
|
|
$ |
182 |
|
|
— |
|
— |
|
Directors (common stock) |
|
683,332 |
|
$ |
184 |
|
|
541,666 |
|
121 |
|
Non–employee consultants (common stock) |
|
— |
|
$ |
— |
|
|
332,947 |
|
33 |
|
|
|
|
|
|
|
|
|
|
Total stock–based compensation expense |
|
|
|
$ |
2,187 |
|
|
|
|
$ |
398 |
|
On March 10, 2022, the Company terminated the employment of Oren
Schauble, the Company’s President. On March 13, 2022, the Company
terminated the employment of Francis Knuettel II, the Company’s
Chief Executive Officer. The Company entered into separation
agreements with each of Mr. Knuettel and Mr. Schauble regarding the
compensation to be granted to each of them regarding their
separation from the Company. In addition, on March 17, 2022 the
Company entered into a consulting agreement with Mr. Schauble
pursuant to which he will continue to provide certain services to
the Company through a future agreed upon date. The Company granted
Mr. Schauble 910,623 restricted shares of the Company's Common
Stock in four monthly installments.
NOTE 14 – WARRANTS
The following table summarizes warrant activity for the three
months ended March 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
Weighted-Average
Exercise
Price |
|
|
|
|
Warrants Outstanding as of January 1, 2022 |
85,826,872 |
|
|
$ |
0.22 |
|
Issued |
— |
|
|
$ |
— |
|
Exercised |
— |
|
|
$ |
— |
|
Warrants Outstanding as of March 31, 2022
|
85,826,872 |
|
|
$ |
0.14 |
|
The Company estimated the fair value of the warrants issued in 2022
utilizing the Black-Scholes option-pricing model with the following
weighted-average inputs:
|
|
|
|
|
|
|
March 31,
2022 |
Expected term (years) |
2.5 |
Volatility |
115.2 |
% |
Risk-free interest rate |
0.1 |
% |
Dividend yield |
0.0 |
% |
NOTE 15 – COMMITMENTS AND CONTINGENCIES
California Operating Licenses
The Company’s subsidiaries have operated compliantly and have been
eligible for applicable licenses and renewals of those
licenses.
Litigation and Claims
The Company is the subject of lawsuits and claims arising in the
ordinary course of business from time to time. The Company reviews
any such legal proceedings and claims on an ongoing basis and
follows appropriate accounting guidance when making accrual and
disclosure decisions. The Company establishes accruals for those
contingencies where the incurrence of a loss is probable and can be
reasonably estimated, and it discloses the amount accrued and the
amount of a reasonably possible loss in excess of the amount
accrued if such disclosure is necessary for the Company’s financial
statements to not be misleading. To estimate whether a loss
contingency should be accrued by a charge to income, the Company
evaluates, among other factors, the degree of probability of an
unfavorable outcome and the ability to make a reasonable
estimate
of the amount of the loss. The Company does not record liabilities
when the likelihood that the liability has been incurred is
probable, but the amount cannot be reasonably estimated. Based upon
present information, the Company determined that there was one
matter that required an accrual as of March 31, 2022. We have
accrued $0.50 million for the Magee litigation detailed
below.
Magee v. UMBRLA, Inc. et al.
-
The company is currently involved in a breach of contract action
brought by former LTRMN, Inc. (“LTRMN”) employee, Kurtis Magee,
which was filed by Mr. Magee in the Superior Court of the State of
California, County of Orange, on July 21, 2020. Mr. Magee alleges
breach of contract in connection with Mr. Magee’s separation
agreement with LTRMN. Trial in this matter is set for December 5,
2022.
Terra Tech Corp. v. National Fire & Marine Ins. Co., et
al.
-
On or about December 6, 2021, the Company initiated an action in
California Superior Court, County of Alameda, against National Fire
& marine Insurance Company (“National Fire”), Woodruff-Sawyer
& Co., and R-T Specialty, LLC in connection with the denial of
an insurance claim by National Fire following the vandalism and
looting of the Company’s Bay Area dispensaries in May 2020. The
Company alleges that coverage levels for the Company were changed
after the policy was bound, in a manner inconsistent with the
binder, which prevented the Company from fully recovering its
losses in connection with the incidents. Trial in this matter has
not yet been set.
Unrivaled Brands, Inc. et al v. Mystic Holdings, Inc., et
al.
-
On May 11, 2022, Unrivaled and its wholly-owned subsidiary,
Medifarm I, LLC (“Plaintiffs”) initiated an action in the Second
Judicial District of the State of Nevada, County of Washoe, against
Mystic Holdings, Inc. (“Mystic”) and Picksy Reno LLC (collectively
with Mystic, “Defendants”) in connection with Defendants’ failure
to honor Plaintiffs’ exercise of a put option entitling Plaintiffs
to the repurchase of approximately 8,332,096 shares of Mystic at a
price of $1.00 per share. No proceedings have yet been held in this
matter and a trial date has not been scheduled.
NOTE 16 – DISCONTINUED OPERATIONS
NuLeaf
On November 17, 2021, Medifarm III, LLC (“Medifarm”), a
wholly-owned subsidiary of the Company, entered into a Membership
Interest Purchase Agreement (the “Purchase Agreement”) with NuLeaf,
Inc., a Nevada corporation
(“NuLeaf”). Upon the terms and subject to the satisfaction of the
conditions described in the Purchase Agreement, Medifarm will sell
its fifty percent (50%) of the outstanding membership interests of
each of NuLeaf Reno Production, LLC (“NuLeaf Reno”) and NuLeaf
Sparks Cultivation, LLC (“NuLeaf Sparks”) to NuLeaf, which
currently owns the remaining fifty percent (50%) of the membership
interests of NuLeaf Reno and NuLeaf Sparks, for aggregate
consideration of $6.50 million in cash. The Company will
recognize a gain upon completion of the sale of the assets, equal
to the difference between the consideration paid and the book value
of the assets as of the disposition date, less direct costs to
sell, and reflect such loss in discontinued operations upon closing
of the transaction, which is expected to occur during
2022.
Nevada Dispensaries
During fiscal year 2019 and 2020, the Company entered into Asset
Purchase Agreements with unrelated third parties to sell
substantially all of the assets of the Company related to the
Company's dispensaries located at:
•1130
East Desert Inn Road, Las Vegas, NV 89109
•1085
S. Virginia St., Suite A, Reno, NV 89502
•3650
S. Decatur Blvd., Las Vegas, NV
The dispensaries are collectively referred to as the "Nevada
dispensaries". The transactions for the sale of the Nevada
dispensaries closed upon receiving all required government
approvals during the fiscal fourth quarter ended December 31,
2021.
Real Estate
On December 7, 2021, 620 Dyer LLC, a wholly-owned subsidiary of the
Company, entered into a Standard Offer, Agreement and Escrow
Instructions for Purchase of Real Estate (the “PSA”) with FRO
III/SMA Acquisitions, LLC (the “Buyer”) to sell the real property
located at 620 East Dyer Road, Santa Ana, CA (the “Dyer Property”)
for $13.40 million in cash. On February 10, 2022, the Company
announced the closing of the sale of the Dyer Property, resulting
in the Company retiring $9.00 million of outstanding debt on
the Dyer Property as disclosed in Note 10, "Notes
Payable".
The Company is continuing to evaluate its options with respect to
the license originally connected to the Dyer property, including
consideration of the retail density in the area. If the city of
Santa Ana grants approval to relocate licenses elsewhere in the
city, the Company may consider using the dispensary license to open
a dispensary in an underserved part of Santa Ana.
During fiscal year 2020, the Company classified real property in
Las Vegas, NV and Santa Ana, CA as available-for-sale as it met the
criteria of ASC 360-10-45-0. In August 2021, the Company sold the
properties.
OneQor
During fiscal year 2020, management suspended the operations of
OneQor Technologies due to (i) a lack of proper growth in customer
acquisition and revenue for this CBD operation during the COVID-19
pandemic and (ii) the overall financial health of the Company as a
result of COVID-19 and social unrest. The Company plans to focus
its attention and resources on growing its THC
business.
Edible Garden
On March 30, 2020, the Company entered into and closed an Asset
Purchase Agreement with Edible Garden AG Inc. (the "Purchaser")
pursuant to which the Company sold substantially all of the assets
of Edible Garden Corp. As part of the consideration received, the
Company entered into two option agreements to purchase up to a 20%
interest in the Purchaser. During the year ended December 31, 2021,
the Company exercised both options and acquired 5,000,000 common
shares of the Purchaser for a nominal fee.
The completed sales of our Nevada operations, expected and
completed sales of real estate assets, and assets divested during
the periods presented represent a strategic shift that will have a
major effect on the Company’s operations and financial results. As
a result, management determined the results of these components
qualified for discontinued operations
presentation in accordance with ASC 205, “Reporting
Discontinued Operations and Disclosure of Disposals of Components
of an Entity".
Operating results for the discontinued operations were comprised of
the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Three Months Ended
March 31, |
|
2022 |
|
2021 |
Total revenues |
$ |
2,605 |
|
|
$ |
3,055 |
|
Cost of goods sold |
543 |
|
|
815 |
|
Gross profit |
2,062 |
|
|
2,240 |
|
|
|
|
|
Selling, general and administrative expenses |
1,635 |
|
|
1,475 |
|
|
|
|
|
(Gain) / Loss on sale of assets |
(1,682) |
|
|
— |
|
Income (Loss) from operations |
$ |
2,109 |
|
|
$ |
765 |
|
|
|
|
|
Interest expense |
— |
|
|
(327) |
|
Other income (expense) |
26 |
|
|
— |
|
Income tax expense |
(95) |
|
|
— |
|
Income (Loss) from discontinued operations |
$ |
2,040 |
|
|
$ |
438 |
|
|
|
|
|
Income (Loss) from discontinued operations per common share
attributable to Unrivaled Brands, Inc. common stockholders - basic
and diluted |
$ |
0.00 |
|
|
$ |
0.00 |
|
The carrying amounts of the major classes of assets and liabilities
for the discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
March 31,
2022 |
|
December 31,
2021 |
Cash |
$ |
863 |
|
|
$ |
1,544 |
|
Accounts receivable, net |
2,261 |
|
|
1,553 |
|
Inventory |
2,434 |
|
|
1,359 |
|
Prepaid expenses and other assets |
86 |
|
|
39 |
|
Property, equipment and leasehold improvements, net |
4,516 |
|
|
17,661 |
|
|
|
|
|
|
|
|
|
Other assets |
300 |
|
|
323 |
|
Assets of discontinued operations |
$ |
10,460 |
|
|
$ |
22,479 |
|
|
|
|
|
Accounts payable and accrued expenses |
$ |
1,198 |
|
|
$ |
1,170 |
|
|
|
|
|
|
|
|
|
Income taxes payable |
1,012 |
|
|
917 |
|
Long-term lease liabilities |
150 |
|
|
184 |
|
Liabilities of discontinued operations |
$ |
2,360 |
|
|
$ |
2,271 |
|
NOTE 17 - SEGMENT INFORMATION
The Company operates in two segments: (i) cannabis retail and (ii)
cannabis cultivation and distribution. Our reportable segments are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Total Revenue |
|
% of Total Revenue |
|
Three Months Ended March 31, |
|
Three Months Ended March 31, |
Segment |
2022 |
|
2021 |
|
2022 |
|
2021 |
Cannabis Retail |
$ |
12,109 |
|
|
$ |
1,699 |
|
|
58.4 |
% |
|
82.6 |
% |
Cannabis Cultivation & Distribution |
8,616 |
|
|
358 |
|
|
41.6 |
% |
|
17.4 |
% |
|
|
|
|
|
|
|
|
Total |
$ |
20,725 |
|
|
$ |
2,057 |
|
|
100.0 |
% |
|
100.0 |
% |
Cannabis Retail
Either independently or in conjunction with third parties, we
operate medical marijuana and adult use cannabis dispensaries in
California. All our retail dispensaries offer a broad selection of
medical and adult use cannabis products including flower,
concentrates and edibles.
Cannabis Cultivation and Distribution
We operate distribution centers in California and Oregon that
distribute our own branded products as well as third party products
to our own dispensaries and to other non-affiliated medical
marijuana and/or adult use cannabis dispensaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended March 31, 2022 |
|
Cannabis Retail |
|
Cannabis Cultivation & Distribution |
|
Corporate & Other |
|
Total |
Total revenues |
$ |
12,109 |
|
|
$ |
8,616 |
|
|
$ |
— |
|
|
$ |
20,725 |
|
Cost of goods sold |
6,881 |
|
|
7,411 |
|
|
— |
|
|
14,292 |
|
Gross profit |
5,228 |
|
|
1,205 |
|
|
— |
|
|
6,433 |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
5,025 |
|
|
4,600 |
|
|
9,142 |
|
|
18,767 |
|
|
|
|
|
|
|
|
|
(Gain) Loss on sale of assets |
— |
|
|
— |
|
|
(198) |
|
|
(198) |
|
Income (Loss) from operations |
203 |
|
|
(3,395) |
|
|
(8,945) |
|
|
(12,136) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense |
— |
|
|
(165) |
|
|
(1,601) |
|
|
(1,766) |
|
Gain on extinguishment of debt |
— |
|
|
— |
|
|
542 |
|
|
542 |
|
Other income (loss) |
78 |
|
|
415 |
|
|
541 |
|
|
1,034 |
|
Total other income |
78 |
|
|
250 |
|
|
(518) |
|
|
(190) |
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
$ |
281 |
|
|
$ |
(3,145) |
|
|
$ |
(9,463) |
|
|
$ |
(12,326) |
|
|
|
|
|
|
|
|
|
Total assets at March 31, 2022 |
$ |
52,125 |
|
|
$ |
580 |
|
|
$ |
197,097 |
|
|
$ |
249,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended March 31, 2021 |
|
Cannabis Retail |
|
Cannabis Cultivation & Distribution |
|
Corporate & Other |
|
Total |
Total revenues |
$ |
1,699 |
|
|
$ |
357 |
|
|
$ |
— |
|
|
$ |
2,057 |
|
Cost of goods sold |
956 |
|
|
910 |
|
|
— |
|
|
1,866 |
|
Gross profit |
743 |
|
|
(553) |
|
|
— |
|
|
191 |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
1,248 |
|
|
362 |
|
|
11,040 |
|
|
12,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations |
(505) |
|
|
(915) |
|
|
(11,040) |
|
|
(12,459) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Interest expense |
— |
|
|
— |
|
|
(71) |
|
|
(71) |
|
Loss on extinguishment of debt |
— |
|
|
— |
|
|
(6,161) |
|
|
(6,161) |
|
Unrealized gain (loss) on investments |
— |
|
|
— |
|
|
6,212 |
|
|
6,212 |
|
Other income (loss) |
— |
|
|
— |
|
|
345 |
|
|
345 |
|
Total other income |
— |
|
|
— |
|
|
325 |
|
|
325 |
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
$ |
(505) |
|
|
$ |
(915) |
|
|
$ |
(10,715) |
|
|
$ |
(12,134) |
|
|
|
|
|
|
|
|
|
Total assets at March 31, 2021 |
$ |
20,062 |
|
|
$ |
11,847 |
|
|
$ |
75,310 |
|
|
$ |
107,219 |
|
NOTE 18 – RELATED PARTY TRANSACTIONS
Refer to Note 10, "Notes
Payable"
for related party transactions and balances during the current
period.
All related party transactions are monitored quarterly by the
Company and approved by the Audit Committee of the Board of
Directors.
NOTE 19 – GOING CONCERN
We have incurred significant losses in prior periods. For the three
months ended March 31, 2022, we incurred a pre-tax net loss
from continuing operations of $12.33 million and, as of that date,
we had an accumulated deficit of $258.89 million. For the three
months ended March 31, 2021, we incurred a net loss from
continuing operations of $12.13 million. As of December 31,
2021, we had an accumulated deficit of $250.02 million. We expect
to experience further significant net losses in 2022 and the
foreseeable future. At March 31, 2022, we had a consolidated
cash balance of approximately $3.67 million. We have not been able
to generate sufficient cash from operating activities to fund our
ongoing operations. Our future success is dependent upon our
ability to achieve profitable operations and generate cash from
operating activities. There is no guarantee that we will be able to
generate enough revenue and/or raise capital to support our
operations.
We will be required to raise additional funds through public or
private financing, additional collaborative relationships or other
arrangements until we are able to raise revenues to a point of
positive cash flow. We are evaluating various options to further
reduce our cash requirements to operate at a reduced rate, as well
as options to raise additional funds, including obtaining loans and
selling common stock. There is no guarantee that we will be able to
generate enough revenue and/or raise capital to support our
operations, or if we are able to raise capital, that it will be
available to us on acceptable terms, on an acceptable schedule, or
at all.
The issuance of additional securities may result in a significant
dilution in the equity interests of our current stockholders.
Obtaining loans, assuming these loans would be available, will
increase our liabilities and future cash commitments. There is no
assurance that we will be able to obtain further funds required for
our continued operations or that additional financing will be
available for use when needed or, if available, that it can be
obtained on commercially reasonable terms. If we are not able to
obtain the additional financing on a timely basis, we will not be
able to meet our other obligations as they become due and we will
be forced to scale down or perhaps even cease our
operations.
The risks and uncertainties surrounding our ability to continue to
raise capital and our limited capital resources raise substantial
doubt as to our ability to continue as a going concern for twelve
months from the issuance of these financial
statements.
NOTE 20 – SUBSEQUENT EVENTS
On April 7, 2022, the Company sold its NuLeaf cultivation and
production operations in Nevada for
$6.50 million.
On April 11, 2022, the Company and People's California, LLC agreed
to amend a portion of the November 22, 2021 Closing Documents
(Primary Membership Interest Purchase Agreement, Secondary
Membership Interest Purchase Agreement, Secured Promissory Note,
and other ancillary agreements) . The company will pay People's
California, LLC $3 million upon execution of this amendment
and $5 million in June of 2022. The remainder of the
promissory note held by People's California, LLC shall be
subordinated to a future debt facility. The promissory note becomes
convertible to the Company's Common Stock at a yet to be agreed
upon exercise price.
On April 12, 2022, the Company and Francis Knuettel, formerly the
Company's Chief Executive Officer, agreed to terms on a separation
agreement. The company agreed to pay Mr. Knuettel 50% of his annual
base salary and continue his medical benefits for a period of six
months. Mr. Knuettel's unvested shares and options shall vest
immediately. As part of this agreement Mr. Knuettel has resigned as
a director of the Company.
On April 14, 2022, the Company and Dallas Imbimbo, an advisor to
the company and a director of the Company, agreed to terms on a
separation agreement. The Company agreed to vest 100% of Mr.
Imbimbo's restricted common stock granted pursuant to the Advisor
agreement with Mr. Imbimbo. The company agreed to vest 100% of the
options to purchase shares of the Company's common stock granted as
part Mr. Imbimbo's Independent Director Agreement. The Company will
pay Mr. Imbimbo $83,333 in cash compensation. As part of this
agreement Mr. Imbimbo has resigned as a director of the Company and
as an Advisor to the company.
On May 5, 2022, Edible Garden AG, Inc. (“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 $14.7 million. The Company holds a 20%
interest in Edible Garden.
As a result of the initial public offering during the second
quarter of 2022, the Company will reassess its allowance on the
investment and record the investment at its fair value. The Company
is currently assessing the exact impact on the Company’s financial
statements.
See Note 5, “Investments
in Unconsolidated Affiliates”
for additional information.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on
Form 10-Q may contain “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended
(the “Securities Act”), and Section 21E of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), which provides a
“safe harbor” for forward-looking statements made by us. All
statements, other than statements of historical facts, including
statements concerning our plans, objectives, goals, beliefs,
business strategies, future events, business conditions, results of
operations, financial position, business outlook, business trends,
and other information, may be forward-looking statements. Words
such as “might,” “will,” “may,” “should,” “estimates,” “expects,”
“continues,” “contemplates,” “anticipates,” “projects,” “plans,”
“potential,” “predicts,” “intends,” “believes,” “forecasts,”
“future,” and variations of such words or similar expressions are
intended to identify forward-looking statements. The
forward-looking statements are not historical facts, and are based
upon our current expectations, beliefs, estimates and projections,
and various assumptions, many of which, by their nature, are
inherently uncertain and beyond our control. Our expectations,
beliefs, estimates, and projections are expressed in good faith and
we believe there is a reasonable basis for them. However, there can
be no assurance that management’s expectations, beliefs, estimates,
and projections will occur or can be can achieved and actual
results may vary materially from what is expressed in or indicated
by the forward-looking statements.
There are a number of risks, uncertainties, and other important
factors, many of which are beyond our control, that could cause
actual results to differ materially from the forward-looking
statements contained in this Quarterly Report on Form 10-Q. Such
risks, uncertainties, and other important factors that could cause
actual results to differ include, among others, the risk,
uncertainties and factors set forth under “Item 1A. Risk Factors”
in our Annual Report on Form 10-K for the year ended
December 31, 2021 and in other filings we make from time to
time with the U.S. Securities and Exchange Commission
(“SEC”).
We caution you that the risks, uncertainties, and other factors set
forth in our periodic filings with the SEC may not contain all of
the risks, uncertainties, and other factors that are important to
you. In addition, we cannot assure you that we will realize the
results, benefits, or developments that we expect or anticipate or,
even if substantially realized, that they will result in the
consequences or affect us or our business in the way expected.
There can be no assurance that: (i) we have correctly measured or
identified all of the factors affecting our business or the extent
of these factors’ likely impact, (ii) the available information
with respect to these factors on which such analysis is based is
complete or accurate, (iii) such analysis is correct, or (iv) our
strategy, which is based in part on this analysis, will be
successful. All forward-looking statements in this report apply
only as of the date of the report or as of the date they were made
and, except as required by applicable law, we undertake no
obligation to publicly update any forward-looking statement,
whether as a result of new information, future developments, or
otherwise.
Company Overview
Our corporate headquarters is located at 3242 S. Halladay St, Santa
Ana, California 92705 and our telephone number is (888) 909-5564.
Our website addresses are as follows: www.unrivaledbrands.com. No
information available on or through our websites shall be deemed to
be incorporated into this Quarterly Report on Form 10-Q. Our common
stock, par value $0.001 (the “Common Stock”), is quoted on the OTC
Markets Group, Inc’s OTCQX tier under the symbol
“UNRV.”
Our Business
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 People's in Los Angeles, 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.
We are organized into two reportable segments:
•Cannabis
Retail
– Includes cannabis-focused retail, both physical stores and
non-store front delivery
•Cannabis
Cultivation and Distribution-
Includes cannabis cultivation, production and distribution
operations
Either independently or in conjunction with third parties, we
operate medical marijuana retail and adult use dispensaries,
cultivation and production facilities in California and
Oregon.
As of March 31, 2022, the Company
had 338
employees. Our employees are the heart of our Company. In a rapidly
evolving industry, it is imperative that we attract, develop and
retain top talent on an ongoing basis. To do this, we seek to make
Unrivaled Brands an inclusive, diverse and safe workplace, with
meaningful compensation and opportunities for career
growth.
RESULTS OF OPERATIONS
The below table outlines the impact of reclassifying the operations
of the Nevada Dispensaries, OneQor, and Edible Garden to
discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended March 31, |
|
2022 |
|
2021 |
|
$ Change |
|
% Change |
Revenue |
|
|
|
|
|
|
|
Continuing Operations |
$ |
20,725 |
|
|
$ |
2,057 |
|
|
$ |
18,668 |
|
|
907.5 |
% |
Discontinued Operations |
2,605 |
|
|
3,399 |
|
|
(794) |
|
|
(23.4) |
% |
Total Revenue |
$ |
23,330 |
|
|
$ |
5,456 |
|
|
$ |
17,874 |
|
|
327.6 |
% |
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
|
|
|
|
|
Continuing Operations |
$ |
14,292 |
|
|
$ |
1,866 |
|
|
$ |
12,426 |
|
|
665.9 |
% |
Discontinued Operations |
543 |
|
|
2,500 |
|
|
(1,957) |
|
|
(78.3) |
% |
Total Cost of Goods Sold |
$ |
14,835 |
|
|
$ |
4,366 |
|
|
$ |
10,469 |
|
|
239.8 |
% |
|
|
|
|
|
|
|
|
Gross Profit $ |
|
|
|
|
|
|
|
Continuing Operations |
$ |
6,433 |
|
|
$ |
191 |
|
|
$ |
6,242 |
|
|
3,268.1 |
% |
Discontinued Operations |
2,062 |
|
|
899 |
|
|
1,163 |
|
|
129.4 |
% |
Total Gross Profit $ |
$ |
8,495 |
|
|
$ |
1,090 |
|
|
$ |
7,405 |
|
|
679.4 |
% |
|
|
|
|
|
|
|
|
Gross Profit % |
|
|
|
|
|
|
|
Continuing Operations |
31.0 |
% |
|
9.3 |
% |
|
21.8 |
% |
|
|
Discontinued Operations |
79.2 |
% |
|
26.4 |
% |
|
52.7 |
% |
|
|
Total Gross Profit % |
36.4 |
% |
|
20.0 |
% |
|
16.0 |
% |
|
|
Outlook
Unrivaled Brands, Inc. has made substantial progress on its
integration efforts since successfully closing the merger with
UMBRLA on July 1st,
2021. Management believes that this strategic acquisition and
corporate rebranding will provide a sustainable platform to capture
synergies across organization verticals by leveraging Unrivaled’s
existing brand portfolio and scaling its multi-state distribution
operations. Furthermore, on September 1st,
2021 the Company entered into a Management Agreement with People’s
First Choice; granting Unrivaled Brands, Inc. operational
management and control of the Santa Ana, CA dispensary which
provided an immediate lift to revenues as well as the opportunity
to expand the retail footprint of our in-house product lines
including, but not limited to, Korova, Sticks & Cabana.
However, if these acquisitions do not perform as expected, an
earlier than expected impairment analysis of these acquired
intangible assets and goodwill may result in impairments of our
long-lived assets.
Besides integrating and expanding the Company’s platform,
management is focused on fostering strategic partnerships with
keystone brands in the west coast that complement our brand
portfolio and corporate mission. As such, on August
18th
2021, Unrivaled entered into an exclusive distribution agreement
with G-Eazy’s FlowerShop, a lifestyle and wellness brand that can
be found in over 400 retail stores across California at time of
writing. To this end, the Company’s efforts to create a robust and
scalable platform in tandem to brand-conscious partnerships both
position the Company to create sustainable shareholder value as
“The West Coast MSO”.
Comparison of the Three Months Ended March 31, 2022 and
2021
Revenues
During the three months ended March 31, 2022, the Company
generated total revenue of $20.73 million composed of retail
revenue of $12.11 million and cultivation/distribution revenue of
$8.62 million. This compared to total revenue of $2.06 for the
quarter ended March 31, 2021 which included retail revenue of
$1.70 million and cultivation/distribution revenue of $0.36
million. This was an increase of 907.5% in total
revenue.
Retail revenue for the quarter dramatically outpaced the first
quarter of the prior year due to the retail assets acquired in the
Company's 2021 acquisitions of UMBRLA, People's First Choice and
SilverStreak Solutions. We are operating five retail stores and a
non-storefront delivery service in 2022 compared to prior year when
the Company was operating two retail stores. On a comparable store
basis, we saw a 23.3% increase over first quarter 2021 for the two
comparable stores.
Cultivation and distribution revenues were dramatically increased
as a result of the Company’s successful merger with UMBRLA, now
with a distribution network throughout California and Oregon. The
additive distribution assets provided a net benefit of $9.47
million for the three months ended March 31, 2022 as a direct
result of integrating UMBRLA’s platform - an increase of 2,863%
compared to the three months ended March 31,
2021.
Gross Profit
The Company’s gross profit for the three months ended
March 31, 2022 was $6.43 million, compared to a gross profit
of $0.19 million for the three months ended March 31, 2021, an
increase of $6.24 million or 3,268.1%.
Selling, General and Administrative Expenses and Other Operating
Expenses
The merger with UMBRLA and the acquisitions of People's First
Choice and SilverStreak Solutions in 2021 led to more operations
with additional facilities, employees and costs to support them.
Selling, general and administrative expenses for the three months
ended March 31, 2022 were $18.77 million, compared to $12.65
million for the three months ended March 31, 2021, an increase
of $6.12 million or 48.4%. For the three months ended
March 31, 2022, amortization and depreciation expenses
increased by $2.76 million over the three months ended
March 31, 2021, facilities related expenses, such as rent,
utilities, repairs and maintenance, security and insurance,
increased by $2.38 million over first quarter of 2021. Option
expense and director’s compensation increased by $1.81 million with
the addition of two more board members or 196 percent. Taxes,
licensing and permitting increased by $1.27 million. Advertising
increased by $0.90 million. Employee related expenses decreased by
$4.86 million or 69.4%.
Operating Income (Loss)
The Company realized an operating loss of $12.14 million for the
three months ended March 31, 2022 compared to an operating
loss of $12.46 million for the three months ended March 31,
2021, an improvement of $0.32 million or 2.6%.
Other Income (Expense)
Other expense for the three months ended March 31, 2022 were
$0.19 million, compared to the $0.32 million income recognized in
the three months ended March 31, 2021, an increase of $0.51
million. This increase was attributed to additional interest
expense.
Discontinued Operations
We realized a net gain of $2.04 million for the three months ended
March 31, 2022. This was an increase of $1.60 million over the
three months ended March 31, 2021 resulting from the disposal
of the Dyer property and profit from our NuLeaf
operation.
Net Loss Attributable to Unrivaled Brands, Inc.
We incurred a net loss of $8.87 million, or $(0.02) per share, for
the three months ended March 31, 2022, an improvement of $0.03
per share compared to a net loss of $(12.08) million, or $(0.05)
per share, for the three months ended March 31,
2021.
The improvement in net loss was attributable
to management’s continued focus on efficiency as well as
integrating the legacy Terra Tech operations, the legacy Umbrla
operations and the People’s operation together.
DISCLOSURE ABOUT OFF-BALANCE SHEET ARRANGEMENTS
We do not have any transactions, agreements or other contractual
arrangements that constitute off-balance sheet
arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations”
section discusses our unaudited consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. On an on-going basis, management evaluates its estimates
and judgments, including those related to revenue recognition,
accrued expenses, financing operations, and contingencies and
litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our financial
statements include estimates as to the appropriate carrying value
of certain assets and liabilities which are not readily apparent
from other sources. These accounting policies are described in Note
2,
“Summary of Significant Accounting Policies”
of the notes to unaudited condensed consolidated financial
statements included in this report.
LIQUIDITY AND CAPITAL RESOURCES
We incurred net losses for the three months ended March 31,
2022 and 2021 and have an accumulated deficit of approximately
$258.89 million and $250.02 million at March 31, 2022 and
December 31, 2021, respectively.
As of March 31, 2022, we had working capital of $(52.75)
million, including $3.67 million of cash compared to working
capital of $(62.44) million, including $6.89 million of cash, as of
December 31, 2021. Current assets were approximately 0.31
times current liabilities as of March 31, 2022, compared to
approximately 0.29 times current liabilities as of
December 31, 2021.
We have not been able to generate sufficient cash from operating
activities to fund our ongoing operations. Since our inception, we
have raised capital through private sales of common stock and debt
securities. Our future success is dependent upon our ability to
achieve profitable operations and generate cash from operating
activities. There is no guarantee that we will be able to generate
enough revenue and/or raise capital to support our operations. In
addition to this, if certain of our previous acquisitions do not
operationally improve, we may be required to do an earlier than
expected impairment analysis of our intangible assets and goodwill
may result in impairments of our long-lived assets.
We will be required to raise additional funds through public or
private financing, additional collaborative relationships or other
arrangements until we are able to raise revenues to a point of
positive cash flow. We believe our existing and available capital
resources will be sufficient to satisfy our funding requirements
through the end of 2022. However, we continue to evaluate various
options to further reduce our cash requirements to operate at a
reduced rate, as well as options to raise additional funds,
including obtaining loans and selling common stock. There is no
guarantee that we will be able to
generate enough revenue and/or raise capital to support our
operations, or if we are able to raise capital, that it will be
available to us on acceptable terms, on an acceptable schedule, or
at all.
Operating Activities
Cash used in operating activities for the three months ended
March 31, 2022 was $3.10 million, compared to $(2.91) million
for the three months ended March 31, 2021, an increase of
$0.19 million, or 6.4%. The increase in cash used in operating
activities was due to primarily to increase in cash used for
prepaid expenses and other assets.
Investing Activities
Cash provided by investing activities for the three months ended
March 31, 2022 was $14.11 million, compared to cash provided
by investing activities of $(0.05) million for the three months
ended March 31, 2021, a decrease of $14.16 million, or
28,579.2%. The decrease in cash used in investing activities was
primarily due to $13.21 million of proceeds received from the sale
of the Dyer Property and $1.00 million of cash received in the
first quarter of 2021 for the prior sale of the Reno subsidiary,
both of which are classified as discontinued
operations.
Financing Activities
Cash used in financing activities for the three months ended
March 31, 2022 was $14.24 million, compared to $3.32 million
provided by financing activities for the three months ended
March 31, 2021, a decrease of $17.55 million, or 529.3%. The
decrease in cash provided by financing activities for the three
months ended March 31, 2022 was primarily due to $18.61
million of principal repayments of debt.
Non-GAAP Reconciliations
Non-GAAP earnings is a supplemental measure of our performance that
is neither required by, nor presented in accordance with, U.S.
generally accepted accounting principles (“US GAAP”). Non-GAAP
earnings is not a measurement of our financial performance under US
GAAP and should not be considered as alternative to net income,
operating income, or any other performance measures derived in
accordance with US GAAP, or as alternative to cash flows from
operating activities as a measure of our liquidity. In addition, in
evaluating Non-GAAP earnings, you should be aware that in the
future we will incur expenses or charges such as those added back
to calculate Non-GAAP earnings. Our presentation of Non-GAAP
earnings should not be construed as an inference that our future
results will be unaffected by unusual or nonrecurring
items.
Non-GAAP earnings has limitations as an analytical tool, and you
should not consider it in isolation, or as a substitute for
analysis of our results as reported under US GAAP. Some of these
limitations are (i) it does not reflect our cash expenditures, or
future requirements for capital expenditures or contractual
commitments, (ii) it does not reflect changes in, or cash
requirements for, our working capital needs, (iii) it does not
reflect interest expense, or the cash requirements necessary to
service interest or principal payments, on our debt, (iv) although
depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in
the future, and non-GAAP earnings does not reflect any cash
requirements for such replacements, (v) it does not adjust for all
non-cash income or expense items that are reflected in our
statements of cash flows, and (vi) other companies in our industry
may calculate this measure differently than we do, limiting its
usefulness as comparative measures.
We compensate for these limitations by providing specific
information regarding the US GAAP amounts excluded from such
non-GAAP financial measures. We further compensate for the
limitations in our use of non-GAAP financial measures by presenting
comparable US GAAP measures more prominently.
We believe that non-GAAP earnings facilitates operating performance
comparisons from period to period by isolating the effects of some
items that vary from period to period without any correlation to
core operating performance or that vary widely among similar
companies. These potential differences may be caused by variations
in capital structures (affecting interest expense) and the age and
book depreciation of facilities and equipment (affecting relative
depreciation expense). We also present Non-GAAP earnings because
(i) we believe that this measure is frequently used by securities
analysts, investors and other interested parties to evaluate
companies in our industry, (ii) we believe that investors will find
these measures useful in assessing our ability to service or incur
indebtedness, and (iii) we use Non-GAAP earnings internally as
benchmark to compare our performance to that of our
competitors.
In the presentation of the financial results below, the Company
reconciles Non-GAAP earnings (loss) with net loss attributable to
continuing operations, the most directly comparable GAAP measure,
and reports Non-GAAP earnings (loss) per share, which is calculated
by dividing Non-GAAP net income (loss) divided by weighted average
common shares. Management believes that this presentation may be
more meaningful in analyzing our income generation.
On a non-GAAP basis, the Company recorded a non-GAAP loss of $1.70
million for the three months ended March 31, 2022 compared to
$2.23 million for the three months ended March 31, 2021. The
details of those expenses and non-GAAP reconciliation of these
non-cash items are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended March 31, |
|
2022 |
|
2021 |
Net loss attributable to Unrivaled Brand, Inc. |
$ |
(8,873) |
|
|
$ |
(12,077) |
|
Non-GAAP adjustments: |
|
|
|
Amortization of intangible assets |
2,343 |
|
|
192 |
|
Depreciation expense |
946 |
|
|
337 |
|
Stock-based compensation expense |
2,186 |
|
|
397 |
|
|
|
|
|
Interest expense |
1,766 |
|
|
73 |
|
Severance expense |
670 |
|
|
8,990 |
|
Loss (Gain) on sale of investments |
— |
|
|
(6,212) |
|
Gain on sale of assets |
(198) |
|
|
— |
|
Gain for debt forgiveness |
— |
|
|
(86) |
|
Loss on extinguishment of debt |
(542) |
|
|
6,161 |
|
|
|
|
|
Non-GAAP gain (loss) |
$ |
(1,702) |
|
|
$ |
(2,225) |
|
The following table sets forth the computation of basic and diluted
loss per share on a non-GAAP basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except for shares) |
|
Three Months Ended March 31, |
|
2022 |
|
2021 |
Non-GAAP net income (loss) |
$ |
(1,702) |
|
|
$ |
(2,225) |
|
|
|
|
|
Denominator: |
|
|
|
Weighted average common shares - Basic |
561,818,857 |
|
|
237,752,273 |
|
Weighted average common shares - Diluted |
561,818,857 |
|
|
237,752,273 |
|
|
|
|
|
Non-GAAP earnings (loss) per common share: |
|
|
|
Non-GAAP earnings (loss) - Basic |
$ |
— |
|
|
$ |
(0.01) |
|
Non-GAAP earnings (loss) - Diluted |
$ |
— |
|
|
$ |
(0.01) |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
This item is omitted as it is not required for a smaller reporting
company.
ITEM 4. CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management,
our principal executive officer and our principal financial officer
are responsible for conducting an evaluation of the effectiveness
of the design and operation of our disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, as of March 31,
2022. Based on this evaluation, our principal executive officer and
principal financial officer concluded as of the evaluation date
that our disclosure controls and procedures were not effective to a
reasonable level as of March 31, 2022.
Based on the results of its assessment, our management concluded
that our internal control over financial reporting was not
effective as of December 31, 2021 based on such criteria due to
material weaknesses in internal control over financial reporting
described below:
Material Weaknesses in Internal Control over Financial
Reporting
•The
Company’s primary user access controls (i.e. provisioning,
de-provisioning, and quarterly user access review) to ensure
appropriate segregation of duties that would adequately restrict
user and privileged access to the financially relevant systems and
data to appropriate Company personnel were not operating
effectively. Automated process-level controls and manual controls
that are dependent upon the information derived from such
financially relevant systems were also determined to be ineffective
as a result of such deficiency.
•The
Company did not maintain adequate and timely review transactions
and account reconciliations resulting in material audit
adjustments.
Remediation Plan
We plan to enhance our internal control over financial reporting in
an effort to remediate the material weaknesses described above. We
are committed to ensuring that our internal control over financial
reporting is designed and operating effectively. Our remediation
process will include:
•Investing
in IT systems to enhance our operational and financial reporting
and internal controls.
•Enhancing
the organizational structure to support financial reporting
processes and internal controls.
•Providing
guidance, education and training to employees relating to our
accounting policies and procedures.
•Further
developing and documenting detailed policies and procedures
regarding business processes for significant accounts, critical
accounting policies and critical accounting estimates.
•Establishing
effective general controls over IT systems to ensure that
information produced can be relied upon by process level controls
is relevant and reliable.
We expect to remediate these material weaknesses during 2022.
However, we may discover additional material weaknesses that may
require additional time and resources to remediate.
Changes in Internal Control Over Financial Reporting
We regularly assess the adequacy of our internal controls over
financial reporting and enhance our controls in response to
internal control assessments and external audit and regulatory
recommendations. No changes in internal control over financial
reporting have been identified in connection with the evaluation of
disclosure controls and procedures during the quarter ended
March 31, 2022 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal
control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is the subject of lawsuits and claims arising in the
ordinary course of business from time to time. See Note 15,
“Commitments and Contingencies”
for further information about legal activity.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors disclosed
in Part I, Item 1A,
“Risk Factors”,
of our Annual Report on Form 10-K for the year ended
December 31, 2021, except for the risk factors noted below.
Please refer to that section for disclosures regarding the risk and
uncertainties relating to our business.
The effects of war, acts of terrorism, threat of terrorism, or
other types of violence, could adversely affect our
business.
Some of our stores are located in areas with a high amount of foot
traffic. Any threat of terrorist attacks or actual terrorist
events, or other types of violence, such as shootings or riots,
could lead to lower consumer traffic and a decline in sales.
Decreased sales could have a material adverse effect on our
business, financial condition and results of
operations.
Our common stock may be categorized as “penny stock,” which may
make it more difficult for investors to sell their shares of common
stock due to suitability requirements.
Our common stock may be categorized as “penny stock.” The
Commission has adopted Rule 15g-9 under the Exchange Act, which
generally defines “penny stock” to be any equity security that has
a market price (as defined) less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain
exceptions. The price of our common stock is significantly less
than $5.00 per share and, unless we qualify for an exception, may
be considered “penny stock.” This designation imposes additional
sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The
penny stock rules, if applicable to us, would require a
broker-dealer buying our securities to disclose certain information
concerning the transaction, obtain a written agreement from the
purchaser and determine that the purchaser is reasonably suitable
to purchase the securities given the increased risks generally
inherent in penny stocks. These rules may restrict the ability
and/or willingness of brokers or dealers to buy or sell our common
stock, either directly or on behalf of their clients, may
discourage potential stockholders from purchasing our common stock,
or may adversely affect the ability of stockholders to sell their
shares.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
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Exhibit |
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Description |
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|
2.1 |
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2.2 |
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2.3 |
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2.4 |
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2.5 |
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2.6 |
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2.7 |
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2.8 |
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2.9 |
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2.10 |
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2.11 |
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2.12 |
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2.13 |
|
|
2.14 |
|
|
2.12 |
|
|
3.1 |
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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3.6 |
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3.7 |
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3.8 |
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3.9 |
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3.10 |
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3.11 |
|
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3.12 |
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3.13 |
|
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3.14 |
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3.15 |
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3.16 |
|
|
3.17 |
|
|
3.18 |
|
|
4.1 |
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4.2 |
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4.3 |
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4.4 |
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4.5 |
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4.6 |
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4.7 |
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4.8 |
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4.9 |
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4.10 |
|
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4.11 |
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4.12 |
|
|
31.1 |
|
|
31.2 |
|
|
32.1 |
|
|
32.2 |
|
|
101 |
|
The following financial statements from the Company’s Quarterly
Report on Form 10-Q for the quarter ended March 31, 2022, formatted
in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated
Statements of Operations, (iii) Consolidated Statements of Cash
Flow, (iv) Consolidated Statements of Stockholders Equity, and (v)
Notes to Unaudited Consolidated Financial Statements.* |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101).* |
___________________
*Filed
herewith
** Furnished herewith
*** Certain schedules and exhibits to this
agreement have been omitted pursuant to Item 601(a)(5) of
Regulation S-K. A copy of any omitted schedule and/or exhibit will
be furnished to the Securities and Exchange Commission upon
request.
♦ Indicates a management contract or
compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
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UNRIVALED BRANDS, INC. |
|
|
|
Date: May 16, 2022
|
By: |
/s/ Jeffrey Batliner |
|
|
Jeffrey Batliner |
|
|
Chief Financial Officer
(Principal Accounting Officer and
Principal Financial Officer) |
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