British Columbia (I.R.S. employer Securities registered pursuant to Section 12(b) of the Act: Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No x x No o No x 24, 2022 This Quarterly Report on Form 10-Q contains statements that we believe are, or may be considered to be, “forward-looking statements”. All statements other than statements of historical fact included in this document regarding the prospects of our industry or our prospects, plans, financial position or business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plan,” “forecast,” “continue” or “could” or the negative of these terms or variations of them or similar terms. Furthermore, forward-looking statements may be included in various filings that we make with the Securities and Exchange Commission (the “SEC”), press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These known and unknown risks include, without limitation: marijuana remains illegal under U.S. federal law, and enforcement of cannabis laws could change; . Paid-In . The accompanying Condensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern. Basis of Consolidation December 24, 2022. December 24, 2022 and June 25, 2022: 2021. PharmaCann Assets Discontinued Operations Top-Up Provision Short-Term Warrant The following are the warrants issued related to the equity financing transactions that were accounted for as derivative liabilities: (1) See “Note 16 – Other Operating Income” for further information. During the three and six months ended December 24, 2022, the Company recorded sublease income under the Management Agreement. See “ ” for further information. Non-Revolving Senior Secured Term Loan Facility Non-Controlling Interests The net change in the consolidated VIEs and other non-controlling interest are as follows for the six months ended December 24, 2022: Stock Options Long-Term Incentive Plan (“LTIP”) Units and LLC Redeemable Units A reconciliation of the beginning and ending balance of warrants outstanding is as follows: six months ended December 25, 2021, we determined we could no longer reliably estimate income taxes utilizing an AETR. The AETR estimate is highly sensitive to estimates of ordinary income (loss) and permanent differences such that minor fluctuations in these estimates could result in significant fluctuations of the Company’s AETR. Accordingly, we used our actual year-to-date effective tax rate to calculate income taxes for the three and six months ended December 24, 2022. realized. ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Financial Condition position, results of operations, equity and or its access to capital and future financing. in default as of December 24, 2022. August 1, 2022. The Company’s working capital will be significantly impacted by continued operations and growth in retail operations Results of Operations” above. Off-Balance Sheet Arrangements $0.15 per share. Changes in Internal Control Over Financial Reporting this Form 10‑Q, which is incorporated herein by reference. Item. Note 10 – Notes PayableFORM 10-Q☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193425, 202124, 2022OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934000-56199British Columbia A198-143177998-1431779 (State or other jurisdiction of
incorporation or organization)
identification no.)10115 Jefferson BoulevardCulver City, 9023290045(Address of principal executive offices) (Zip code) ☐ Noo ☒ ☒ No ☐Large Accelerated Filer ☐oAccelerated Filer ☐xNon-Accelerated Filer ☒oSmaller Reporting Company ☒xEmerging Growth Company ☒x☐o☐ Noo ☒February 4, 2022,January 30, 2023, the registrant had 1,308,619,247 Class B Subordinate Voting Shares outstanding. QUARTERLY PERIOD ENDED DECEMBER 25, 2021PageFINANCIAL INFORMATIONPage 463655555656565656565758i, the Company may face limitations on ownership of cannabis licenses; the Company may become subject to U.S. Food and Drug Administration or the U.S. Bureau of Alcohol, Tobacco and Firearms; the Company may face difficulties acquiring additional financing; the Company operates in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business; the Company is subject to general economic risks; the Company may be negatively impacted by challenging global economic condition; the Company is subject to risks arising from epidemic diseases, such as the recent outbreak of COVID-19; the Company may face difficulties in enforcing its contracts; the Company is subject to taxation in Canada and the United States; cannabis businesses are subject to unfavorable tax treatment; cannabis businesses may be subject to civil asset forfeiture; the Company is subject to proceeds of crime statutes; the Company faces security risks; our use of joint ventures may expose us to risks associated with jointly owned investments; competition for the acquisition and leasing of properties suitable for the cultivation, production and sale of medical and adult use cannabis may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition; the Company faces risks related to its products; the Company is dependent on the popularity of consumer acceptance of the Company’s brand portfolio; the Company faces risks related to its insurance coverage and uninsurable risks; the Company is dependent on key inputs, suppliers and skilled labor; the Company must attract and maintain key personnel or our business will fail;personnel; the Company’s business is subject to the risks inherent in agricultural operations; the Company’s sales are difficult to forecast; the Company’s products may be subject to product recalls; the Company may face unfavorable publicity or consumer perception; the Company faces intense competition;; and additional issuances of Subordinate Voting Shares may result in dilution. Further information on these and other potential factors that could affect the Company’s business and financial condition and the results of operations are included in the “Risk Factors” section of the Company’s Annual Report on Form 10-K filed with the SEC on September 24, 2021,9, 2022, and elsewhere in the Company’s filings with the SEC, which are available on the SEC’s website or on the Company’s website at https://investors.medmen.com/. Readers are cautioned not to place undue reliance on any forward-looking statements contained in this document, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this document.iiMEDMEN ENTERPRISES INC.December 24,
2022June 25,
2022(unaudited) (audited) ASSETS Current Assets: Cash and Cash Equivalents $ 15,605,362 $ 10,795,999 Accounts Receivable and Prepaid Expenses 5,415,701 7,539,767 Inventory 13,675,322 10,010,731 Assets Held for Sale 43,611,513 123,158,751 Receivable for Assets Held for Sale 11,500,000 — Other Assets 10,403,527 9,990,992 Total Current Assets 100,211,425 161,496,240 Operating Lease Right-of-Use Assets 34,275,701 47,649,270 Property and Equipment, Net 57,645,329 64,107,792 Intangible Assets, Net 32,653,134 35,746,114 Goodwill 9,810,049 9,810,049 Other Non-Current Assets 3,879,373 4,414,219 TOTAL ASSETS $ 238,475,011 $ 323,223,684 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES: Current Liabilities: Accounts Payable and Accrued Liabilities $ 42,926,092 $ 38,905,818 Income Taxes Payable 67,472,697 58,646,291 Other Liabilities 16,591,825 16,704,283 Derivative Liabilities 3,642,777 6,749,563 Current Portion of Operating Lease Liabilities 11,897,467 10,925,128 Current Portion of Finance Lease Liabilities 4,294,333 4,061,273 Current Portion of Notes Payable 66,294,249 97,003,922 Liabilities Held for Sale 24,524,988 86,595,102 Total Current Liabilities 237,644,428 319,591,380 Operating Lease Liabilities 40,724,983 50,917,244 Finance Lease Liabilities 27,288,988 26,553,287 Other Non-Current Liabilities 2,846,182 3,082,277 Deferred Tax Liability 38,459,344 35,213,671 Senior Secured Convertible Credit Facility 146,193,049 132,005,663 Notes Payable 74,110,205 74,372,898 TOTAL LIABILITIES 567,267,179 641,736,420 SHAREHOLDERS’ EQUITY: Preferred Shares (no par value, unlimited shares authorized and no shares issued and outstanding) — — Subordinate Voting Shares (no par value, unlimited shares authorized, 1,302,129,084 and 1,301,423,950 shares issued and outstanding as of December 24, 2022 and June 25, 2022, respectively) — — Additional Paid-In Capital 1,060,236,631 1,057,228,873 Accumulated Deficit (913,798,904) (901,758,875) Total Equity Attributable to Shareholders of MedMen Enterprises Inc. 146,437,727 155,469,998 Non-Controlling Interest (475,229,895) (473,982,734) TOTAL SHAREHOLDERS’ EQUITY (328,792,168) (318,512,736) TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 238,475,011 $ 323,223,684 Balance SheetsFinancial Statements (Unaudited)AsTable of December 25, 2021 and June 26, 2021(Amounts Expressed in ThousandsContentsThree Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Revenue $ 29,554,100 $ 35,517,161 $ 59,598,153 $ 72,253,065 Cost of Goods Sold 14,501,052 17,637,003 29,601,351 36,986,993 Gross Profit 15,053,048 17,880,158 29,996,802 35,266,072 Operating Expenses: General and Administrative 18,341,221 31,292,754 36,452,557 63,941,988 Sales and Marketing 551,106 1,007,255 994,897 1,600,479 Depreciation and Amortization 3,477,086 6,379,865 7,423,606 12,203,482 Realized and Unrealized Changes in Fair Value of Contingent Consideration — (301,459) (863,856) (301,459) Impairment Expense 5,052,995 — 6,716,906 435,241 Other Operating (Income) Expense (5,634,350) 630,971 (7,544,063) 2,829,999 Total Operating Expenses 21,788,058 39,009,386 43,180,047 80,709,730 Loss from Operations (6,735,010) (21,129,228) (13,183,245) (45,443,658) Non-Operating (Income) Expenses: Interest Expense 9,686,929 8,077,496 19,739,620 16,249,257 Interest Income (27,991) (22,907) (28,024) (45,915) Accretion of Debt Discount and Loan Origination Fees 1,543,896 1,277,827 2,885,912 7,625,298 Change in Fair Value of Derivatives (3,912,376) (14,106,370) (3,106,786) (16,211,785) Gain on Extinguishment of Debt — — — (10,233,607) Total Non-Operating Expenses 7,290,458 (4,773,954) 19,490,722 (2,616,752) Loss from Continuing Operations Before Provision for Income Taxes (14,025,468) (16,355,274) (32,673,967) (42,826,906) Provision for Income Tax Expense (1,060,808) 8,137,898 (6,752,886) (11,554,010) Net Loss from Continuing Operations (15,086,276) (8,217,376) (39,426,853) (54,380,916) Net Income (Loss) from Discontinued Operations, Net of Taxes (2,255,978) (12,140,600) 26,132,489 (26,587,091) Net Income (Loss) (17,342,254) (20,357,976) (13,294,364) (80,968,007) Net Loss Attributable to Non-Controlling Interest (1,134,849) (1,331,174) (1,247,161) (6,611,177) Net Income (Loss) Attributable to Shareholders of MedMen Enterprises Inc. $ (16,207,405) $ (19,026,802) $ (12,047,203) $ (74,356,830) Earnings (Loss) Per Share - Basic and Diluted: From Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. $ (0.01) $ (0.01) $ (0.03) $ (0.05) From Discontinued Operations Attributable to Shareholders of MedMen Enterprises Inc. $ (0.00) $ (0.01) $ 0.01 $ (0.02) Weighted-Average Shares Outstanding - Basic 1,301,874,615 1,198,515,279 1,301,767,158 1,070,605,666 Weighted-Average Shares Outstanding - Diluted 1,301,874,615 1,198,515,279 4,845,052,067 1,070,605,666 United States Dollars, Except for Share Data)these Condensed Consolidated Financial Statements (Unaudited). December 25, June 26, 2021 2021 (unaudited) (audited) ASSETS Current Assets: Cash and Cash Equivalents $ 47,724 $ 11,874 Accounts Receivable and Prepaid Expenses 9,369 7,791 Inventory 20,735 20,093 Assets Held for Sale 48,048 49,051 Other Assets 8,939 7,870 Total Current Assets 134,815 96,679 Operating Lease Right-of-Use Assets 69,354 77,422 Property and Equipment, Net 134,563 137,830 Intangible Assets, Net 107,578 115,380 Goodwill 32,900 32,900 Other Assets 11,662 12,252 TOTAL ASSETS $ 490,872 $ 472,463 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES: Current Liabilities: Accounts Payable and Accrued Liabilities $ 54,250 $ 57,139 Income Taxes Payable 77,163 61,463 Other Liabilities 12,300 15,678 Derivative Liabilities 21,224 6,935 Current Portion of Operating Lease Liabilities 9,147 9,236 Current Portion of Finance Lease Liabilities 205 205 Current Portion of Notes Payable 114,339 103,496 Liabilities Held for Sale 35,919 32,978 Due to Related Party 1,477 1,477 Total Current Liabilities 326,024 288,607 Operating Lease Liabilities 94,998 99,976 Finance Lease Liabilities 29,825 29,047 Other Liabilities 3,366 3,649 Deferred Tax Liability 50,800 46,378 Senior Secured Convertible Credit Facility 119,655 170,821 Notes Payable 85,533 87,619 TOTAL LIABILITIES 710,201 726,097 SHAREHOLDERS’ EQUITY: Preferred Shares ( par value, unlimited shares authorized and shares issued and outstanding) - - Subordinate Voting Shares (no par value, unlimited shares authorized, and shares issued and outstanding as of December 25, 2021 and June 26, 2021, respectively) - - Additional Paid-In Capital 1,025,405 908,993 Accumulated Deficit (791,208 ) (717,233 ) Total Equity Attributable to Shareholders of MedMen Enterprises Inc. 234,197 191,760 Non-Controlling Interest (453,526 ) (445,394 ) TOTAL SHAREHOLDERS’ EQUITY (219,329 ) (253,634 ) TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 490,872 $ 472,463 For the Six Months Ended December 24, 2022 Units $ Amount Additional
Paid-In
CapitalAccumulated
DeficitTOTAL EQUITY
ATTRIBUTABLE
TO
SHAREHOLDERS
OF MEDMENNon-
Controlling
InterestTOTAL
SHAREHOLDERS’
DEFICIENCYSubordinate
Voting
SharesSubordinate
Voting
SharesBalance as of June 25, 2022 1,301,423,950 $ — $ 1,057,228,873 $ (901,758,875) $ 155,469,998 $ (473,982,734) $ (318,512,736) Net Income (Loss) — — — 4,160,212 4,160,212 (112,312) 4,047,901 Controlling Interest Equity Transactions Partner Contributions — — — 37,561 37,561 — 37,561 Redemption of MedMen Corp Redeemable Shares 259,814 — 15,318 (15,318) — — — Share-Based Compensation — — 863,685 — 863,685 — 863,685 Balance as of September 24, 2022 1,301,683,764 — $ 1,058,107,876 $ (897,576,420) $ 160,531,456 $ (474,095,046) $ (313,563,590) Net Income (Loss) — — — (16,207,405) (16,207,405) (1,134,849) (17,342,254) Controlling Interest Equity Transactions Partner Contributions — — — — — — — Redemption of MedMen Corp Redeemable Shares 445,320 — 15,079 (15,079) — — — Share-Based Compensation — — 2,113,676 — 2,113,676 — 2,113,676 Balance as of December 24, 2022 1,302,129,084 $ — $ 1,060,236,631 $ (913,798,904) $ 146,437,727 $ (475,229,895) $ (328,792,168) For the Six Months Ended December 25, 2021 Units $ Amount Additional
Paid-In
CapitalAccumulated
DeficitTOTAL EQUITY
ATTRIBUTABLE
TO
SHAREHOLDERS
OF MEDMENNon-
Controlling
InterestTOTAL
SHAREHOLDERS’
DEFICIENCYSubordinate
Voting
SharesSubordinate
Voting
SharesBALANCE AS OF JUNE 27, 2021 726,866,374 $ — $ 908,992,686 $ (717,232,706) $ 191,759,980 $ (445,393,599) $ (253,633,619) Net Loss — — — (55,330,028) (55,330,028) (5,280,003) (60,610,031) Controlling Interest Equity Transactions Shares Issued for Cash, Net of Fees 406,249,973 — 73,393,745 — 73,393,745 — 73,393,745 Shares Issued to Settle Debt and Accrued Interest 20,833,333 — 4,030,000 — 4,030,000 — 4,030,000 Shares Issued to Settle Accounts Payable and Liabilities 4,182,730 — 700,000 — 700,000 — 700,000 Equity Component of Debt - New and Amended 0 — 41,388,048 — 41,388,048 — 41,388,048 Redemption of MedMen Corp Redeemable Shares 4,054,278 — 1,121,441 374,701 1,496,142 (1,496,142) — Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options 8,473,868 — — — — — — Shares Issued for Exercise of Warrants 8,807,605 — 1,273,679 — 1,273,679 — 1,273,679 Shares Issued for Conversion of Debt 16,014,665 — 2,371,100 — 2,371,100 — 2,371,100 Stock Grants for Compensation 1,455,415 — 1,421,400 — 1,421,400 — 1,421,400 Deferred Tax Impact On Conversion Feature — — (13,057,730) — (13,057,730) — (13,057,730) Share-Based Compensation — — 1,682,677 — 1,682,677 — 1,682,677 BALANCE AS OF SEPTEMBER 25, 2021 1,196,938,241 $ — $ 1,023,317,046 $ (772,188,033) $ 251,129,013 $ (452,169,744) $ (201,040,731) Net Loss — — — (19,026,802) (19,026,802) (1,331,174) (20,357,976) Controlling Interest Equity Transactions Shares Issued for Cash, Net of Fees — — — — — — — Shares Issued to Settle Debt and Accrued Interest — — — — — — — Shares Issued to Settle Accounts Payable and Liabilities 98,118 — 15,000 — 15,000 — 15,000 Equity Component of Debt - New and Amended — — — — — — — Redemption of MedMen Corp Redeemable Shares 84,605 — 18,627 6,835 25,462 (25,462) — Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options 2,283,972 — — — — — — Shares Issued for Exercise of Warrants — — — — — — — Shares Issued for Conversion of Debt — — — — — — — Stock Grants for Compensation 714,356 — 207,494 — 207,494 — 207,494 Deferred Tax Impact On Conversion Feature — — 1,345,580 — 1,345,580 — 1,345,580 Share-Based Compensation — — 500,612 — 500,612 — 500,612 BALANCE AS OF DECEMBER 25, 2021 1,200,119,292 $ — $ 1,025,404,359 $ (791,208,000) $ 234,196,359 $ (453,526,380) $ (219,330,021)
The accompanying notes are an integral part of these Condensed Consolidated Financial Six Months Ended December 24,
2022December 25,
2021CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss from Continuing Operations $ (39,426,853) $ (54,380,916) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Deferred Tax Expense — (9,365,019) Depreciation and Amortization 7,471,055 13,121,707 Non-Cash Operating Lease Costs 6,200,503 8,854,752 Accretion of Debt Discount and Loan Origination Fees 2,885,912 7,625,298 Loss on Disposals of Assets 1,358,820 — Gain on Lease Terminations (3,464,947) — Accretion of Deferred Gain on Sale of Property (236,095) (283,314) Impairment of Assets 6,716,906 435,241 Realized and Unrealized Changes in Fair Value of Contingent Consideration 863,856 — Change in Fair Value of Derivative Liabilities (3,106,786) (16,211,785) Gain on Extinguishment of Debt — (10,233,610) Share-Based Compensation 2,977,361 3,812,183 Interest Capitalized to Senior Secured Convertible Debt and Notes Payable 12,319,509 13,008,234 Interest Capitalized to Finance Lease Liabilities 969,427 777,564 Changes in Operating Assets and Liabilities: Accounts Receivable and Prepaid Expenses 5,057,758 (1,830,219) Inventory (3,664,591) (3,139,817) Other Current Assets (412,535) 321,953 Other Assets 534,846 479,019 Accounts Payable and Accrued Liabilities 7,659,848 3,218,996 Interest Payments on Finance Leases (3,639,574) (3,510,293) Cash Payments - Operating Lease Liabilities (1,501,594) (5,777,739) Income Taxes Payable 12,072,079 17,776,242 Other Current Liabilities (976,314) (1,282,468) NET CASH PROVIDED BY (USED IN) CONTINUED OPERATING ACTIVITIES 10,658,591 — (36,583,991) Net Cash Used in Discontinued Operating Activities (18,992,355) (13,314,891) NET CASH USED IN OPERATING ACTIVITIES (8,333,764) (49,898,882) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Property and Equipment (5,974,346) (3,974,462) Additions to Intangible Assets (30,999) (486,759) Proceeds from the Sale of Assets Held for Sale 51,500,000 — NET CASH PROVIDED BY (USED IN) CONTINUED INVESTING ACTIVITIES 45,494,655 — (4,461,221) Net Cash Used in Discontinued Investing Activities — (3,107,056) NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 45,494,655 (7,568,277) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Subordinate Voting Shares for Cash — 95,000,000 Payment of Stock Issuance Costs Relating to Private Placement — (5,352,505) Exercise of Warrants for Cash — 1,273,679 Payment of Debt Issuance Costs Relating to Senior Secured Convertible Credit Facility — (2,608,964) Proceeds from Issuance of Notes Payable — 5,000,000 Principal Repayments of Notes Payable (32,388,433) (152,887) Principal Repayments of Finance Lease Liability (666) (959) Distributions - Non-Controlling Interest 37,561 — NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (32,351,538) 93,158,364 NET INCREASE IN CASH AND CASH EQUIVALENTS 4,809,353 35,691,206 Cash Included in Assets Held for Sale — (275,178) Cash and Cash Equivalents, Beginning of Period 10,795,999 11,575,868 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 15,605,352 $ 46,991,896 Statements.Statements (Unaudited).1MEDMEN ENTERPRISES INC.Condensed Consolidated StatementsTable of Operations (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020Contents(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data) Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Revenue $ 39,124 $ 32,591 $ 78,930 $ 67,701 Cost of Goods Sold 19,882 15,795 42,217 34,446 Gross Profit 19,242 16,796 36,713 33,255 Operating Expenses: General and Administrative 35,303 31,810 71,794 62,049 Sales and Marketing 1,129 222 1,820 415 Depreciation and Amortization 7,634 8,872 14,663 16,901 Realized and Unrealized Changes in Fair Value of Contingent Consideration (301 ) 88 (301 ) 391 Impairment Expense - - 435 790 Other Operating Expense (Income) 631 2,702 2,478 (26,374 ) Total Operating Expenses 44,396 43,694 90,889 54,172 Loss from Operations (25,154 ) (26,898 ) (54,176 ) (20,917 ) Non-Operating (Income) Expense: Interest Expense 9,660 7,651 19,627 16,437 Interest Income (23 ) (540 ) (46 ) (541 ) Amortization of Debt Discount and Loan Origination Fees 2,319 4,781 10,163 6,468 Change in Fair Value of Derivatives (14,106 ) 178 (16,212 ) (128 ) (Gain) Loss on Extinguishment of Debt - 944 (10,234 ) 11,073 Total Non-Operating (Income) Expense (2,150 ) 13,014 3,298 33,309 Loss from Continuing Operations Before Provision for Income Taxes (23,004 ) (39,912 ) (57,474 ) (54,226 ) Provision for Income Tax Benefit (Expense) 8,138 (22,560 ) (11,555 ) (34,843 ) Net Loss from Continuing Operations (14,866 ) (62,472 ) (69,029 ) (89,069 ) Net Loss from Discontinued Operations, Net of Taxes (5,492 ) (6,390 ) (11,939 ) (12,638 ) Net Loss (20,358 ) (68,862 ) (80,968 ) (101,707 ) Net Loss Attributable to Non-Controlling Interest (1,331 ) (19,165 ) (6,611 ) (30,093 ) Net Loss Attributable to Shareholders of MedMen Enterprises Inc. $ (19,027 ) $ (49,697 ) $ (74,357 ) $ (71,614 ) Loss Per Share - Basic and Diluted: From Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. $ (0.01 ) $ (0.09 ) $ (0.06 ) $ (0.14 ) From Discontinued Operations Attributable to Shareholders of MedMen Enterprises Inc. $ 0.00 $ (0.01 ) $ (0.01 ) $ (0.03 ) Weighted-Average Shares Outstanding - Basic and Diluted 1,198,515,279 482,903,106 1,070,605,666 452,806,117 Six Months Ended December 24,
2022December 25,
2021SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION Cash Paid for Interest $ 5,078,605 $ 1,940,280 Non-Cash Investing and Financing Activities: Net Assets Transferred to Held for Sale — 4,476,993 Redemption of MedMen Corp Redeemable Shares 705,134 1,521,604 Derivative Liability Incurred on Convertible Facility and Equity Financing 805,590 30,500,000 Conversion of Convertible Debentures — 2,371,100 Shares Issued to Settle Debt and Lender Fees — 4,030,000 Shares Issued to Settle Accounts Payable and Liabilities — 715,000 Equity Component of Debt - New and Amended — 41,388,047 Deferred Tax Impact on Conversion Feature — 11,712,150 Statements.2MEDMEN ENTERPRISES INC.Condensed Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share Data) Mezzanine Equity TOTAL EQUITY Units $ Amount Units $ Amount ATTRIBUTABLE Super Super Subordinate Subordinate Additional TO Non- TOTAL Voting Voting Voting Voting Accumulated SHAREHOLDERS Controlling SHAREHOLDERS’ Shares Shares Shares Shares Capital Deficit OF MEDMEN Interest EQUITY BALANCE AS OF JUNE 28, 2020 815,295 $ 83 403,907,218 $ - $ 791,173 $ (631,366 ) $ 159,889 $ (336,778 ) $ (176,888 ) Net Loss - - - - - (71,615 ) (71,615 ) (30,093 ) (101,708 ) Controlling Interest Equity Transactions Shares Issued to Settle Accounts Payable and Liabilities - - 7,205,754 - 1,159 - 1,159 - 1,159 Equity Component of Debt - New and Amended - - - - 33,590 - 33,590 - 33,590 Redemption of MedMen Corp Redeemable Shares - - 88,945,434 - 13,655 34,925 48,580 (48,580 ) - Shares Issued for Vested Restricted Stock Units - - 7,173,256 - 437 - 437 - 437 Shares Issued for Acquisition Costs - - 2,082,890 - 318 - 318 - 318 Stock Grants for Compensation - - 3,001,282 - 817 - 817 - 817 Deemed Dividend - Down Round Feature of Warrants - - - - 6,364 (6,364 ) - - - Deferred Tax Impact On Conversion Feature - - - - (10,023 ) - (10,023 ) (1,210 ) (11,233 ) Share-Based Compensation - - - - 2,546 - 2,546 - 2,546 Cancellation of Super Voting Shares (815,295 ) (83 ) - - 83 - - - - - Non-Controlling Interest Equity Transactions: - Equity Component on Debt and Debt Modification - - - - - - - 4,055 4,055 BALANCE AS OF DECEMBER 26, 2020 - $ - 512,315,834 $ - $ 840,119 $ (674,420 ) $ 165,698 $ (412,606 ) $ (246,907 ) Mezannine Equity TOTAL EQUITY Units $ Amount Units $ Amount ATTRIBUTABLE Super Super Subordinate Subordinate Additional TO Non- TOTAL Voting Voting Voting Voting Paid-In Accumulated SHAREHOLDERS Controlling SHAREHOLDERS’ Shares Shares Shares Shares Capital Deficit OF MEDMEN Interest EQUITY BALANCE AS OF JUNE 27, 2021 - 726,866,374 $ - $ 908,993 $ (717,233 ) $ 191,760 $ (445,394 ) $ (253,634 ) - Net Loss - - - - - (74,357 ) (74,357 ) (6,611 ) (80,968 ) Controlling Interest Equity Transactions Shares Issued for Cash, Net of Fees 406,249,973 - 73,394 - 73,394 - 73,394 Shares Issued to Settle Debt and Accrued Interest 20,833,333 - 4,030 - 4,030 - 4,030 Shares Issued to Settle Accounts Payable and Liabilities 4,280,848 - 715 - 715 - 715 Equity Component of Debt - New and Amended - - 41,388 - 41,388 - 41,388 Redemption of MedMen Corp Redeemable Shares 4,138,883 - 1,139 382 1,521 (1,521 ) - Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options 10,757,840 - - - - - - Shares Issued for Exercise of Warrants 8,807,605 - 1,274 - 1,274 - 1,274 Shares Issued for Conversion of Debt 16,014,665 - 2,371 - 2,371 - 2,371 Stock Grants for Compensation 2,169,771 - 1,629 - 1,629 - 1,629 Deferred Tax Impact On Conversion Feature - - (11,712 ) - (11,712 ) - (11,712 ) Share-Based Compensation - - 2,184 - 2,184 - 2,184 BALANCE AS OF DECEMBER 25, 2021 - 1,200,119,292 $ - $ 1,025,405 $ (791,208 ) $ 234,197 $ (452,426 ) $ (219,329 ) The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.3MEDMEN ENTERPRISES INC.Condensed Consolidated Statements of Cash Flows (Unaudited)Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars) Six Months Ended December 25, December 26, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss from Continuing Operations $ (69,029 ) (100,228 ) Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: Deferred Tax Recovery (9,365 ) (13,458 ) Depreciation and Amortization 15,843 17,378 Non-Cash Operating Lease Costs 13,052 14,023 Accretion of Debt Discount and Loan Origination Fees 10,163 10,104 Loss on Disposals of Asset - 670 Gain on Lease Terminations - (17,909 ) Accretion of Deferred Gain on Sale of Property (283 ) (283 ) Impairment of Assets 435 790 Realized and Unrealized Gain on Investments and Other Assets - (10,455 ) Realized and Unrealized Changes in Fair Value of Contingent Consideration - 391 Change in Fair Value of Derivative Liabilities (16,212 ) (128 ) (Gain) Loss on Extinguishment of Debt (10,234 ) 10,430 Share-Based Compensation 3,812 3,801 Interest Capitalized to Senior Secured Convertible Debt and Notes Payable 13,008 - Interest Capitalized to Finance Lease Liabilities 778 - Shares Issued for Acquisition Costs - 318 Changes in Operating Assets and Liabilities: Accounts Receivable and Prepaid Expenses (1,914 ) (465 ) Inventory (2,032 ) (2,055 ) Other Current Assets 322 5,496 Other Assets 473 326 Accounts Payable and Accrued Liabilities 2,420 3,802 Interest Payments on Finance Leases (3,510 ) (1,984 ) Cash Payments - Operating Lease Liabilities (9,788 ) (14,633 ) Income Taxes Payable 17,776 48,205 Other Current Liabilities (1,271 ) 16,955 Due to Related Party - (182 ) NET CASH USED IN CONTINUED OPERATING ACTIVITIES (45,556 ) (29,091 ) Net Cash Used in Discontinued Operating Activities (3,909 ) (1,197 ) NET CASH USED IN OPERATING ACTIVITIES (49,465 ) (30,288 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of Property and Equipment (7,082 ) (1,194 ) Additions to Intangible Assets (487 ) (1,892 ) Proceeds from Sale of Assets Held for Sale and Other Assets - 18,752 NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (7,569 ) 15,666 CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of Subordinate Voting Shares for Cash 95,000 - Payment of Stock Issuance Costs Relating to Private Placement (5,353 ) - Exercise of Warrants for Cash 1,274 - Payment of Debt Issuance Costs Relating to Senior Secured Convertible Credit Facility (2,609 ) 5,469 Proceeds from Issuance of Notes Payable 5,000 14,830 Principal Repayments of Notes Payable (153 ) (482 ) Principal Repayments of Senior Secured Convertible Credit Facility - (8,000 ) Principal Repayments of Finance Lease Liability (1 ) (40 ) NET CASH PROVIDED BY FINANCING ACTIVITIES 93,158 11,777 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36,124 (2,845 ) Cash Included in Assets Held for Sale (274 ) - Cash and Cash Equivalents, Beginning of Period 11,874 9,599 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 47,724 $ 6,754 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.4MEDMEN ENTERPRISES INC.Condensed Consolidated Statements of Cash Flows (Unaudited)Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars) Six Months Ended December 25, December 26, 2021 2020 SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION Cash Paid for Interest $ 5,318 $ 4,542 Non-Cash Investing and Financing Activities: Net Assets Transferred to Held for Sale $ 4,477 $ 6,615 Receivable Recorded on Asset Held for Sale $ - $ 2,877 Lease Terminations and Amendments $ - $ 36,768 Paid-in-Kind Interest Capitalized to Debt $ - $ 24,033 Redemption of MedMen Corp Redeemable Shares $ 1,522 $ 48,580 Derivative Liability Incurred on Convertible Facility and Equity Financing $ 30,500 $ - Equity Component of Debt Modification - New and Amended $ - $ 5,310 Conversion of Convertible Debentures $ 2,371 $ - Shares Issued to Settle Debt and Lender Fees $ 4,030 $ - Shares Issued to Settle Accounts Payable and Liabilities $ 715 $ 1,159 Equity Component of Debt – New and Amended $ 41,388 $ - Release of Investments for Liabilities $ - $ 750 Deferred Tax Impact on Conversion Feature $ 11,712 $ 11,233 The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.5MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in ThousandsTable of United States Dollars, Except for Share and Per Share Data)1. NATURE OF OPERATIONS Inc,Inc. and its wholly owned subsidiaries over which the company has control (collectively, “MedMen”, the “Company”, “we” or “us”) is a premier cannabis retailer based in the U.S. with an operational footprint in California, Nevada, Illinois, Arizona, Massachusetts, Florida, and New York. MedMen offers a robust selection of high-quality products, including MedMen-owned brands – MedMen Red and LuxLyte – through its premium retail stores, proprietary delivery service, as well as curbside and in-store pick up. MedMen Buds an industry-first loyalty program, provides exclusive access to promotions, product drops and content.25, 2021,24, 2022, the Company owns 29operates 23 store locations across California (12)(13), Nevada (3), Illinois (1), Arizona (1), Massachusetts (1), Florida (7) and New York (4). In accordance with our planned growth strategy, during the second quarter we opened one new retail storeThe Company continues to market its assets in Boston’s famed Fenway Park area, officially entering Massachusetts cannabis market. Beginning on October 1, 2021, the Company no longer operates the cultivation and production facilities in California and Nevada pursuant to its management agreement with Foundry Works, Inc. In February 2021, the Company entered into an investment agreement to sell a controlling interest in MedMen NY, Inc.New York and thus classifiedclassifies all assets and liabilities and profit or loss allocable to its operations in the state of New York as discontinued operations. On January 3,In August 2022, the Company announcedcompleted the terminationsale of this investment agreement.6MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 26, 2021,25, 2022, as filed with the SECSecurities and Exchange Commission on September 24, 20219, 2022 (the “2021“2022 Form 10-K”).25, 2021,24, 2022, the Company had cash and cash equivalents of $47.7 million$15,605,362 and net working capital deficit of $191.2 million.$137,433,003. The Company has incurred net losses from continuing operations of $23.0 million$15,086,276 and $57.5 million$39,426,853 for the three and six months then ended respectively, used cash in continued operating activities of $45.6 million so far in the first half of the year and anticipates that the Company will continue to incur losses until such time as revenues exceed operating costs. On January 31,December 24, 2022, the Company’s term loans of $113.6 million as of December 25, 2021 became due and the Company entered into an agreement (the “Sixth Modification to Senior Secured Term Loan”, or the “Sixth Modification”) with the lender to extend the maturity date until July 31, 2022 and August 1, 2021 for the various loans included in the Senior Secured Term Loan Facility. See “Note 10 – Notes Payable”, for additional information about the Senior Secured Term Loan Facility, and “Note 23 – Subsequent Events” for more information about the Sixth Modification.respectively. The conditions described above raise substantial doubt with respect to the Company’s ability to meet its obligations for at least one year from the issuance of these Condensed Consolidated Financial Statements, and therefore, to continue as a going concern.The Sixth Modification requires the Company to execute certain actions including the conditional purchaseTable of the term loans by Superhero Acquisition, L.P., an existing lender in the Company’s Senior Secured Convertible Purchase Agreement dated August 7, 2021 (the “Convertible Facility”), also covenants related to strategic actions the Company must implement it if it is unable to pay the term loans by the extended maturity date. Contents strategic cost savings plan, theand various strategic actions, which may include divestingincluding the successful negotiations of lower costs of occupancy with its master lease landlord and other landlords, divestiture of non-core assets including but not limited to the current asset group held for sale, New York, as well continuing its on-going revenue and vendor strategy of market expansion and retail revenue and gross margin growth. The Company also needs to obtain an extension or a refinancing of its debt-in-default with the secured senior lender. The annual operating plan for fiscal year 2023 estimates the Company will be able to manage ongoing operations. However, its cash needs are significant and not achievable with the current cash flow from operations. If the above conditional purchase of the term loans and/or the strategic actions, for any reason, are inaccessible, it wouldwill have a significantly negative effect on the Company’s financial condition. Additionally, we expectmanagement expects to continue to manage the Company’s operating expenses and reduce its projected cash requirements through reduction of its expenses by delaying new store development, permanently or temporarily closing stores that are deemed to be performing below expectations, and/or implementing other restructuring activities. Furthermore, COVID-19 and the impact the global pandemic has had and will continue to have on the broader retail environment could also have a significant impact on the Company’s financial operations.Asposition, results of December 25, 2021,operations, equity and or its access to capital and future financing.accompanying consolidated financial statementsCOVID-19 pandemic, governmental authorities have been preparedenacted and implemented various recommendations and safety measures in an attempt to limit the spread and magnitude of the pandemic. The Company is continuously addressing the effects of the COVID-19 pandemic, a discussion of which is available in Item 1A “Risk Factors” of the 2022 Form 10-K. The company’s operating results continue to be impacted by the COVID-19 pandemic. The overall impact on a going-concern basis, which contemplatesour business continues to depend on the realizationlength of assetstime that the pandemic continues, the impact on consumer purchasing behavior, macro-economic factors such as inflation, and the satisfaction of liabilities in the normal course of business. The accompanying consolidated condensed financial statements do not include any adjustmentsextent to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related towhich it affects our ability to continue as a going concern.COVID-19Due to impacts from the COVID-19 pandemicraise capital, and the effect of governmental regulations imposed in response to the pandemic, which all remain uncertain paceat this time. The Company will continue to implement and evaluate actions to strengthen our financial position and support the continuity of recovery, including the impact of the Deltaour business and Omicron variants, the Company’s business operations may be materially and adversely affected if a significant number of the Company’s employees are impacted by the virus. Operating results for the three and six months ended December 25, 2021 are not necessarily indicative of operating results for the entire year.operations.7MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)consolidated financial statementsConsolidated Financial Statements from the date that control commences until the date that control ceases. A completeWith the exception of MME Florida, LLC, which the Company disposed on August 22, 2022, the list of ourthe Company’s subsidiaries that existed prior to our most recent year-end is included in the Company’s 20212022 Form 10-K.During the fiscal second quarter10-K remain complete as of 2022, the Company effectuated the Management Agreement with an unrelated third party and no longer has a controlling financial interest in previously consolidated entities, Manlin DHS Development, LLC (“DHS”) and Project Mustang Development, LLC (“Mustang”), and therefore these entities are no longer included in the Company’s financial statements. The deconsolidation did not have a material impact on the Company’s Condensed Financial Statements.20212022 Form 10-K, unless otherwise disclosed in these accompanying notes to the Condensed Consolidated Financial Statements for the interim period ended December 25, 2021.lossearnings per share is determined by adjusting profit or loss attributable to common shareholders and the weighted-average number of common shares outstanding, for the effects of all dilutive potential common shares, which comprise convertible debentures, restricted stock units, warrants and stock options issued.December 2019,May 2021, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income TaxesStandards Update (“ASU”) 2021-04, “Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2019-12”2021-04”), which eliminates certain exceptions related to the approachamends existing guidance for intraperiod tax allocation, the methodology for calculating income taxesearnings per share (“EPS”) in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes.accordance with Topic 260. ASU 2019-122021-04 is effective prospectively for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.2021. The Company adopted ASU 2019-122021-04 on June 27, 2021.26, 2022. The adoption of the standard did not have a material impact on the Company’s condensed consolidated financial statements.Condensed Consolidated Financial Statements.JanuaryMarch 2020, the FASB issued ASU 2020-01, 2020-04, “Investments — Equity SecuritiesReference Rate Reform (Topic 321)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), “Investments—Equity Methodprovides optional expedients and Joint Ventures (Topic 323)”,exceptions for applying GAAP to debt instruments, derivatives, and “Derivativesother contracts that reference London Interbank Offered Rate (“LIBOR”) or other reference rates expected to be discontinued as a result of reference rate reform. This guidance is optional and Hedging (Topic 815)may be elected through December 31, 2022 using a prospective application on all eligible contract modifications. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to instruments affected by reference rate reform if certain criteria are met. The Company did not modify any material contracts due to reference rate reform during the nine months ended September 30, 2022. The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.(“(“ASU 2020-01”2022-04”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.enhance transparency with supplier finance programs. ASU 2020-012022-04 is effective for the Company for fiscal years beginning after December 15, 2020, and interim periods therein. The Company adopted ASU 2020-01 on June 27, 2021. The adoption of the standard did not have a material impact on the Company’s condensed consolidated financial statements.Recently Issued Accounting StandardsIn August 2020, the FASB issued ASU 2020-06, “Debt — Debt With Conversion and Other Options (Subtopic 470-20)” and “Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity,2022, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Adoption is applied on a modified or full retrospective transition approach. The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.In May 2021, the FASB issued ASU 2021-04, “Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2021-04”), which amends existing guidance for earnings per share (“EPS”) in accordance with Topic 260. ASU 2021-04 is effective for the Company beginning June 1, 2022. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Subtopic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”), which is intended to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency. ASU 2021-08 is effective for the Company beginning June 1, 2023. This update should be applied prospectively on or after the effective date of the amendments. The Company is currently evaluating the effect of adopting this ASU.8MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)3. INVENTORY consistsas of the following:Schedule of inventories December 25, June 26, 2021 2021 Raw Materials $ 361 $ 670 Work-in-Process 2,345 5,174 Finished Goods 18,029 14,249 Total Inventory $ 20,735 $ 20,093 December 24,
2022June 25,
2022Raw Materials $ 736,389 $ 521,777 Work-in-Process 956,705 671,541 Finished Goods 11,982,228 8,817,413 Total Inventory $ 13,675,322 $ 10,010,731 three and six months ended December 24, 2022 and December 25, 2021, the Company recognized an impairment of approximately nil and $864,$900,000 respectively, to write down inventory to its net realizable value.9MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three The Company did not recognize any impairment of inventory during the three months ended December 24, 2022 and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in ThousandsTable of United States Dollars, Except for Share and Per Share Data)4. ASSETS HELD FOR SALE PharmaCann AssetsIn October 2019 and in connection with the Company’s determination to termination certain business acquisition, the Company recorded as held for sale certain land and license related to its non-core operations in Staunton, Virginia. As of December 25, 2021, the Company continues to pursue its plan for sale.Discontinued OperationsIn February 2021, the Company entered into an investment agreement with respect to its New York operations whereby a controlling interest would be acquired by a third party. The operations within the state of New York qualified as discontinued operations. The assets associated with the New York component were measured at the lower of the carrying amount or FVLCTS (Fair Value Less Cost to Sell ) upon classification as held for sale wherein the fair value based on the exit price of $73,000 under ASC 820 was greater than the carrying value. See “Note 22 – Discontinued Operations” for further information. On January 3, 2022, the Company announced its termination of the investment agreement. Refer to “Note 23 – Subsequent Events”.Schedule of asset held for sale Available for Sale Subsidiaries TOTAL Balance as of June 26, 2021 $ 152 $ - $ 48,899 $ 49,051 Transferred In - 4,478 - 4,478 Ongoing Activities - (2,297 ) (1,158 ) (3,455 ) Transferred to Investments - (1,966 ) - (1,966 ) Other (60 ) - - (60 ) Balance as of December 25, 2021 $ 92 $ 215 $ 47,741 $ 48,048 10MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)5.Discontinued Operations & Other AssetsBalance as of June 25, 2022 $ 123,158,751 Ongoing Activities (12,547,238) (67,000,000) Balance as of December 24, 2022 43,611,513 5. PROPERTY AND EQUIPMENTEQUIPMENT.25, 202124, 2022 and June 26, 2021,25, 2022, property and equipment consists of the following:Schedule of property and equipment December 25, June 26, 2021 2021 Land and Buildings $ 36,180 $ 37,400 Finance Lease Right-of-Use Assets 7,554 9,154 Furniture and Fixtures 12,544 12,525 Leasehold Improvements 68,726 68,438 Equipment and Software 25,419 26,832 Construction in Progress 31,147 27,145 Total Property and Equipment 181,570 181,494 Less Accumulated Depreciation (47,007 ) (43,664 ) Property and Equipment, Net $ 134,563 $ 137,830 December 24,
2022June 25,
2022Land and Buildings $ 29,933,999 $ 29,933,999 Capital Leases 5,318,516 5,315,625 Furniture and Fixtures 8,651,132 8,776,994 Leasehold Improvements 33,625,888 33,069,524 Equipment and Software 15,972,636 16,897,649 Construction in Progress 4,169,772 6,828,923 Total Property and Equipment 97,671,943 100,822,714 Less Accumulated Depreciation (40,026,614) (36,714,922) Property and Equipment, Net $ 57,645,329 $ 64,107,792 of $4,390 and $8,121 was recorded for the three and six months ended December 24, 2022 and December 25, 2021 respectively, of which $609was $3,499,585 and $1,179, respectively, is included in cost of goods sold.$6,864,790, respectively. Depreciation expense related to continuing operations of $3,759 and $8,859 was recorded for the three and six months ended December 26, 2020, respectively,24, 2022 and December 25, 2021 was $7,471,055 and $13,121,707, respectively.which $496 and $558, respectively, is included in cost of goods sold.Duringdepreciation recognized for capital leases during the three months ended December 24, 2022 and December 25, 2021 was $267,312. The amount of depreciation recognized for capital leases during the six months ended December 24, 2022 and December 25, 2021 borrowing costs totaling $was $534,624. see 440“Note 9 – Leases” and $815for further information., respectively, were capitalized using an average capitalization rate of 12.37% and 12.16%, respectively. 26, 2020.6.INTANGIBLE ASSETSAs of December 25, 2021 and June 26, 2021, intangible assets consist of the following:Schedule of Intangible assets December 25, June 26, 2021 2021 Dispensary Licenses $ 121,292 $ 121,292 Customer Relationships 17,748 17,748 Management Agreement 7,595 7,595 Capitalized Software 10,158 9,697 Intellectual Property 5,534 6,277 Total Intangible Assets 162,327 162,609 Dispensary Licenses (24,941 ) (22,127 ) Customer Relationships (19,290 ) (16,463 ) Management Agreement (864 ) (765 ) Capitalized Software (5,843 ) (4,667 ) Intellectual Property (3,811 ) (3,207 ) Less Accumulated Amortization (54,749 ) (47,229 ) Intangible Assets, Net $ 107,578 $ 115,380 The Company recorded amortization expense related to continuing operations of $3,853 and $7,722 for the three and six months ended December 25, 2021, respectively. The Company recorded amortization expense related to continuing operations of $5,608 and $8,601 for the three and six months ended December 26, 2020, respectively.24, 2022. During the three and six months ended December 25, 2021, borrowing costs totaling $375,241 were capitalized using an average capitalization rate of 11.95%.6. INTANGIBLE ASSETS December 24,
2022June 25,
2022Dispensary Licenses $ 40,814,762 $ 49,253,452 Customer Relationships 16,409,600 16,409,600 Capitalized Software 7,413,470 7,413,470 Intellectual Property 12,455,287 4,016,597 Total Intangible Assets $ 77,093,119 $ 77,093,119 Dispensary Licenses $ (18,084,368) $ (16,876,912) Customer Relationships (15,378,567) (15,870,284) Capitalized Software (4,824,287) (4,413,974) Intellectual Property (6,152,763) (4,185,835) Less Accumulated Amortization (44,439,985) (41,347,005) Intangible Assets, Net $ 32,653,134 $ 35,746,114 recognized an impairment on an intellectual property asset inrecorded amortization expense related to continuing operations for the amount of nilthree months ended December 24, 2022 and $435, respectively.11MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 of $1,410,858 and $3,206,091, respectively and amortization expense related to continuing operations for the six months ended December 24, 2022 and December 26, 2020(Amounts Expressed in Thousands25, 2021 of United States Dollars, Except for Share$3,123,979 and Per Share Data)7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 25, 202124, 2022 and June 26, 2021,25, 2022, accounts payable and accrued liabilities consist of the following:Schedule of accounts payable and accrued liabilities December 25, June 26, 2021 2021 Accounts Payable $ 32,566 $ 35,064 Accrued Liabilities 7,260 7,348 Accrued Deal Costs 4,123 4,123 Accrued Payroll 3,162 2,716 Local & State Taxes Payable 6,573 7,321 Other Accrued Liabilities 566 567 Total Accounts Payable and Accrued Liabilities $ 54,250 $ 57,139 12December 24,
2022June 25,
2022Accounts Payable $ 19,663,409 $ 14,627,746 Accrued Liabilities 9,862,983 9,464,567 Accrued Inventory 6,397,508 5,868,831 Accrued Payroll 1,405,253 1,682,517 Local & State Taxes Payable 5,030,310 6,695,532 Deferred Gain on Sale of Assets 566,627 566,627 Total Accounts Payable and Accrued Liabilities $ 42,926,090 $ 38,905,820 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)8. DERIVATIVE LIABILITIES 25, 202124, 2022 is as follows:Schedule of reconciliation of the beginning and ending balance of derivative liabilities and change in fair value of derivative liabilities December 25, 2021 Balance at Beginning of Period $ 6,935 Initial Recognition of Derivative Liabilities 30,501 Change in Fair Value of Derivative Liabilities (16,212 ) Balance at End of Period $ 21,224 TOTAL Balance as of June 25, 2022 $ 6,749,563 Change in Fair Value of Derivative Liabilities (3,106,786) Balance as of December 24, 2022 $ 3,642,777 On August 17, 2021, the Company completed an equity investment through a private placement of 416,666,640 units at a price of $ per unit (the “Private Placement”). Each unit consisted of one Subordinate Voting Share and one-quarter of one share purchase warrant of the Company. Certain investors also received a portion of the Short-Term Warrant with an exercise price of $30,000 and an expiration date of December 31, 2021. At the option of the holder, the Short-Term Warrant may be exercisable into equity or convertible promissory notes under the Convertible Facility, in which net cash settlement is outside of the Company’s control. See “Note 12 – Shareholders’ Equity” for further information. Accordingly, the Short-Term Warrant was accounted for as a derivative liability and measured at fair value, in the amount of $19,400 on August 17, 2021, with changes in fair value recognized in the Condensed Consolidated Statements of Operations. Subsequent to the fiscal second quarter of 2022, the Short-Term Warrant expired unexercised.and the Short-Term Warrant in connection with the Private Placement was determined using the Monte CarloBlack-Scholes simulation model based on Level 3 inputs on the fair value hierarchy. The following assumptions were used at period end:Schedule of assumptions to measure fair value Average Stock Price $ 0.18 $ 0.18 Weighted-Average Probability % nil Term (in Years) 5.00 0.02 Expected Stock Price Volatility % % 13Top-Up
ProvisionAverage Stock Price $ 0.02 Weighted-Average Probability 50.00 % Term (in Years) 5 Expected Stock Price Volatility 121.15 % MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)Number of
WarrantsExercise
Price (C$)Expiration
Date50,000,000 $0.50 March 27, 2024 50,000,000 Schedule of warrant issuedNumber ofWarrantsSeptember 2018 Bought Deal Equity Financing7,840,909(1)December 2018 Bought Deal Equity Financing13,640,000(2)March 2021 Private Placement50,000,000(3)71,480,909(1)On September 27, 2018, the Company completed a bought deal financing (the “September Offering”) of 15,681,818 units (the “September Units”) at a price of C$5.50 per September Unit (the “September Issue Price”). Each September Unit consisted of one Subordinate Voting Share and one-half of one share purchase warrant of the Company (each whole share purchase warrant, a “September Warrant”). Each September Warrant entitles the holder to acquire, one Subordinate Voting Share at an exercise price of C$6.87 for a period of 36 months following the closing of the September Offering.(2)On December 5, 2018, the Company completed a bought deal financing (the “December Offering”) of 13,640,000 units (the “December Units”) at a price of C$5.50 per December Unit (the “December Issue Price”). Each December Unit consisted of one Subordinate Voting Share and one share purchase warrant of the Company (“December Warrant”). Each December Warrant entitles the holder thereof to acquire one Subordinate Voting Share at an exercise price of C$6.87 until September 27, 2021.(3)During the year ended June 26, 2021, the Company issued 50,000,000 warrants for Subordinate Voting Shares with an exercise price of C$0.50 per warrant and an expiration date of March 27, 2024. The exercise price of the warrants was denominated in a price other than the Company’s functional currency.The fair value of the September 2018 and December 2018 bought deal warrants was measured based on Level 1 inputs on the fair value hierarchy since there are quoted prices in active marketsSee “Note 12 – Shareholders’ Equity” for these warrants. The Company used the closing price of the publicly-traded warrants at the time of grant to estimate fair value of the derivative liability. further information.Schedule of assumptions to measure fair value Expected Stock Price Volatility % Risk-Free Annual Interest Rate % Expected Life (in Years) 0.23 Share Price $ 0.23 Exercise Price $ 0.39 14MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)9.Expected Stock Price Volatility161.95% LEASESRisk-Free Annual Interest Rate2.35% Expected Life (in Years) 0.25 Share Price $0.02 Exercise Price $0.37 9. LEASES and six months ended December 24, 2022 and June 25, 2021 and December 26, 2020:2022:Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Finance Lease Cost: Amortization of Finance Lease Right-of-Use Assets $ 267,312 $ 251,221 $ 534,624 $ 534,627 Interest on Lease Liabilities 1,835,068 1,725,752 3,639,574 3,510,293 Operating Lease Cost 2,746,638 4,412,675 6,200,503 8,854,752 Total Lease Expenses $ 4,849,018 $ 6,389,648 $ 10,374,701 $ 12,899,672 $ (1,521,651) $ (1,444,234) $ (3,043,302) $ (1,444,234) Cash Paid for Amounts Included in the Measurement of Lease Liabilities: Financing Cash Flows from Finance Leases $ (1,818) $ — $ 666 $ 959 Operating Cash Flows from Operating Leases $ 474,802 $ 2,298,848 $ 1,501,594 $ 5,777,739 Schedule of lease cost Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Finance Lease Cost: Amortization of Finance Lease Right-of-Use Assets $ 251 $ 83 $ 535 $ 398 Interest on Lease Liabilities 1,726 460 3,510 1,984 Operating Lease Cost 6,456 6,310 13,051 13,051 Sublease Income (1,444 ) - (1,444 ) - Total Lease Expenses $ 6,989 $ 6,853 $ 15,652 $ 15,433 Cash Paid for Amounts Included in the Measurement of Lease Liabilities: Financing Cash Flows from Finance Leases $ - $ - $ - $ 40 Operating Cash Flows from Operating Leases $ 4,045 $ 6,222 $ 9,788 $ 14,633 2021 and December 26, 20202022, is as follows:December 24,
2022June 25,
2022Weighted-Average Remaining Lease Term (Years) - Finance Leases 46 46 Weighted-Average Remaining Lease Term (Years) - Operating Leases 7 8 Weighted-Average Discount Rate - Finance Leases 24.81 % 24.33 % Weighted-Average Discount Rate - Operating Leases 16.66 % 18.70 % December 25, December 26, 2021 2020 Weighted-Average Remaining Lease Term (Years) - Finance Leases 47 42 Weighted-Average Remaining Lease Term (Years) - Operating Leases 7 8 Weighted-Average Discount Rate - Finance Leases 17.81 % 15.93 % Weighted-Average Discount Rate - Operating Leases 13.60 % 13.38 % 25, 202124, 2022 are as follows:Schedule of future leases payments Fiscal Year Ending Operating Leases Finance Leases June 25, 2022 (remaining) $ 10,735 $ 2,676 June 24, 2023 21,753 5,484 June 29, 2024 28,122 9,860 June 28, 2025 21,988 6,517 June 27, 2026 22,407 6,713 Thereafter 97,303 1,070,693 Total Lease Payments 202,308 1,101,943 Less Interest $ (98,163 ) $ (1,071,913 ) Lease Liability Recognized $ 104,145 $ 30,030 Fiscal Year Ending Operating
LeasesFinance
LeasesJuly 1, 2023 (remaining) $ 4,692,026 $ 2,934,524 June 29, 2024 12,931,089 10,961,495 June 28, 2025 9,311,213 7,087,736 June 27, 2026 9,495,658 7,300,368 June 26, 2027 9,466,730 7,519,379 Thereafter 26,267,466 1,061,283,374 Total Lease Payments 72,164,182 1,097,086,876 Less Interest (19,541,732) (1,065,503,555) Lease Liability Recognized $ 52,622,450 $ 31,583,321 25, 2021,24, 2022, the Management Agreement remains in effect as neither termination condition has occurred.15MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)10. NOTES PAYABLE 25, 202124, 2022 and June 26, 2021,25, 2022, notes payable consist of the following:Schedule of notes payable December 25, June 26, 2021 2021 Financing liability incurred on various dates between January 2019 through September 2019 with implied interest rates ranging from 0.7% to 17.0% per annum. $ 83,400 $ 83,400 Non-revolving, senior secured term notes dated between October 1, 2018 and October 30, 2020, issued to accredited investors, which mature on January 31, 2022, and bear interest at a rate of 15.5% and 18.0% per annum. 113,590 109,318 Convertible debentures dated between September 16, 2020 through January 29, 2021, issued to accredited investors and qualified institutional buyers, which mature two years from issuance, and bear interest at a rate of 7.5% per annum. - 2,500 Promissory notes dated between January 15, 2019 through March 29, 2019, issued for deferred payments on acquisitions, which mature on varying dates from July 31, 2021 to April 1, 2022 and bear interest at rates ranging from 8.0% to 9.0% per annum. 2,148 2,204 Promissory notes dated November 7, 2018, issued to Lessor for tenant improvements as part of sales and leaseback transactions, which mature on November 7, 2028, bear interest at a rate of 10.0% per annum and require minimum monthly payments of $15,660 and $18,471. 2,120 2,196 Other 16 16 Total Notes Payable 201,274 199,634 Less Unamortized Debt Issuance Costs and Loan Origination Fees (1,402 ) (8,519 ) Net Amount $ 199,872 $ 191,115 Less Current Portion of Notes Payable (114,339 ) (103,496 ) Notes Payable, Net of Current Portion $ 85,533 $ 87,619 16December 24,
2022June 25,
2022Financing liability incurred on various dates between January 2019 through September 2019 with implied interest rates ranging from 0.7% to 17.0% per annum. $ 72,300,000 $ 72,300,000 Non-revolving, senior secured term notes dated between October 1, 2018 and October 30, 2020, issued to accredited investors, which mature on August 1, 2022 and July 31, 2022, and bear interest at a rate of 15.5% and 18.0% per annum. 66,169,035 97,162,001 Promissory notes dated November 7, 2018, issued to Lessor for tenant improvements as part of sales and leaseback transactions, which mature on November 7, 2028, bear interest at a rate of 10% per annum and require minimum monthly payments of $15,660 and $18,471. 2,057,207 2,057,207 Other 15,691 15,691 Total Notes Payable 140,541,933 171,534,899 Less Unamortized Debt Issuance Costs and Loan Origination Fees (137,478) (158,079) Net Amount 140,404,455 171,376,820 Less Current Portion of Notes Payable (66,294,249) (97,003,922) Notes Payable, Net of Current Portion $ 74,110,206 $ 74,372,898 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in ThousandsTable of United States Dollars, Except for Share and Per Share Data)25, 202124, 2022 is as follows:December 24,
2022Balance at Beginning of Period $ 171,376,820 Paid-In-Kind Interest Capitalized 1,257,988 Cash Payments (32,388,433) Accretion of Debt Discount (239,953) Accretion of Debt Discount Included in Discontinued Operations 398,032 Balance at End of Period $ 140,404,454 Less Current Portion of Notes Payable $ (66,294,249) Notes Payable, Net of Current Portion $ 74,110,205 Schedule of Reconciliation of Notes payable December 25, 2021 Balance at Beginning of Period $ 191,115 Cash Additions 5,000 Paid-In-Kind Interest Capitalized 4,287 Cash Payments (153 ) Conversion of Convertible Debentures (2,371 ) Derivative Liability Incurred on Settlement of Debt (3,145 ) Shares Issued to Settle Debt (4,030 ) Non-Cash Loss on Extinguishment of Debt 2,176 Accretion of Debt Discount 2,543 Accretion of Debt Discount Included in Discontinued Operations 4,450 Balance at End of Period 199,872 Less Current Portion of Notes Payable (114,339 ) Notes Payable, Net of Current Portion $ 85,533 On October 1, 2018,closed a $73,275executed the Sixth Modification extending the maturity date of the senior secured term loan facility (the “Facility”) with funds managed by Hankey Capital and with an affiliate of Stable Road Capital (the “Lenders”). On October 3, 2018, the Company closed an additional tranche of the Facility, which increased the principal amount of the loan to $77,675. The principal amount under the Facility will accrue interest at a rate of 7.5% per annum, paid monthly, with a maturity date of 24 months following the date of closing on October 1, 2018. The Company may repay the balance of the Facility at any time and from time to time, in whole or in part, with a prepayment penalty of 1% of the outstanding principal amount repaid if repaid before DecemberJuly 31, 2019. In connection with the Facility, the Company’s equity interests in MMOF SD LLC, MMOF VENICE LLC, MMOF DOWNTOWN COLLECTIVE LLC, MMOF BH LLC, and MMOF VEGAS 2 LLC were pledged as security.Additionally, MM CAN issued to the Lenders 8,105,642 warrants, each being exercisable for one Class B Common Share of such company at a purchase price per share of $ for 30 months. Such Class B Common Shares are redeemable in accordance with their terms for Class B Subordinate Voting Shares of the Company. In connection with the increased principal under the Facility, MM CAN issued to the Lenders an additional 511,628 warrants, each being exercisable for one Class B Common Share of such affiliate at a purchase price per share of $ for a period of 30 months. Such Class B Common Shares are redeemable in accordance with their terms for Class B Subordinate Voting Shares of the Company.In addition to providing a portion of the Facility, Stable Road Capital provided advisory services to the Company. Advisory services included introducing the Company to brands and various service providers, advice on the Facility and providing advice2022 with respect to the Company’s planned structured sale of real estate assets. For its advisory services, MM CAN issuedFacility, and August 1, 2022 with respect to Stable Road Capital 8,105,642 warrants at a purchase price per share of $ and 511,628 warrants at a purchase price per share of $, each being exercisable for one Class B Common Share of such company for a period of 30 months. Such Class B Common Shares are redeemable in accordance with their terms for Class B Subordinate Voting Shares of the Company.Amendments to Senior Secured Term Loan FacilityOn January 13, 2020, the Company completed an amendment of the Facility wherein the maturity date was extended from October 1, 2020 to January 31, 2022 and the interest rate was increased from a fixed rate of 7.5% per annum to 15.5% per annum. In addition, the Company may prepay the amounts outstanding, on a non-revolving basis, at any time and from time to time, in whole or in part, without penalty. The amendment secured the Facility by a pledge of 100% of the equity interest in Project Compassion NY, LLC, which includes MedMen NY, Inc. and MMOF NY Retail, LLC. The amendment to the term loan facility was not deemed to be a substantial modification under ASC Subtopic 470-50, “Modifications and Extinguishments” (“ASC Subtopic 470-50”).Further, the Company cancelled the existing 16,211,284 and 1,023,256 warrants issued to the lenders exercisable at $ and $ per share, respectively, representing 100% of the loan amount. The Company issued new warrants to the lenders totaling 40,455,729 warrants exercisable at $0.60 per share until December 31, 2022. The new warrants may be exercised at the election of their holders on a cashless basis. The warrants issued in connection with the term loan facility met the scope exception under ASC 815, “Derivatives and Hedging” and are classified as equity instruments. The warrants are measured at fair value and recorded as a debt discount in connection with the term loan facility. See “Note 13 – Share-Based Compensation” for further information regarding the valuation method and assumptions used in determining the fair value of these equity instruments.MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)On July 2, 2020, the Company completed an amendment of the Facility wherein the entirety of the interest at a rate of 15.5% per annum shall accrue monthly to the outstanding principal as payment-in-kind effective March 1, 2020 through July 2, 2021. Thereafter until maturity on January 31, 2022, one-half of the interest (7.75% per annum) shall be payable monthly in cash and one-half of the interest (7.75% per annum) shall be paid-in-kind. In addition, the Company may request an increase to the Facility through December 31, 2020 to be funded through incremental term loans. Certain reporting and financial covenants were added, and the minimum liquidity covenant was waived until September 30, 2020 wherein the amount of required cash balance thereafter was amended. The amendment to the Facility was not deemed to be a substantial modification under ASC Subtopic 470-50.The Company incurred an amendment fee of $834 that was added to the outstanding principal balance. As consideration for the amendment to the Facility, the Company issued approximately 20,227,863 warrants exercisable at $0.34 per share until July 2, 2025. The Company also cancelled 20,227,863 existing warrants held by the lenders exercisable at $ per share until December 31, 2022. The warrants may be exercised at the election of their holders on a cashless basis. The warrants issued in connection with the term loan facility met the scope exception under ASC 815 and are classified as equity instruments. The change in fair value of the warrants was recorded as a debt discount in connection with the Facility. See “Note 13 – Share-Based Compensation” for further information regarding the valuation method and assumptions used in determining the fair value of these equity instruments.On September 16, 2020, the Company entered into further amendments wherein the amount of funds available under the Facility was increased by $12,000, of which $5,700 was fully committed by the lenders through October 31, 2020. The additional amounts are funded through incremental term loans at an interest rate of 18.0% per annum wherein 12.0% shall be paid in cash monthly in arrears and 6.0% shall accrue monthly as payment-in-kind. In connection with each incremental draw under(collectively, the amended Facility,“Term Loans”). The Sixth Modification required that the Company shall issue warrants equal to 200%make a mandatory prepayment of the incremental term loan amount, divided by the greater of (a) $0.20 per share and (b) 115% multiplied by the volume-weighted average trading price (“VWAP”) of the shares for the five consecutive trading days ending on the trading day immediately prior to the applicable funding date of the second tranche, which shall be the exercise price of the issued warrant. Such warrants are subject to a down round feature wherein the exercise price would be decreasedat least $37,500,000 in the event the sale of the exercise of a down-round price reset of select warrants under the Convertible Facility. Refercertain assets and imposed covenants in regard to “Note 11 – Senior Secured Convertible Credit Facility” for further information. In addition, certain covenants and terms were added or amended, and the minimum liquidity covenant was waived until December 31, 2020. The amendment to the Facility was not deemed to be a substantial modification under ASC Subtopic 470-50. As consideration for the amendment,strategic actions the Company issued approximately 20,227,863 warrants exercisable at $0.34 per share until September 16, 2025. The Company also cancelled 20,227,863 existing warrants heldwould have to implement if unable to pay the Term Loans by the lenders exercisable at $ per share until December 31, 2022. The change in fair value of the warrants was recorded as a debt discount in connection with the Facility.On September 16, 2020, the Company closed on an incremental term loan of $3,000 under the amended Facility and issued 30,000,000 warrants with an exercise price of $0.20 per share until September 16, 2025. On October 30, 2020, the Company closed on an incremental term loan of $7,705 under the amended Facility and issued 77,052,790 warrants with an exercise price of $0.20 per share until September 14, 2025. The warrants may be exercised at the election of their holders on a cashless basis and are classified as equity instruments. See “Note 12 – Shareholders’ Equity” and “Note 13 – Share-Based Compensation” for further information.On September 16, 2020 and September 28, 2020, the down round feature on the warrants issued in connection with the incremental term loan of $3,000 on September 16, 2020 was triggered wherein the exercise price was adjusted to $0.17 and $0.15 per share, respectively. The value of the effect of the down round feature was determined to be $405 and recognized as an increase in additional paid-in capital duringextended stated maturity date.26, 2020.On May 11, 2021,24, 2022, in connection with the sale of the Company’s Florida-based operations, the Company completed an amendmentmade a principal repayment of $31,600,000 with proceeds from the sale. An additional $ 8,500,000 principal repayment will be made in 2023 upon receipt of the Facility wherein certain covenants were added and amended. Specifically, the minimum liquidity covenant was amended to which the covenant will not apply if the Company pays and has paid the cash portion of interest accrued under the Facility when such cash interest becomes due and payable. Such covenant will continue to be applied in the event the Company has failed to make payments. The minimum liquidity balance was not amended. In addition, application of payments was added wherein proceedsfinal installment payment from the sale of the New York disposal group shall be applied to the amendedCompany’s Florida-based operations. The Facility and restated FacilityTerm Loans remain in default as of December 24, 2022 as the amendmentprincipal balance matured on July 2, 202031, 2022 and August 1, 2022, respectively. Beginning in December 2022, the principal amountinterest assessed on the Facility and Term Loans include a default interest rate of $83,1235%. As consideration for the amendment,of December 24, 2022, the Company incurred a modification fee of $1,000 which is due from the earliest of (a) receipt of Level-Up proceeds, (b) the date of the Investment Agreement, and (c) the earlier of January 31, 2022. Fees paid to the Lender in connectionongoing discussions with the amendment totaled $225. The amendment to the Facility was not deemed to be a substantial modification under ASC Subtopic 470-50.Unsecured Convertible FacilityOn June 28, 2021, the remaining principal amount of the unsecured convertible debenture facility of $2,500 was automatically converted into Class B Subordinate Voting Shares in the amount of $. In addition, 8,807,605 of the outstanding warrants under the unsecured convertible facility were exercised at varying prices for a net exercise price of $.Unsecured Promissory NoteOn July 29, 2021, the Company entered into a short-term unsecured promissory note in the amount of $5,000 with various investors led by Serruya Private Equity Inc. (“SPE”), a related party, wherein the note bears interest at a rate of 6.0% per annum payable quarterly in arrears with a maturity date of August 18, 2021.In connection with the equity investment on August 17, 2021, the Company settled the promissory note by the issuance of 20,833,333 units, consisting of 20,833,333 Subordinate Voting Shares and 5,208,333 warrants, based on an issue price of $0.24 and the relative portion of the Short-Term Warrant. Refer to “Note 12 – Shareholders’ Equity” for further information on the equity investment through private placement. The fair value of the equity instruments allocated to the settlement of debt was $4,030 and the fair value of the derivative liability allocated was $3,146. Accordingly, the Company recorded a loss on extinguishment of debt of $2,176 in the first quarter of 2022.MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)11. SENIOR SECURED CONVERTIBLE CREDIT FACILITY 25, 202124, 2022 and June 26, 2021,25, 2022, senior secured convertible credit facility consists of the following:Tranche December 24,
2022June 25, 2022 Senior secured convertible notes dated August 17, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 1A $ 23,944,485 $ 22,880,556 Senior secured convertible notes dated May 22, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 1B 103,124,572 98,542,422 Senior secured convertible notes dated July 12, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 2 33,534,018 32,043,996 Senior secured convertible notes dated November 27, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 3 12,985,058 12,408,091 Schedule of senior secured convertible credit facility December 25, June 26, Tranche 2021 2021 Senior secured convertible notes dated April 23, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 1A $ 21,952 $ 21,113 Senior secured convertible notes dated May 22, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 1B 94,545 91,185 Senior secured convertible notes dated July 12, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 2 30,744 29,580 Senior secured convertible notes dated November 27, 2019, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 3 11,905 11,454 Senior secured convertible notes dated March 27, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 4 14,003 13,497 Amendment fee converted to senior secured convertible notes dated October 29, 2019, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. - 22,474 21,624 Senior secured convertible notes dated April 24, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. IA-1 3,143 3,027 Senior secured convertible notes dated September 14, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. IA-2 6,078 5,848 Restatement fee issued in senior secured convertible notes dated March 27, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. - 9,488 9,105 Second restatement fee issued in senior secured convertible notes dated July 2, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. - 2,102 2,022 Third restatement advance issued in senior secured convertible notes dated January 11, 2021, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. - 11,820 11,373 Total Drawn on Senior Secured Convertible Credit Facility 228,254 219,828 Less Unamortized Debt Discount (108,599 ) (49,007 ) Senior Secured Convertible Credit Facility, Net $ 119,655 $ 170,821 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in ThousandsTable of United States Dollars, Except for Share and Per Share Data)Senior secured convertible notes dated March 27, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. 4 15,273,641 14,594,985 Amendment fee converted to senior secured convertible notes dated October 29, 2019, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. — 24,512,781 23,424,438 Senior secured convertible notes dated April 24, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. IA-1 3,428,182 3,275,857 Senior secured convertible notes dated September 14, 2020, issued to accredited investors, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. IA-2 6,629,552 6,334,980 Restatement fee issued in senior secured convertible notes dated March 27, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. — 10,348,746 9,888,919 Second restatement fee issued in senior secured convertible notes dated July 2, 2020, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. — 2,292,231 2,190,380 Third restatement fee issued in senior secured convertible notes dated January 11, 2021, which mature on August 17, 2028 and bear interest at LIBOR plus 6.0% per annum. — 12,893,031 12,320,154 Total Drawn on Senior Secured Convertible Credit Facility 248,966,298 237,904,778 Less Unamortized Debt Discount (102,773,249) (105,899,115) Senior Secured Convertible Credit Facility, Net $ 146,193,049 $ 132,005,663 25, 202124, 2022 is as follows:Schedule of reconciliation senior secured convertible credit facilty Tranche 1 Tranche 2 Tranche 3 Tranche 4 Incremental Advance - 1 Incremental Advance - 2 3rd Advance Amendment
Fee Notes Restatement Fee Notes 2nd Restatement Fee Notes TOTAL Balance as of June 26, 2021 $ 97,900 $ 25,266 $ 9,716 $ 2,407 $ 1,392 $ 3,195 $ 4,081 $ 18,973 $ 5,866 $ 2,023 $ 170,819 Paid-In-Kind Interest Capitalized 4,363 1,199 464 522 117 226 439 876 394 121 8,721 Net Effect on Debt from Extinguishment 730 1,036 464 (6,023 ) (1,634 ) (1,529 ) (3,386 ) 176 (2,244 ) - (12,410 ) Equity Component Debt - New and Amended (25,909 ) (6,957 ) (2,694 ) 3,710 218 (1,684 ) (805 ) (5,086 ) (2,181 ) - (41,388 ) Net Effect on Debt from Derivative (5,665 ) (1,495 ) (579 ) (681 ) (153 ) (296 ) (575 ) (1,093 ) (461 ) (102 ) (11,100 ) Cash Paid for Debt Issuance Costs (1,332 ) (351 ) (136 ) (160 ) (36 ) (69 ) (135 ) (257 ) (108 ) (24 ) (2,608 ) Amortization of Debt Discounts 3,461 776 307 685 193 344 745 648 460 2 7,621 Balance as of December 25, 2021 $ 73,548 $ 19,474 $ 7,542 $ 460 $ 97 $ 187 $ 364 $ 14,237 $ 1,726 $ 2,020 $ 119,655 On August 17, 2021, the Company announced that Tilray, Inc. (“Tilray”) acquired a majority of the outstanding senior secured convertible notes (the “Notes”) under the senior secured convertible credit facility (the “Convertible Facility”) with Gotham Green Partners (“GGP”). Under the terms of the transaction, a newly formed limited partnership (the “SPV”) established by Tilray and other strategic investors acquired an aggregate principal amount of approximately $165,800 of the Notes and warrants issued in connection with the Convertible Facility, representing 75% of the outstanding Notes and 65% of the outstanding warrants under the Convertible Facility. Specifically, Tilray’s interest in the SPV represents rights to 68% of the Notes and related warrants held by the SPV, which are convertible into, and exercisable for, approximately 21% of the outstanding Subordinate Voting Shares of MedMen upon closing of the transaction. Tilray also has the right to appoint two non-voting observers of the Company’s Board of Directors.In connection with the sale of the Notes, the Company amended and restated the securities purchase agreement (“A&R 4”, or the “Sixth Amendment”) to, among other things, extend the maturity date to August 17, 2028, eliminate any cash interest obligations and instead provide for payment-in-kind (“PIK”) interest, eliminate certain repricing/down-round provisions, and eliminate and revise certain restrictive covenants. All or a portion of the Notes and unpaid accrued interest are convertible into Subordinate Voting Shares at the option of the Note holder prior to the Notes repayment. The conversion price of the Notes and unpaid and accrued PIK interest prior to A&R 4 ranges from $0.1529 to $0.3400. Accrued payment-in-kind interest on the Notes incurred after A&R 4 will be convertible at price equal to the higher of 1) the trailing 30-day volume weighted average price of the Subordinate Voting Shares, and 2) lowest discounted price available pursuant to the pricing policies of the Canadian Securities Exchange (the “CSE”). A&R 4 PIK was classified as a liability in accordance with ASC 480, “Distinguishing Liabilities from Equity”. The Notes may not be prepaid until the federal legalization of cannabis. Under A&R 4, the Company is subject to certain financial covenants including minimum liquidity and maintenance of the annual budget, and certain negative covenants, including restrictions on incurring liens, debt and contingent obligations, sale of assets, conducting mergers, investments and affiliate transactions, making certain payments, organizational changes, and sale-leaseback transactions. The Company was in compliance with its covenants as of December 25, 2021. The Sixth Amendment was deemed to be a substantial modification under ASC Subtopic 470-50, “Modifications and Extinguishments” and the Company recorded a gain on extinguishment of debt in the amount of $12,410 in the first quarter of 2022.The Notes will also provide the holders with a top-up (“Top-up”) right to acquire additional Subordinate Voting Shares and a preemptive (“Preemptive”) right with respect to future financings of the Company, subject to certain exceptions, upon the issuance by MedMen of certain Subordinate Voting Shares or Subordinate Voting Share-linked securities. Top-up rights provides the Note holders warrants for the number of Subordinate Voting Shares that maintains the Note holders their as-if converted ownership percentage of Subordinate Voting Shares (the “Top-up Warrants”). The Top-up Warrants exercise price is equal to the issue or conversion price of the Subordinate Voting Shares that triggered the Top-up Warrants. The Top-up Warrants expire at the earlier of five years or the date cannabis possession is federally legal. Preemptive rights allow the Note holders a first right to acquire its pro rata portion of certain future Subordinate Voting Share issuances at the price proposed by the Company. The Top-up and Preemptive rights were bifurcated from the Notes and classified as derivatives due to the variability in the number of shares and price in accordance with ASC 815, “Derivatives and Hedging”. See “Note 8 – Derivative Liabilities” for further discussion.In connection with A&R 4, GGP has the ability to nominate an individual to serve on the Company’s Board of Directors for so long as GGP’s diluted ownership percentage is at least 10%.20Tranche 1 Tranche 2 Tranche 3 Tranche 4 Incremental Advance
- 1Incremental Advance
- 23rd Advance Amendment
Fee NotesRestatement Fee Notes 2nd Restatement Fee
NotesTOTAL Balance as of June 25, 2022 $ 80,178,586 $ — $ 21,218,356 $ — $ 8,217,079 $ — $ 1,051,827 $ — $ 224,585 $ — $ 433,598 $ — $ 842,981 $ — $ 15,512,409 $ 2,211,711 $ 2,114,531 $ — $ 132,005,663 $ — Paid-In-Kind Interest Capitalized 5,646,079 1,490,022 576,967 678,656 152,325 294,572 572,878 1,088,344 459,827 101,851 11,061,521 Accretion of Debt Discount 1,954,788 514,561 199,249 — — — — 376,148 73,578 7,541 3,125,865 Balance as of December 24, 2022 $ 87,779,453 $ 23,222,939 $ 8,993,295 $ 1,730,483 $ 376,910 $ 728,170 $ 1,415,859 $ 16,976,901 $ 2,745,116 $ — $ 2,223,923 $ 146,193,049 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)12. SHAREHOLDERS’ EQUITY Schedule of Shares issued and outstanding Subordinate
Voting
Shares Super
Voting
Shares MM CAN USA
Class B
Redeemable Units MM Enterprises
USA
Common Units Balance as of June 26, 2021 726,866,374 - 95,212,601 725,016 Shares Issued for Cash, Net of Fees 406,249,973 - - - Shares Issued to Settle Debt and Accrued Interest 20,833,333 - - - Shares Issued to Settle Accounts Payable and Liabilities 4,280,848 - - - Redemption of MedMen Corp Redeemable Shares 4,138,883 - (4,138,883 ) - Shares Issued for Vested Restricted Stock Units and Cashless Exercise of Options 10,757,840 - - - Shares Issued for Exercise of Warrants 8,807,605 - - - Shares Issued for Conversion of Debt 16,014,665 - - - Stock Grants for Compensation 2,169,771 - - - Balance as of December 25, 2021 1,200,119,292 - 91,073,718 725,016 Equity Investment Through Private PlacementOn August 17, 2021, the Company entered into subscription agreements with various investors led by Serruya Private Equity Inc. (“SPE”) to purchase $100,000Table of units (each, a “Unit”) of the Company at a purchase price of $0.24 per Unit (the “Private Placement”) wherein each Unit consisted of one Class B Subordinate Voting Share and one-quarter share purchase warrant. Each warrant permits the holder to purchase one additional Subordinate Voting Share at an exercise price of $0.288 per share for a period of five years from the date of issuance. The warrants were classified within shareholders’ equity as additional paid-in capital in accordance with ASC 815-10, “Derivatives and Hedging” (“ASC 815-10”) and recorded at fair value. The Company issued a total of 416,666,640 Subordinate Voting Shares and 104,166,660 warrants for gross proceeds of $100,000 including the settlement of the unsecured promissory note of $5,000. The Company incurred stock issuance costs totaling $7,853, including the Backstop Commitment fee noted below, which were recorded as reductions in additional paid-in capital. Accordingly, the Company received proceeds totaling $92,147 net of fees in the first quarter of 2022. Refer to “Note 10 – Notes Payable” for further information. In connection with private placement, S5 Holdings LLC has the ability to nominate an individual to serve on the Company’s Board of Directors for so long as their diluted ownership percentage is at least 9%.Each Unit issued to certain funds associated with SPE consisted of one Class B Subordinate Voting Share and one-quarter of one share purchase warrant, plus a proportionate interest in a short-term warrant (the “Short-Term Warrant”) which expires on December 31, 2021. At the option of the holders and upon payment of $30,000, the Short-Term Warrant entitles the holders to acquire (i) an aggregate of 125,000,000 Units at an exercise price of $0.24 per Unit, or (ii) $30,000 principal amount of notes at par, convertible into 125,000,000 Subordinate Voting Shares at a conversion price of $0.24 per share under the terms of the Convertible Facility. The proceeds from the exercise of the Short-Term Warrant, less fees and expenses, must be used to repay the senior secured term loan with Hankey Capital if any indebtedness is then outstanding. The Short-Term Warrant was classified as a liability in accordance with ASC 815-10 and recorded at fair value in the amount of $19,400. See “Note 8 – Derivative Liabilities” for further information.Certain investors associated with SPE agreed to backstop the Private Placement (the “Backstop Commitment”). In consideration for providing the Backstop Commitment, the Company paid a fee of $2,500 in the form of 10,416,666 Class B Subordinate Voting Shares at a price of $0.24 per share.21Subordinate
Voting SharesMM CAN USA
Class B
Redeemable UnitsMM Enterprises USA
Common UnitsBalance as of June 25, 2022 1,301,423,950 65,066,106 725,016 Redemption of MedMen Corp Redeemable Shares 259,814 (259,814) — Balance as of September 24, 2022 1,301,683,764 64,806,292 725,016 Redemption of MedMen Corp Redeemable Shares 445,320 (445,320) — Balance as of December 24, 2022 1,302,129,084 64,360,972 725,016 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)25, 202124, 2022 and June 26, 2021,25, 2022, the holders of the MM CAN USA Redeemable Shares represent approximately 7.05%4.71% and 11.58%4.76%, respectively, of the Company and holders of the MM Enterprises USA Common Units represent approximately 0.06% and 0.09%, respectively,0.05% of the Company.Venice Caregivers
Foundation, Inc.LAX Fund II Group, LLC Natures Cure, Inc. TOTAL Current Assets $ 1,471,651 $ — $ 27,171,414 $ 28,643,065 Non-Current Assets 8,482,483 3,011,882 4,874,353 16,368,718 Total Assets $ 9,954,134 $ 3,011,882 $ 32,045,767 $ 45,011,783 Current Liabilities $ 10,984,598 $ 16,687,993 $ 10,031,350 $ 37,703,941 Non-Current Liabilities 6,957,566 1,922,553 1,342,632 10,222,751 Total Liabilities $ 17,942,164 $ 18,610,546 $ 11,373,982 $ 47,926,692 Non-Controlling Interest $ (7,988,030) $ (15,598,664) $ 20,671,785 $ (2,914,909) Revenues $ 3,766,847 $ — $ 6,562,185 $ 10,329,032 Net (Loss) Income Attributable to Non-Controlling Interest $ (944,589) $ (1,622,510) $ 1,917,227 $ (649,872) 2021,2022, the balances of the VIEs consists of the following:Schedule of VIE Venice
Caregivers
Foundation, Inc. LAX Fund II
Group, LLC Natures Cure,
Inc. TOTAL Current Assets $ 1,520 $ 1,006 $ 18,001 $ 20,527 Non-Current Assets 11,886 3,433 5,012 20,331 Total Assets $ 13,406 $ 4,439 $ 23,013 $ 40,858 Current Liabilities $ 8,681 $ 13,611 $ 3,662 $ 25,954 Non-Current Liabilities 9,481 2,413 1,146 13,040 Total Liabilities $ 18,162 $ 16,024 $ 4,808 $ 38,994 Non-Controlling Interest $ (4,756 ) $ (11,585 ) $ 18,205 $ 1,864 Revenues $ 4,816 $ - $ 8,816 $ 13,632 Net (Loss) Income Attributable to Non-Controlling Interest $ (608 ) $ (2,206 ) $ 3,911 $ 1,097 22Venice Caregivers
Foundation, Inc.LAX Fund II Group, LLC Natures Cure, Inc. TOTAL Current Assets $ 1,735,304 $ 1,067,636 $ 23,557,168 $ 26,360,108 Non-Current Assets 10,073,880 3,379,412 4,973,459 18,426,751 Total Assets $ 11,809,184 $ — $ 4,447,048 $ — $ 28,530,627 $ 44,786,859 Current Liabilities $ 9,238,460 $ 16,238,249 $ 8,433,436 $ 33,910,145 Non-Current Liabilities 9,614,164 2,184,953 1,342,633 13,141,750 Total Liabilities $ 18,852,624 $ — $ 18,423,202 $ — $ 9,776,069 $ 47,051,895 Non-Controlling Interest $ (7,043,440) $ — $ (13,976,154) $ — $ 18,754,558 $ — $ (2,265,036) Revenues $ 4,815,688 $ — $ 8,816,113 $ 13,631,801 Net (Loss) Income Attributable to Non-Controlling Interest $ (607,858) $ (2,206,450) $ 3,911,125 $ 1,096,817 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)As of the year ended June 26, 2021, the balances of the VIEs consists of the following: Venice
Caregivers
Foundation, Inc. LAX Fund II
Group, LLC Natures Cure,
Inc. TOTAL Current Assets $ 1,366 $ 501 $ 13,261 $ 15,128 Non-Current Assets 12,596 2,865 4,958 20,419 Total Assets $ 13,962 $ 3,366 $ 18,219 $ 35,547 Current Liabilities $ 8,761 $ 10,302 $ 2,778 $ 21,841 Non-Current Liabilities 9,350 2,442 1,146 12,938 Total Liabilities $ 18,111 $ 12,744 $ 3,924 $ 34,779 Non-Controlling Interest $ (4,149 ) $ (9,378 ) $ 14,295 $ 768 Revenues $ 2,246 $ - $ 3,439 $ 5,685 Net (Loss) Income Attributable to Non-Controlling Interest $ (886 ) $ (764 ) $ 1,103 $ (547 ) 25, 2021:Schedule of other non-controlling interest Venice
Caregivers
Foundation, Inc. LAX Fund II
Group, LLC Natures Cure,
Inc. Other Non-
Controlling
Interests TOTAL Balance as of June 26, 2021 $ (4,149 ) $ (9,379 ) $ 14,294 $ (446,160 ) $ (445,394 ) Net (Loss) Income (607 ) (2,206 ) 3,911 (7,708 ) (6,610 ) Redemption of MedMen Corp Redeemable Shares - - - (1,522 ) (1,522 ) Balance as of December 25, 2021 $ (4,756 ) $ (11,585 ) $ 18,205 $ (455,390 ) $ (453,526 ) Le Cirque Rouge, LP is a Delaware limited partnership that holds substantially all of the real estate assets owned by the REIT, conducts the REIT’s operations, and is financed by the REIT. Under ASC 810, “Consolidation”, the OP was determined to be a variable interest entity in which the Company has a variable interest. The Company was determined to have an implicit variable interest in the OP based on the leasing relationship and arrangement with the REIT. The Company was not determined to be the primary beneficiary of the VIE as the Company does not have the power to direct the activities of the VIE that most significantly affect its economic performance. As of December 25, 2021, the Company continues to have a variable interest in the OP. During the six months ended December 25, 2021, the Company did not provide any financial or other support to the REIT other than the completion of the sale and leaseback transactions and the REIT being a lessor on various leases as described in “Note 9 – Leases”. Accordingly, Le Cirque Rouge, LP is not consolidated as a variable interest entity within the Condensed Consolidated Financial Statements.Venice Caregivers
Foundation, Inc.LAX Fund II Group, LLC Natures Cure, Inc. Other Non- Controlling
InterestsTOTAL Balance as of June 25, 2022 $ (7,043,440) $ (13,976,154) $ 18,754,558 $ (471,717,698) $ (473,982,734) Net (Loss) Income $ (944,589) $ (1,622,510) $ 1,917,227 $ (597,289) $ (1,247,161) Balance as of December 24, 2022 $ (7,988,029) $ (15,598,664) $ 20,671,785 $ (472,314,987) $ (475,229,895) MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)13. SHARE-BASED COMPENSATION to the extent that the Company has not appointed a Compensation Committee, all rights and obligations under the Incentive Plan shall be those of the full Board of Directors.expenses. The maximum number of Awards that may be issued under the Incentive Plan shall be determined by the Compensation Committee or the Board of Directors in the absence of a Compensation Committee. Any shares subject to an Award under the Incentive Plan that are forfeited, canceled,cancelled, expire unexercised, are settled in cash or are used or withheld to satisfy tax withholding obligations, shall again be available for Awards under the Incentive Plan. Vesting of Awards will be determined by the Compensation Committee or Board of Directors in absence of one.a Compensation Committee. The exercise price for Awards (if applicable) will generally not be less than the fair market value of the Award at the time of grant and will generally expire after 5 or 10 years.25, 202124, 2022 and December 26, 202025, 2021 is as follows:Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Stock Options $ 1,912,792 $ 97,746 $ 2,625,581 $ 1,314,193 Stock Grants for Compensation — 207,494 — 540,827 Restricted Stock Grants 200,884 402,866 351,780 1,957,163 Total Share-Based Compensation $ 2,113,676 $ 708,106 $ 2,977,361 $ 3,812,183 Schedule of share-based compensation expense Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Stock Options $ 98 $ 1,538 $ 1,314 $ 2,546 Stock Grants for Compensation 207 (60 ) 541 121 Restricted Stock Grants 403 280 1,957 437 Total Share-Based Compensation $ 708 $ 1,758 $ 3,812 $ 3,104 Schedule of stock options Number of
Stock Options Weighted-
Average
Exercise Price Balance as of June 26, 2021 14,752,960 $ 1.40 Granted 4,084,005 $ 0.28 Exercised (1,473,534 ) $ (0.17 ) Forfeited (2,766,781 ) $ (2.11 ) Balance as of December 25, 2021 14,596,650 $ 1.12 Stock Options Exercisable as of December 25, 2021 13,783,375 $ 1.07 For the three and six months ended December 25, 2021, the fair value of stock options granted with a fixed exercise price was determined using the Black-Scholes option-pricing model with the following assumptions at the time of grant:Schedule of Black-Scholes option-pricing modelWeighted-Average Risk-Free Annual Interest Rate0.97%Weighted-Average Expected Annual Dividend Yield0.0%Weighted-Average Expected Stock Price Volatility131.7%Weighted-Average Expected Life in Years5.00Weighted-Average Estimated Forfeiture Rate0.0%24Number of
Stock OptionsWeighted-Average
Exercise PriceOutstanding at June 25, 2022 8,649,673 $ 1.35 Granted 92,382,965 0.05 Forfeited (312,032) 3.60 Outstanding at December 24, 2022 100,720,606 $ 0.15 Stock Options Exercisable as of December 24, 2022 8,037,095 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)Schedule of LTIP Units and LLC Redeemable Units Weighted LTIP Units LLC Average Issued and Redeemable Grant Date Outstanding Units Fair Value Balance as of June 26, 2021 and December 25, 2021 19,323,878 725,016 $ 0.52 LTIP Units LLC
Redeemable
UnitsWeighted
Average
Grant Date
Fair ValueIssued and
OutstandingBalance as of June 25, 2022 and December 24, 2022 19,323,878 725,016 $ 0.52 Issued and
OutstandingVested Weighted-Average
Fair ValueBalance as of June 25, 2022 10,998,483 4,030,460 $ 0.20 Granted — — — Vested — 490,661 0.21 (1,813,408) — (0.22) Non-vested at December 24, 2022 9,185,075 4,521,121 $ 0.30 Schedule of Restricted Stock Grants Issued and
Outstanding Vested (1) Weighted-
Average
Fair Value Balance as of June 26, 2021 20,888,394 897,294 Granted 19,288,397 - $ 0.32 Forfeiture of Restricted Stock (2) (5,218,765 ) - $ (0.37 ) Redemption of Vested Stock (9,284,306 ) (9,284,306 ) $ (0.44 ) Vesting of Restricted Stock - 9,004,649 $ 0.41 Balance as of December 25, 2021 25,673,720 617,667 (1)Restricted stock units were issued on September 24, 2021 and vests 37.5% on the first anniversary, 12.5% on the second anniversary, 37.5% on the third anniversary, and 12.5% on the fourth anniversary of the grant date.(2)Restricted stock units were forfeited upon resignation of certain employees prior to their vesting during the six months ended December 25, 2021.25MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)WarrantsSchedule of Warrants Number of Warrants Outstanding Subordinate
Voting Shares MedMen Corp Redeemable
Shares TOTAL Weighted-
Average
Exercise Price Balance as of June 26, 2021 259,462,609 97,430,456 356,893,065 $ 0.33 Issued 135,716,660 - 135,716,660 $ 0.29 Exercised (8,807,605 ) - (8,807,605 ) $ (0.18 ) Balance as of December 25, 2021 386,371,664 97,430,456 483,802,120 $ 0.32 The fair value of warrants exercisable for MedMen Corp Redeemable Shares was determined using the Black-Scholes option-pricing model with the following assumptions on the date of issuance:Schedule of fair value of warrantsWeighted-Average Risk-Free Annual Interest Rate0.13%Weighted-Average Expected Annual Dividend Yield0%Weighted-Average Expected Stock Price Volatility92.06%Weighted-Average Expected Life of Warrants1 yearThe fair value of warrants exercisable for the Company’s Subordinate Voting Shares was determined using the Black-Scholes option-pricing model with the following assumptions on the latest modification of August 17, 2021:Weighted-Average Risk-Free Annual Interest Rate0.06%Weighted-Average Expected Annual Dividend Yield0%Weighted-Average Expected Stock Price Volatility175.50%Weighted-Average Expected Life of Warrants1 yearStock price volatility was estimated by using the historical volatility of the Company’s Subordinate Voting Shares. The expected life in years represents the period of time that warrants issued are expected to be outstanding. The risk-free rate was based on U.S. Treasury bills with a remaining term equal to the expected life of the warrants.26Number of Warrants Outstanding Subordinate
Voting SharesMM CAN USA
Redeemable SharesTOTAL Weighted-Average
Exercise PriceBalance as of June 25, 2022 352,704,355 97,430,456 450,134,811 $ 0.25 Expired (6,023,696) — (6,023,696) $ 2.03 Balance as of December 24, 2022 346,680,659 97,430,456 444,111,115 $ 0.22 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)14. LOSS PER SHARE and December 26, 2020:is as follows:Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Net Loss from Continuing Operations Attributable to Shareholders of MedMen Enterprises, Inc. $ (15,086) $ (8,217) $ (39,427) $ (54,381) Net Income (Loss) from Discontinued Operations (2,256) (12,141) 26,132 (26,587) Total Loss $ (17,342) $ (20,358) $ (13,294) $ (80,968) Denominator: Weighted-Average Shares Outstanding - Basic 1,301,874,615 1,198,515,279 1,301,767,158 1,070,605,666 Dilutive effect of LTIP and LLC Redeemable Units issued for compensation 19,323,878 19,323,878 19,323,878 19,323,878 Dilutive effect of restricted stock granted under the Equity Plan 9,185,075 25,673,720 9,185,075 25,673,720 Dilutive effect of warrants and top-up warrants 194,720,261 138,498,284 258,878,685 175,668,177 Dilutive effect of convertible debentures 3,255,897,270 1,007,089,116 3,255,897,270 1,007,089,116 4,781,001,100 2,389,100,278 4,845,052,067 2,298,360,557 Schedule of basic and diluted loss per share Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Net Loss from Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. $ (13,535 ) $ (43,306 ) $ (62,418 ) $ (58,977 ) Less Deemed Dividend - Down Round Feature of Warrants - (1,481 ) - (6,364 ) Net Loss from Continuing Operations Available to Shareholders of MedMen Enterprises Inc. (13,535 ) (44,787 ) (62,418 ) (65,341 ) Net Loss from Discontinued Operations (5,492 ) (6,390 ) (11,939 ) (12,639 ) Total Net Loss $ (19,027 ) $ (51,177 ) $ (74,357 ) $ (77,980 ) Weighted-Average Shares Outstanding - Basic and Diluted 1,198,515,279 482,903,106 1,070,605,666 452,806,117 Loss Per Share - Basic and Diluted: From Continuing Operations Attributable to Shareholders of MedMen Enterprises Inc. $ (0.01 ) $ (0.09 ) $ (0.06 ) $ (0.14 ) From Discontinued Operations Attributable to Shareholders of MedMen Enterprises Inc. $ 0.00 $ (0.01 ) $ (0.01 ) $ (0.03 ) DilutedFor all periods presented wherein the Company incurred net losses from continuing operations and/or discontinued operations, the calculation of diluted net loss per share gives no consideration to the potentially anti-dilutive securities shown in the above reconciliation, and as such is the same as basic net loss per share as the issuanceshare.MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)15. GENERAL AND ADMINISTRATIVE EXPENSES and December 26, 2020, general and administrative expenses consisted of the following:Schedule of general and administrative expenses Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Salaries and Benefits $ 10,957 $ 8,165 $ 21,616 $ 18,639 Professional Fees 7,954 3,593 15,512 7,200 Rent 6,832 5,872 13,802 15,527 Licenses, Fees and Taxes 1,502 1,387 4,329 4,790 Share-Based Compensation 2,370 2,644 2,370 2,644 Deal Costs 1,177 2,114 2,835 2,337 Restructuring Expenses 2,764 1,180 2,764 1,180 Other General and Administrative 1,747 6,855 8,566 9,732 Total General and Administrative Expenses $ 35,303 $ 31,810 $ 71,794 $ 62,049 Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Salaries and Benefits $ 6,536,411 $ 9,991,545 $ 13,468,859 $ 19,903,033 Professional Fees 2,137,010 7,815,185 3,509,420 15,245,844 Rent 3,021,217 4,712,476 6,649,162 9,467,359 Licenses, Fees and Taxes 1,823,436 1,293,194 3,866,945 3,830,982 Share-Based Compensation 2,113,676 722,802 2,977,361 2,370,111 Deal Costs — 1,174,357 429,272 2,811,944 Other General and Administrative 2,709,471 5,583,195 5,551,538 10,312,715 Total General and Administrative Expenses $ 18,341,221 $ 31,292,754 $ 36,452,557 $ 63,941,988 16. OTHER OPERATING (INCOME) EXPENSE 25, 202124, 2022 and December 26, 2020,25, 2021, other operating (income) expense consisted of the following:Schedule of other operating expenses Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 (Gain) Loss on Disposals of Assets $ (142 ) $ 528 $ (127 ) $ 385 Restructuring and Reorganization Expense 386 591 2,764 1,180 (Gain) Loss on Settlement of Accounts Payable - 1,186 (530 ) 1,026 Loss (Gain) on Lease Terminations 174 (1,280 ) 174 (17,909 ) Gain on Disposal of Assets Held For Sale - - - (12,415 ) Other Loss 213 1,676 196 1,360 Total Other Operating Expense (Income) $ 631 $ 2,702 $ 2,478 $ (26,374 ) 28Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Other Operating (Income) Expense: Loss (Gain) on Disposals of Assets $ 1,153,225 $ (141,662) $ 1,358,820 $ (126,516) Restructuring and Reorganization Expense — 385,652 423,793 2,764,327 Gain on Settlement of Accounts Payable 215,659 — 141,022 (177,990) (Gain) Loss on Lease Terminations (1,877,298) 173,765 (3,464,947) 173,765 (Gain) Loss on Disposal of Assets Held for Sale (112,225) — 532,598 — Legal Settlements (3,491,431) — (3,491,431) — Other Income (1,522,280) 213,216 (3,043,918) 196,413 Total Other Operating (Income) Expense $ (5,634,350) $ 630,971 $ (7,544,063) $ 2,829,999 MEDMEN ENTERPRISES INC.During the Notesthree and six months ended December 24, 2022, the Company recorded $1,521,651 and $3,043,302, respectively of sublease income related to Condensedthe cultivation facilities in California and Nevada as a component of Other Operating Income in the Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)Operations.17. PROVISION FOR INCOME TAXES AND DEFERRED INCOME TAXES 25, 202124, 2022 and December 26, 2020:Schedule of income tax expense and effective tax rates Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Loss from Continuing Operations Before Provision for Income Taxes $ (23,004 ) $ (39,912 ) $ (57,474 ) $ (54,226 ) Income Tax Benefit (Expense) $ 8,138 $ (22,560 ) $ (11,555 ) $ (34,843 ) Effective Tax Rate 35 % -57 % -20 % -64 % For the three and six months ended December 25, 2021Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Loss from Continuing Operations Before Provision for Income Taxes $ (14,025,468) $ (16,355,274) $ (32,673,967) $ (42,826,906) Provision for Income Tax Expense (1,060,808) 8,137,898 (6,752,886) (11,554,010) Effective Tax Rate 8 % -50 % 21 % 27 % Company calculated its provision for income taxes during its interim reporting periods by applying an estimate of the annual effective tax rate (“AETR”) for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the respective reporting period. For the three and state, Florida state, Massachusetts state and New York state income tax purposes under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. However, the State of California does not conform to IRC Section 280E and, accordingly, the Company deducts all operating expenses on its California Franchise Tax Returns.$8,500$12,230,000 (tax effected $2,300)$3,240,000) of Canadian non-capital losses and $6,915$6,000,000 (tax effected $1,833)$1,620,000) of share issuance cost 20(1)(e) balance. The loss tax attribute has been determined to be more likely than not that the tax attribute would not yield any tax benefit. As such, the Company has recorded a full valuation allowance against the benefit. Since IRC Section 280E was not applied in the California Franchise Tax Returns, the Company has approximately $210,000$22,000,000 of gross California net operating losses which begin expiring in 2033 as of June 26, 2021.25, 2022. The Company has evaluated the realization of its California net operating loss tax attribute and has determined under the more likely than not standard that $207,000$217,300,000 will not be realized.25, 2021 varies widely24, 2022 is different from the three and six months ended December 26, 2020,September 25, 2021, respectively, primarily due to the Company’s forecasted income and related 280E expenditures. The Company incurred a large amount ofCompany’s non-deductible expenses that were not deductible duerelated to IRC Section 280E limitations which resulted in income tax expense being incurred while there were pre-tax losses for the quarter.have remained relatively consistent.20132014 through the current fiscal year. As of December 25, 2021,24, 2022, the Company had $16,600$18,781,424 of unrecognized tax benefits, all of which would reduce income tax expense and the effective tax rate if recognized. During the three and six months ended December 25, 2021,24, 2022, the Company recognized a net discrete tax expense of $140 $407,993 primarily related on interest of past liabilities. During the next twelve months, the Company does not estimate any material reduction in its unrecognized tax benefits.29MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)18. COMMITMENTS AND CONTINGENCIES 25, 202124, 2022 and June 26, 2021,25, 2022, marijuana regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties or restrictions in the future.As of December 25, 2021, there were noThe Company recognizes legal settlement expense when litigation losses related to pending or threatening lawsuits that could be reasonably assessed to have resulted in a probable loss to the Company in an amount that can be reasonably estimated. As such, no accrual has been madeThe Company recognizes legal settlement gains when a favorable settlement is awarded to the Company and payment is received. Gain and losses related to claims and litigation are recorded as a component of Other Operating (Income) Expense in the Condensed Consolidated Financial Statements relating to claims and litigations.Statements. As of December 25, 2021,24, 2022, there are also no proceedings in which any of the Company’s current directors, officers or affiliates is an adverse party to the Company or has a material interest adverse to the Company’s interest.In July 2018, a legal claim was filed against the Company related to alleged misrepresentations in respect of a financing transaction completed in May 2018. During the year ended June 26, 2021, the claim was settled for a total of C$575 of which C$ shall be paid in Class B Subordinate Voting Shares. The settlement liability has been accrued in the Consolidated Balance Sheet.In late January 2019, the Company’s former Chief Financial Officer (“CFO”) filed a complaint against MM Enterprises in the Superior Court of California, County of Los Angeles, seeking damages for claims relating to his employment. The Company is currently defending against this lawsuit, which seeks damages for wrongful termination, breach of contract, and breach of implied covenant of good faith. The former CFO’s employment agreement provided for the payment of severance in the event of termination without cause. In November 2021, the lawsuit was ruled in favor of the Company on all claims and determined the Company did not owe any damages.defending against thisin process of recovering certain fees and costs associated with the lawsuit which seeks damages for fraudulent inducementfrom the plaintiffs, and breachthe plaintiffs have filed an appeal of contract.the summary judgment decision. The Company believes the likelihood of a loss contingency is neither probable nor estimable. As such, no amount has been accrued in these financial statements.dealing. While no amounts have been identified indealing seeking declaratory relief and specific performance. The Company filed counterclaims including for breach of contract, breach of promissory note, unjust enrichment and declaratory relief. After the claim,end of the quarter ending December 24, 2022, the parties reached a tentative agreement to resolve the litigation; however, the probable loss to the Company estimated thiscannot be reasonably estimated. As such, no amount has been accrued in these financial statements.be approximately $5,200.proof, including lost earnings and other benefits, past and future, interest on lost earnings and benefits, reasonable attorney’s fees, and such other and further relief as the court deems proper. The Company believesasserted counterclaims, including for breach of the same management agreements. The arbitration hearing has been rescheduled and the matter is being disputed. The litigation remains at an early stage and the likelihood of a loss contingency is remote. As such, no amount has been accrued in thethese financial statements.May 2020, litigationOctober 2021, a suit for premises liability and negligence seeking unspecified damages for pain and suffering, disability, mental and emotional distress, and loss of earnings was filed against the Company related to a purchase agreement and secured promissory note for a previous acquisition.in Los Angeles Superior Court. The Company is currently defending against this lawsuit, which claims for breach of contract, breach of implied covenant of good faith and fair dealing, common law fraud and securities fraud. The plaintiffs are seeking damages for such claims in which the amount is currently not reasonably estimable. Therefore, pursuant to ASC 450, “Contingencies” (“ASC 450”), a liability has not been recorded in these financial statements. In response, the Company filed a counterclaim and is seeking entitlement to proceeds of the sale, net of amounts owed under the secured promissory note whichmatter is in dispute. The plaintiffs filed an appeal to the ruling on the entitlementprocess of proceeds in excess of the secured promissory note. In accordance with ASC 450, any loss recoveries related to the Company’s counterclaim have not been recorded. In addition, net proceeds resulting from the sale was not recognized as a receivable as the amount is not reasonably estimable.In September 2020, a legal dispute was filed against the Company related to the separation of a former officer in which the severance issued is currently being disputed.litigated. The Company believes the likelihood of loss is remote. As a result,such, no amount has been set up for potential damagesaccrued in these financial statements.FebruaryJuly 2022, a complaint was filed in Los Angeles Superior Court by Baker & McKenzie LLP, a former law firm to the Company, seeking in excess of $600,000 in legal fees plus accrued interest. The Company has filed a counterclaim against Baker & McKenzie claiming overbilling on total invoices propounded by the law firm to the Company exceeding $18,500,000. The litigation remains at an early stage and the likelihood of a loss contingency is remote. As such, no amount has been accrued in these financial statementslegal disputecomplaint was filed in Cook County Circuit Court, Illinois against the Company by a landlord claiming the Company had failed to meet its obligations to apply effort to obtain a retail cannabis license at a property, for which the landlord is seeking rents and damages. Plaintiff has filed a motion for summary judgment which remains pending. If the litigation is not settled or resolved, trial will likely take place during the fiscal year ended 2023 or possibly the fiscal year ended 2024. This matter is preliminary and the Company believes the likelihood of loss is remote. As such, no amount has been accrued in these financial statements. Second, in July 2022, a complaint was filed against the Company and settled in December 2020 for approximately $2,400. As of December 25, 2021, the settlement was paid in full and no balance remains in the Consolidated Balance Sheet.In December 2020,United States District Court for the Southern District of New York by a lawsuitlandlord seeking damages under a lease on real estate located in Illinois. The Company filed an answer to the complaint arguing that the subject matter of theprevious acquisition alleging thatland purchase agreement and is seeking damages. The Company settled this dispute during the plaintiffs were owed additional compensation. In the complaint, the plaintiffs allege breach of contract, breach of implied covenant of good faith and fair delaying, fraud and unjust enrichment, among other causes of actions. The plaintiffs are seeking the issuance of 51,716,141 shares, which has been accruedquarter ending December 24, 2022 in the Consolidated Balance Sheet asamount of December 25, 2021,$350,000. In April 2022, the landlord at the Company’s dispensary location in Tampa, Florida, filed suit seeking damages under a lease, shortly after which the Company announced its plans to sell its Florida operations. The Company retained this lease and other monetary damages.the associated litigation following the sale of its Florida operations. The litigation is at an early stage and the likelihood of a loss contingency is remote. The amount of other monetary damages is not reasonably estimable and thus,As such, no amount has been accrued in these financial statements. During the six months ended December 25, 2021, the parties entered into a partial settlement in the amount of $1,050 of which $245 is remaining as of December 25, 2021 and has been accrued in the Consolidated Balance Sheet.In January 2021, a cross-complaint was filed against the Company related a lien foreclosure alleging breach of contract, quantum merit and implied indemnity. The Company is actively defending the legal matter which the claimant is seeking payment of outstanding payables totaling approximately $11,000 which has been accrued in these financial statements.30MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)19. RELATED PARTY TRANSACTIONS No related party balances due to the Company as of December 25, 2021 and June 26, 2021 had any formal contractual agreements regarding payment terms or interest. As of December 25, 2021 and June 26, 2021, other amounts due to related parties was $1,477 and $1,477, respectively, were recorded in the Condensed Consolidated Balance Sheets.On August 17, 2021, Superhero Acquisition, L.P., in which Tilray is an investor, acquired the majority of the outstanding senior secured convertible notes and warrants held by GGP and GGP no longer held significant influence over the Company and therefore as of September 25, 2021, was not considered a related party under ASC 850,“Related Party Disclosures” (“ASC 850”), however GGP was during the fiscal year ended June 26, 2021. As of August 17, 2021, the Company determined Tilray to be a related party as a result of Tilray having significant influence over the Company. See “Note 11 – Senior Secured Convertible Credit Facility” for a full disclosure of the SPV and A&R 4.On August 17, 2021, the Company entered an equity investment through private placement led by SPE. In connection with the private placement, the Company appointed Michael Serruya, SPE’s Managing Director, as a member of its board of directors. As of August 17, 2021, the Company determined SPE to be a related party as a result of the private placement and involvement with the Board. See “Note 12 – Shareholders’ Equity” for discussion on the private placement transaction. In November 2021, the Company appointed Mr. Serruya as Chairman of the Board and Interim Chief Executive Officer.In March 2020, the Company entered into a restructuring plan and retained Sierra Constellation Partners LLC (“SCP”) wherein Tom Lynch of SCP was appointed as Chief Executive Officer and Chairman of the Board and Tim Bossidy of SCP was appointed as Chief Operating Officer. As of December 25, 2021, Mr. Lynch and Mr. Bossidy are no longer with the Company. In December 2020, Reece Fulgham of SCP was appointed as Chief Financial Officer. During the six months ended December 25, 2021, the Company had paid $1,897 in fees to SCP for interim management and restructuring support. During the six months ended December 25, 2021, Mr. Lynch and Mr. Bossidy each received 214,030 stock options and restricted stock units.$200$200,000 of which one-third is paid in cash and two-thirds is paid in Class B Subordinate Voting Shares. The Class B Subordinate Voting Shares is recorded as a restricted stock unit until settled.31MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)20. SEGMENT INFORMATION 21. REVENUE Disaggregation of revenue Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 California $ 23,368 $ 19,775 $ 47,994 $ 40,508 Nevada 3,855 3,020 7,935 6,792 Florida 3,607 3,144 6,677 5,337 Illinois 4,105 4,909 8,434 11,723 Arizona 4,174 1,743 7,875 3,341 Massachusetts 15 - 15 - Revenue from Continuing Operations $ 39,124 $ 32,591 $ 78,930 $ 67,701 Revenue from Discontinued Operations 4,458 2,926 8,729 5,043 Total Revenue $ 43,582 $ 2,926 $ 8,729 $ 5,043 32Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021California $ 19,575,393 $ 23,368,439 $ 39,504,378 $ 47,994,994 Nevada 2,812,902 3,855,371 5,810,371 7,934,522 Illinois 3,082,089 4,104,970 6,624,159 8,433,572 Arizona 3,343,592 4,173,609 6,138,238 7,875,206 Massachusetts 734,394 14,772 1,515,277 14,771 Revenue from Continuing Operations 29,548,370 35,517,161 59,592,423 72,253,065 Revenue from Discontinued Operations 2,282,288 8,065,341 5,911,927 15,405,440 Total Revenue $ 31,830,658 $ 43,582,502 $ 65,504,350 $ 87,658,505 MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in ThousandsTable of United States Dollars, Except for Share and Per Share Data)22. DISCONTINUED OPERATIONS New YorkIn February 2021, management entered into a plan to sell MedMen NY, Inc. whereinCompany entered into a definitive investment agreement to sell a controlling interest in MedMen NY, Inc. Consequently,discontinued operations are summarized as follows:Three Months Ended Six Months Ended December 24,
2022December 25,
2021December 24,
2022December 25,
2021Revenue $ 2,282,288 $ 8,065,341 $ 5,911,927 $ 15,405,440 Cost of Goods Sold 439,466 5,672,043 2,630,135 10,899,596 Gross Profit 1,842,822 2,393,298 3,281,792 4,505,844 Expenses: General and Administrative 2,134,342 6,329,144 6,853,135 11,946,739 Sales and Marketing 15,015 127,844 58,326 231,647 Depreciation and Amortization 21,107 1,189,331 894,002 2,411,090 Impairment Expense — — (78,433) — Gain on Disposal of Assets and Other Income — — (36,305,166) (597,591) Total (Income) Expenses $ 2,170,464 $ 7,646,319 $ (28,578,136) $ 13,991,885 Income (Loss) from Discontinued Operations (327,642) (5,253,021) 31,859,928 (9,486,041) Other Expense: Interest Expense 1,783,685 4,755,126 5,545,446 9,371,955 Accretion of Debt Discount and Loan Origination Fees — 3,446,949 398,032 6,987,857 Total Other Expense 1,783,685 8,202,075 5,943,478 16,359,812 Income (Loss) from Discontinued Operations Before Provision for Income Taxes (2,111,327) (13,455,096) 25,916,450 (25,845,853) Provision for Income Tax Benefit (Expense) (144,651) 1,314,496 216,039 (741,238) Net Income (Loss) from Discontinued Operations $ (2,255,978) $ (12,140,600) $ 26,132,489 $ (26,587,091) allocable toin the operations within the state of New York were classifieddisposal group are summarized as follows:December 24,
2022June 25,
2022Carrying Amounts of the Assets Included in Discontinued Operations: Cash and Cash Equivalents $ 540,828 $ 1,124,076 Restricted Cash 5,280 5,280 Accounts Receivable and Prepaid Expenses 22,019 334,621 Inventory 4,483,051 6,866,833 Property and Equipment, Net 9,569,610 41,273,597 Operating Lease Right-of-Use Assets 19,111,359 31,543,058 Intangible Assets, Net 10,582,559 40,799,146 Other Assets 458,383 1,181,795 TOTAL ASSETS OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE 44,773,089 123,128,406 Carrying Amounts of the Liabilities Included in Discontinued Operations: Accounts Payable and Accrued Liabilities $ 979,864 $ 6,295,745 Income Taxes Payable 389,677 1,671,380 Other Current Liabilities (5,641) 89,069 Current Portion of Operating Lease Liabilities 2,812,765 4,209,512 Current Portion of Finance Lease Liabilities — 174,000 Operating Lease Liabilities, Net of Current Portion 18,398,345 56,410,071 Deferred Tax Liabilities 5,977,580 6,097,597 Notes Payable — 11,100,000 TOTAL LIABILITIES OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE $ 28,552,590 $ 86,047,374 discontinued operation. The assets associated with the New York component were measured at the lowerwholly-owned subsidiary of the carrying amountCompany closed on the Asset Purchase Agreement (the “Agreement”) with Green Sentry Holdings, LLC, (“Buyer”) for the sale of the Company’s Florida-based assets, including its license, dispensaries, inventory and cultivation operations, and assumption of certain liabilities. The final sales price was $67,000,000, which was comprised of $63,000,000 in cash and $4,000,000 in liabilities to be assumed by the Buyer. The Buyer made a cash payment of $40,000,000 at closing, a cash payment of $11,500,000 on September 15, 2022 and is required to make one additional installment payment of $11,500,000 on or fair value less costbefore March 15, 2023. The Company used $31,599,999 of the cash proceeds to sell.repay the Senior Secured Term Loan Facility, and the Company received net cash proceeds of $19,558,947. Accordingly, the Company recognized a gain on sale of assets of $31,719,833, which is included in Net Income from Discontinued Operations for the six months ended December 24, 2022. All profit or loss relating to the New YorkFlorida operations were eliminated from the Company’s continuing operations and are shown as a single line item in the Condensed Consolidated StatementsStatement of Operations. Of the total sales priceOperation.$73,000Contents, the cash purchase price was to be used to repay a portion of the Senior Secured Term Loan Facility. Accordingly, the total amount of interest expense and amortization of debt discounts allocated to discontinued operations was $5,560 and $5,151 for the three months ended December 25, 2021 and December 26, 2020, respectively, and $10,407 and $9,391 for the six months ended December 25, 2021 and December 26, 2020.On January 3, 2022, the Company announced its termination of the investment agreement. As of December 25, 2021, the operations within the state of New York remained classified as discontinued operations. See “Note 23 – Subsequent Events”.ArizonaDuring the fiscal year ended June 26, 2021, the Company had a change in plan of sale for the remaining Arizona disposal group. As a result, the assets no longer meet the held for sale criteria and are required to be reclassified as held and used at the lower of adjusted carrying value or the fair value at the date of the subsequent decision not to sell. During the six months ended December 25, 2021, revenues, net income, net depreciation and amortization, in the amounts of $7,875, $1,656 and $411, respectively, is included in continuing operations in the Condensed Consolidated Statements of Operations. During the six months ended December 26, 2020, revenues, net loss, net depreciation and amortization, in the amounts of $3,341, $1,013 and $81, respectively, were reclassified to continuing operations and is included in the Condensed Consolidated Statements of Operations.The operating results of the discontinued operations are summarized as follows:Schedule of net operating loss of discontinued operation Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 Revenue $ 4,458 $ 2,926 $ 8,729 $ 5,043 Cost of Goods Sold 3,427 1,260 5,669 2,680 Gross Profit 1,031 1,666 3,060 2,363 Expenses: General and Administrative 2,318 2,479 4,095 4,898 Sales and Marketing 6 6 13 12 Depreciation and Amortization (65 ) 865 (49 ) 1,511 Other Income - - (245 ) - Total Expenses 2,259 3,350 3,814 6,421 Loss from Operations (1,228 ) (1,684 ) (754 ) (4,058 ) Other Expense: Interest Expense 3,172 2,586 5,994 4,944 Amortization of Debt Discount and Loan Origination Fees 2,406 2,120 4,450 3,636 Total Other Expense 5,578 4,706 10,444 8,580 Loss from Discontinued Operations Before Provision for Income Taxes (6,806 ) (6,390 ) (11,198 ) (12,638 ) Provision for Income Tax Benefit (Expense) 1,314 - (741 ) - Net Loss from Discontinued Operations $ (5,492 ) $ (6,390 ) $ (11,939 ) $ (12,638 ) 33MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)The carrying amounts of assets and liabilities in the disposal group are summarized as follows:Schedule of assets included in discontinued operation December 25, June 26, 2021 2021 Carrying Amounts of the Assets Included in Discontinued Operations: Cash and Cash Equivalents $ 1,328 $ 902 Restricted Cash 5 5 Accounts Receivable and Prepaid Expenses 193 234 Inventory 4,069 4,899 Property and Equipment, Net 12,712 12,683 Operating Lease Right-of-Use Assets 18,394 19,136 Intangible Assets, Net 10,583 10,583 Other Assets 457 457 TOTAL ASSETS OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE $ 47,741 $ 48,899 Carrying Amounts of the Liabilities Included in Discontinued Operations: Accounts Payable and Accrued Liabilities $ 2,251 $ 3,082 Income Taxes Payable 3,117 1,536 Other Current Liabilities - 125 Current Portion of Operating Lease Liabilities 2,892 2,326 Current Portion of Finance Lease Liabilities 1 1 Operating Lease Liabilities, Net of Current Portion 19,431 20,272 Finance Lease Liabilities, Net of Current Portion 350 349 Deferred Tax Liabilities 5,842 5,458 TOTAL LIABILITIES OF THE DISPOSAL GROUP CLASSIFIED AS HELD FOR SALE $ 33,884 $ 33,149 34MEDMEN ENTERPRISES INC.Notes to Condensed Consolidated Financial Statements (Unaudited)Three and Six Months Ended December 25, 2021 and December 26, 2020(Amounts Expressed in Thousands of United States Dollars, Except for Share and Per Share Data)23. SUBSEQUENT EVENTS February 8, 2022, which is the date these Condensed Consolidated Financial Statements were issued and has concluded that the followingno subsequent events have occurred that would require recognition in the Condensed Consolidated Financial Statements or disclosure in the notesNotes to the Condensed Consolidated Financial Statements.TerminationTable of Investment AgreementOn January 3, 2022, the Company announced the termination of the investment agreement to sell a controlling interest in the Company’s operations in the state of New York. Refer to “Note 22 – Discontinued Operations” for further information. Subsequently, the third party filed a complaint against the Company seeking specific performance of the investment agreement.Sixth Modification to Senior Secured Term Loan FacilityOn February 2, 2022, the Company executed the Sixth Modification to its Senior Secured Term Loan Facility, (the “Sixth Modification”), with Hankey Capital, LLC, (the “Lender) extending the maturity date and making certain amendments to the Commercial Loan Agreement, dated October 1, 2018, as amended, restated, supplemented, and/or as modified. As of December 25, 2021, the date of these financial statements, and as of February 2, 2022, the date of the Sixth Modification, the outstanding amounts due are approximately $113,600 and $114,300, respectively. The Sixth Modification extends the stated maturity date of January 31, 2022 of the Facility for a period of six months; specifically, July 31, 2022 with respect to Facility, and August 1, 2022 with respect to the incremental term loans (collectively, the “Term Loans”). The Sixth Modification makes no modification to the current interest rate. The Sixth Modification provides that the definitive documentation with respect to the conditional purchase of the Term Loans by Superhero Acquisition, L.P., an existing lender under the Company’s Senior Secured Convertible Purchase Agreement dated August 7, 2021, must be entered within 45 days or the stated maturity date of the Term Loans become due. Refer to “Note 10 – Notes Payable” for further information about the debt due to the lender.The Sixth Modification requires that the Company make a mandatory prepayment of at least $37,500 in the event the sale of certain assets and imposes covenants in regards strategic actions the Company must implement if it is unable to pay the Term Loans by the extended stated maturity date.The Company agreed to prepay $20,000 on the Term Loans and pay a fee of $1,000 to the Term Loan lenders in consideration of the Sixth Modification, which fee will be paid in Class B Subordinate Voting Shares (“Shares”) with a deemed price of $0.1247 (C$0.1582) for a total of 8,021,593 Shares (the “Fee Shares”), with any difference in realized net proceeds that is less than $1,000 from the sale of the Fee Shares during a 30-day period, to the extent such Fee Shares are sold, reimbursed in cash. The Company agreed to file with the Securities and Exchange Commission a registration statement on Form S-1 registering for resale the Fee Shares.The issuance of the Fee Shares as part of the Sixth Modification triggered the right of holders of convertible notes under the Convertible Facility to be issued five-year warrants in order to maintain their pro rata ownership interest (on a partially diluted basis) in the Shares. A total of 6,682,567 warrants (the “Top-up Warrants”), each entitling the holder to purchase one Share at a purchase price of $0.1247 (C$0.1582), will be issued to the holders of convertible notes under the Convertible Facility. Refer to “Note 8 – Derivative Liabilities” for further information.35&A”&A”) of the financial condition and results of operations of MedMen Enterprises Inc. (“MedMen Enterprises”Enterprises”, “MedMen”“MedMen”, the “Company”, “we” or the “Company”“our”) is for the three and six months ended December 25, 2021.24, 2022. The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statementsCondensed Consolidated Financial Statements and the accompanying notes presented in Item 1 of this Form 10-Q and those discussed in Item 158 of the Company’s Annual Report on Form 10-K (the “Form 10-K”“Form 10-K”) filed with the SEC on September 24, 2021.9, 2022. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Disclosure Regarding Forward-Looking Statements,” Item 1A—”Risk1A. “Risk Factors” and elsewhere in this Form 10-Q.with flagship locations in Los Angeles, Las Vegas, and Chicago. MedMen offersoffering a robust selection of high-quality products, including MedMen-owned brands, LuxLyte, and MedMen Red through its premium retail stores, proprietary delivery service, as well as curbside and in-store pick up. As of December 25, 2021,24, 2022 the Company owns 29operates 23 store locations across California (12), Florida (7)(13), Nevada (3), Illinois (1), Arizona (1), Massachusetts (1), and New York (4).December 21, 2021, we announcedAugust 22, 2022, the openingCompany completed the sale of our newest store location in Boston’s famed Fenway Park area. Occupying 4,725 square feet of prime retail space on 120 Brookline Avenue, MedMen Fenway marks the Company’s entry into Massachusetts’ booming adult-use market.On September 30, 2021, the landlord of the California and Nevada Cultivation Facilities approved the third party to operate the leased facilities which effectuated the Management Agreement. The Management Agreement provides the third party an option to acquire all the assets usedits operations in the Cultivation Facilities,state of Florida, including its license, dispensaries, inventory and cultivation operations, to Green Sentry Holdings, LLC (“Buyer”) at the cannabis licensesfinal sales price of $67.0 million which comprised of $63.0 million in cash and equipment, for $1 (the “Purchase Option”).$4.0 million in liabilities assumed by the Buyer. The fee for the services under the Management AgreementBuyer made a cash payment of $40.0 million at closing, a cash payment of $11.5 million on September 15, 2022, and is 100% and 30%required to make one additional installment payments of the California and Nevada Cultivation Facilities net revenue, respectively. The term of the Management Agreement remains in effect until the earlier of (a) the closing of any sale pursuant to the Purchase Option and (b) the expiration of the term, as applicable, of the master lease, at which time this Management Agreement shall automatically terminate without any further action of the Parties.$11.5 million on or before March 15, 2023. As of December 25, 2021,24, 2022, net proceeds to the Management Agreement remains in effect as neither termination condition has occurred.. The Company determined that aswere $19.5 million after $31.6 million of the effective date of the Management Agreement, or October 1, 2021, the Company no longer has a controlling interest in the Cultivation Facilities, and therefore these entities are no longer included in the Company’s financial statements. The deconsolidation did not have a material impact on the Company’s Condensed Financial Statements.On February 25, 2021, the Company entered into a definitive investment agreement (the “Investment Agreement”) to sell a controlling interest in MedMen NY, Inc. equity of approximately 86.7% with the option to purchase the remaining equity of approximately 13.3% that the Company will retain in MedMen NY, Inc. following the sale for a total sales price of up to $73,000,000. In conjunction with the Investment Agreement, MedMen NY, Inc. would engage the services of the purchaser pursuant to a management agreement until regulatory approval has been obtained. The aggregate sales price consists of a cash purchase price of $35,000,000, subject to adjustments and a senior secured promissory note of $28,000,000 which shall be assigned to Hankey Capital in partial satisfaction of the outstanding debt, and within five business days after the first sale by MedMen NY, Inc. of adult-use cannabis products at one or more of its retail store locations, additional shares of MedMen NY, Inc. would be purchased for $10,000,000 in cash. The proceeds in cash would bewas used to repay a portion of the Hankey Capital notes payable due by the Company. Accordingly, the total amount of interest expense and amortization of debt discounts and loan origination fees related to the Senior Secured Term Loan Facility allocated to discontinued operations was $5,559,956 and $5,151,304 for the three months ended December 25, 2021 and December 26, 2020, respectively, and $10,407,258 and $9,391,363 for the six months ended December 25, 2021 and December 26, 2020. On January 3, 2022, we announced the termination of this Investment Agreement.36We are a smaller reporting company, as defined in Rule 12b-2Loans with Hankey Capital. Proceeds of the Exchange Act. Accordingly, we have omitted certain information called for by this Item as permitted by applicable scaled disclosure rules.All references to “$” and “dollars” refer to U.S. dollars. References to C$ refer to Canadian dollars. Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to rounding.The Company’s fiscal year is a 52/53-week year ending on the last Saturday in June. For the current interim period, the three and six months ended December 25, 2021 and December 26, 2020 refertransaction to the 13Company are used to fund operations and 26 weeks ended therein.Selected Financial DataThe following table sets forthpay interest to Hankey Capital while the Company’s selected consolidated financial dataSenior Secured Term Loans remain outstanding and in default. In addition, the Company licensed the tradename “MedMen” to the Buyer for use in Florida for a period of two years, subject to termination rights, for a quarterly revenue-based fee. Proceeds from the periods,licensure of the trade name have been minimal. All purchased assets and assumed liabilities related to Florida are excluded from our Condensed Consolidated Balance Sheets as of December 24, 2022 and all profits or losses from our Florida operations subsequent to August 22, 2022 are included in the dates, indicated. The Condensed Consolidated Statements of Operations. Refer to “Note 22 – Discontinued Operations data” of the Condensed Consolidated Financial Statements in Item 1 of this Form 10-Q for further information.25, 2021 and December 26, 2020 have been derived from24, 2022, continue to be impacted by the Condensed Consolidated Financial StatementsCOVID-19 pandemic. The overall impact on our business continues to depend on the length of time that the Company and its subsidiaries, which are included in Item 1 of this Quarterly Reportpandemic continues, the impact on Form 10-Q (“Form 10-Q”).The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (“MD&A”)consumer purchasing behavior, macro-economic factors such as inflation, and the Condensed Consolidated Financial Statements and related notes presented in Item 1 of this Form 10-Q. Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 2021 2020 (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 39.1 $ 32.6 $ 78.9 $ 67.7 Gross Profit $ 19.2 $ 16.8 $ 36.7 $ 33.3 Loss from Operations $ (25.1 ) $ (26.9 ) $ (54.2 ) $ (20.9 ) Total Other (Income) Expense $ (2.1 ) $ 13.1 $ 3.2 $ 33.3 Net Loss from Continuing Operations $ (14.9 ) $ (62.6 ) $ (69.0 ) $ (89.1 ) Net Loss from Discontinued Operations, Net of Taxes $ (5.5 ) $ (6.4 ) $ (11.9 ) $ (12.6 ) Net Loss $ (20.4 ) $ (69.0 ) $ (81.0 ) $ (101.7 ) Net Loss Attributable to Non-Controlling Interest $ (1.3 ) $ (19.2 ) $ (6.6 ) $ (30.1 ) Net Loss Attributable to Shareholders of MedMen Enterprises Inc. $ (19.1 ) $ (49.8 ) $ (74.4 ) $ (71.6 ) Adjusted Net Loss from Continuing Operations (Non-GAAP) $ (26.7 ) $ (57.0 ) $ (86.6 ) $ (92.1 ) EBITDA from Continuing Operations (Non-GAAP) $ (3.3 ) $ (19.0 ) $ 12.4 $ (14.7 ) Adjusted EBITDA from Continuing Operations (Non-GAAP) $ (15.2 ) $ (13.0 ) $ (29.8 ) $ (25.7 ) 37Factors Affecting Our BusinessManagement believes that the nascent cannabis industry represents an extraordinary opportunity in which the Company’s performance and success depend on a number of factors:●Market Expansion. The Company’s success in achieving a desirable retail footprint is attributable to its market expansion strategy, which was a key driver of revenue growth. The Company exercises discretion in focusing on investing in retail locations that can deliver near term increased earnings to the Company.●Retail Growth. MedMen stores are located in premium locations in markets such as California, Nevada, Arizona, Illinois, New York, Florida and Massachusetts. As we continue to drive to increase sales, management expects to leverage its retail footprint to develop a robust distribution model.ØOn October 19, 2021, we announced the re-opening of our Tallahassee, Florida store location on 1126 Thomasville Road. The approximately 4,000-square-foot Tallahassee storefront occupies a critical hub in Florida’s capital city.ØOn December 21, 2021, we announced the opening of our newest store location in Boston’s famed Fenway Park area. Occupying 4,725 square feet of prime retail space on 120 Brookline Avenue, MedMen Fenway marks the Company’s entry into Massachusetts’ booming adult-use market.Our retail store count is as follows: December 25, December 26, 2021 2020 Active Stores* 29 24 Temporarily Closed** 4 5 Total Stores 33 29 *Number of active stores includes four in the state of New York which are classified as discontinued operations.**For the fiscal second quarter of 2022, four retail locations in the state of Florida have remained temporarily closed in order to redirect inventory from its Eustis cultivation facility to its highest performing stores. As of December 25, 2021, the Company had 25 active retail locations related to continuing operations.●Direct-to-Consumer Channel Rollout. MedMen Delivery is available in California and Florida. The Company benefited from increased traction with in-store pickup as well as delivery service, curbside pickup and loyalty rewards program. During the second quarter, we invested $1,129,099 in sales and marketing of which $551,000 was in the support of new innovative direct-to-consumer initiatives.●COVID-19. We continuously address the effects of the COVID-19 pandemic, a discussion of which is available in sections entitled “Risk Factors” in Item 1A and “COVID-19 Pandemic” in Item 7 under in our Annual Report on Form 10-K for the fiscal year ended June 26, 2021. Our business and operating results for the three and six months ended December 25, 2021, continue to be impacted by the COVID-19 pandemic, including the Omicron variant. During the second quarter, we experienced declines in traffic during key holidays, including the week of Thanksgiving and of Christmas, which typically drive volume as customers shop for the holidays. The overall impact on our business continues to depend on the length of time that the pandemic continues, the extent to which it affects our ability to raise capital, and the effect of governmental regulations imposed in response to the pandemic as well as uncertainty regarding all of the foregoing. At this time, it is unclear how long these measures may remain in place, what additional measures maybe imposed, or when our operations will be restored to the levels that existed prior to the COVID-19 pandemic. The Company continues to implement and evaluate actions to strengthen its financial position and support the continuity of its business and operations.TrendsMedMen is subject to various trends that could have a material impact on the Company, its financial performance and condition, and its outlook as the company progresses into the future. A deviation from expectations for these trends could cause actual results to differ materially from those expressed or implied in forward-looking information included in this MD&A and the Company’s financial statements. These trends include, but are not limitedeffect of governmental regulations imposed in response to the liberalizationpandemic, which all remain uncertain at this time. We continue to implement and evaluate actions to strengthen our financial position and support the continuity of cannabis laws, popular support for cannabis legalization, new and changing price discounting market practices and balanced supply and demand in states.38Results of OperationsOur consolidated results, in millions, except for per share and percentage data, for the three and six months ended December 25, 2021, compared to three and six months ended December 26, 2020, are as follows: Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, ($ in Millions) 2021 2020 $ Change % Change 2021 2020 $ Change % Change (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 39.1 $ 32.6 $ 6.5 20 % $ 78.9 $ 67.7 $ 11.2 17 % Cost of Goods Sold 19.9 15.8 4.1 26 % 42.2 34.4 7.8 23 % Gross Profit 19.2 16.8 2.4 14 % 36.7 33.3 3.4 10 % Operating Expenses: General and Administrative 35.3 31.8 3.5 11 % 71.8 62.0 9.8 16 % Sales and Marketing 1.1 0.2 0.9 450 % 1.8 0.4 1.4 350 % Depreciation and Amortization 7.6 8.9 (1.3 ) (15 %) 14.7 16.9 (2.2 ) (13 %) Realized and Unrealized Changes in Fair Value of Contingent Consideration (0.3 ) 0.1 (0.4 ) (400 %) (0.3 ) 0.4 (0.7 ) (175 %) Impairment Expense - - - 100 % 0.4 0.8 (0.4 ) 100 % Other Operating Expense (Income) 0.6 2.7 (2.1 ) (78 %) 2.5 (26.4 ) 28.9 (109 %) Total Operating Expenses 44.3 43.7 0.6 1 % 90.9 54.2 36.8 68 % Loss from Operations (25.1 ) (26.9 ) 1.8 (7 %) (54.2 ) (20.9 ) (33.3 ) 159 % Non-Operating Expense (Income): Interest Expense 9.7 7.7 2.0 26 % 19.6 16.4 3.2 20 % Interest Income - (0.5 ) 0.5 (100 %) - (0.5 ) 0.5 (100 %) Amortization of Debt Discount and Loan Origination Fees 2.3 4.8 (2.5 ) (52 %) 10.2 6.5 3.7 57 % Change in Fair Value of Derivatives (14.1 ) 0.2 (14.3 ) (7,150 %) (16.2 ) (0.1 ) (16.1 ) 16,100 % (Gain) Loss on Extinguishment of Debt - 0.9 (0.9 ) (100 %) (10.2 ) 11.1 (21.3 ) (192 %) Total Non-Operating (Income) Expense (2.1 ) 13.1 (15.2 ) (116 %) 3.3 33.3 (30.0 ) (90 %) Loss from Continuing Operations Before Provision for Income Taxes (23.0 ) (40.0 ) 17.0 (43 %) (57.5 ) (54.2 ) (3.3 ) 6 % Provision for Income Tax Benefit (Expense) 8.1 (22.6 ) 30.7 (136 %) (11.6 ) (34.8 ) 23.2 (67 %) Net Loss from Continuing Operations (14.9 ) (62.6 ) 47.7 (76 %) (69.0 ) (89.1 ) 20.1 (23 %) Net Loss from Discontinued Operations, Net of Taxes (5.5 ) (6.4 ) 0.9 (14 %) (11.9 ) (12.6 ) 0.7 (6 %) Net Loss (20.4 ) (69.0 ) 48.6 (70 %) (81.0 ) (101.7 ) 20.8 (20 %) Net Loss Attributable to Non-Controlling Interest (1.3 ) (19.2 ) 17.9 (93 %) (6.6 ) (30.1 ) 23.5 (78 %) Net Loss Attributable to Shareholders of MedMen Enterprises Inc. $ (19.1 ) $ (49.8 ) $ 30.7 (62 %) $ (74.4 ) $ (71.6 ) $ (2.8 ) 4 % Adjusted Net Loss from Continuing Operations (Non-GAAP) $ (26.7 ) $ (57.0 ) $ 30.3 (53 %) $ (86.6 ) $ (92.1 ) $ 5.5 (6 %) EBITDA from Continuing Operations (Non-GAAP) $ 3.3 $ (19.0 ) $ 15.7 (83 %) $ (12.4 ) $ (14.7 ) $ 2.3 (16 %) Adjusted EBITDA from Continuing Operations (Non-GAAP) $ (15.2 ) $ (13.0 ) $ (2.2 ) 17 % $ (29.8 ) $ (25.7 ) $ (4.1 ) 16 % 39RevenueRevenue for the three and six months ended December 25, 2021 was $39.1 million and $78.9 million, an increase of $6.5 million and $11.2 million, or 20% and 17%, compared to revenue of $32.6 million and $67.7 million for the three months and six ended December 26, 2020.Revenue in various states in which we operate is as follows: Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, 2021 2020 $ Change % Change 2021 2020 $ Change % Change California $ 23.4 $ 19.8 $ 3.6 18 % $ 48.0 $ 40.5 $ 7.5 19 % Nevada 3.9 3.0 0.9 30 % 7.9 6.8 1.1 16 % Florida 3.6 3.1 0.5 16 % 6.7 5.3 1.4 26 % Illinois 4.1 4.9 (0.8 ) (16 %) 8.4 11.7 (3.3 ) (28 %) Arizona 4.2 1.7 2.5 147 % 7.9 3.3 4.6 139 % Consolidated Revenue 39.1 32.6 6.5 20 % 78.9 67.7 11.2 17 % New York - Discontinued Operations 4.5 2.9 1.6 55 % 8.7 5.0 3.7 74 % Total Revenue $ 43.6 $ 35.5 $ 8.1 23 % $ 99.4 $ 59.7 $ 39.7 66 % The increase in revenue was primarily related to the Company’s initiatives as it recovers from the COVID-19 impact onour business and occupancy restrictions. During the three months ended December 25, 2021, the Company continued to elevate its product offering, revamp its pricing and assortment strategy, and focus on driving retail traffic. Specifically in California, where retail revenue increased $3.6 million during the current period compared to the prior year quarter, the Company saw increased engagement through its customer relationship strategy and focused on marketing and advertising initiatives as COVID-19 restrictions began to lift. In addition, revenue in Arizona increased $2.5 million compared to the three months ended December 26, 2020 as a result of the Company’s focus on driving retail traffic after the state-wide transition to adult-use during the spring of calendar year 2021. Previously modified store operations based on Centers for Disease Control and Prevention guidelines and local ordinances, which limit in-store traffic for certain locations, began to operate at a less restrictive scale since the fiscal fourth quarter of 2021 as COVID-19 related restrictions began to lift, resulting in increased tourism and normalizing retail traffic levels. As the Company’s key markets continue to recover from the pandemic, MedMen expects to continue utilizing their tailored marketing initiatives and revised assortment to drive and serve retail traffic at a much higher volume and rate.operations.Cost of Goods Sold and Gross ProfitCost of goods sold for the three and six months ended December 25, 2021 was $19.9 million and $42.2 million, an increase of $4.1 million and $7.8 million, or 26% and 23%, compared with $15.8 million and $34.4 million of cost of goods sold for the three and six months ended December 26, 2020. Gross profit for the three and six months ended December 25, 2021 was $19.2 million and $36.7 million compared with gross profit of $16.8 million and $33.3 million, for the three and six months ended December 26, 2020. The increase in gross profit is primarily due to our revenue growth offset by an increase in promotional discounts and a one-time write down of inventory at one of its cultivation facilities. MedMen expects gross profit to improve slightly during the remaining of fiscal year 2022. During the second quarter of 2022, the Company completed its strategic partnership for its cultivation and production facilities in California and Nevada where the Company had incurred significant fixed costs, wherein licensed operations will be carried on under management agreements while also supplying product for the Company’s private label in California and Nevada.40Operating ExpensesOperating expenses for the three months ended December 25, 2021 increased to $44.3 million from $43.7 million as compared to the same period prior year, and increased to $90.9 million from $54.2 million as compared to six months ended December 26, 2020. These changes were attributable to the factors described below.General and administrative expenses for the three and six months ended December 25, 2021 were $35.5 million and $71.8 million, compared to $31.8 million and $62.0 million, an increase of $3.5 million and $9.8 million, or 11% and 16% as compared to the same prior year periods. The overall increase in the comparable periods is primarily due to an increase in professional fees which is a direct result of litigation costs associated with previous officers of the Company. On a sequential quarter basis, we achieved a reduction of $1.2 million from $36.5 million reported in our first fiscal quarter. Management continues to focus in reducing company-wide selling, general and administrative expenses (“SG&A”).Sales and marketing expenses for the three and six months ended December 25, 2021 were $1.1 million and $1.8 million, compared to $0.2 million and $0.4 million. In comparison to the prior year periods, the increase in sales and marketing expenses is primarily attributed to an increase in marketing and advertising of $0.6 million and $0.9 million and an increase in customer relationship tools of $0.2 million and $0.3 million from increased marketing initiatives to drive retail traffic as COVID-19 restrictions began to lift, tourism increased, and certain states moved towards regulatory approval of recreational marijuana.Depreciation and amortization for the three and six months ended December 25, 2021 was $7.6 million and $14.7 million, as compared to $8.9 million and $16.9 million. The overall decrease is attributable to the reduction in capital expenditures resulting from a delay and in capital-intensive projects as part of the Company’s turnaround plan and the COVID-19 pandemic.Realized and unrealized changes in fair value of contingent consideration for the three and six months ended December 25, 2021 was $(0.3) million as compared to $0.1 million and $0.4 million for the three and six months ended December 26, 2020, respectively. The increase in fair value of the contingent liabilities was due to the increase in the Company’s share price compared to prior year.Impairment expense for the six months ended December 25, 2021 related an impairment on an intellectual property asset in the amount of $0.4 million.Other operating expense (income) for the three and six months ended December 25, 2021 was $0.6 million and $2.5 million, as compared to $2.7 million and $(26.1) million for the three and six months ended December 26, 2020, respectively. For the six months ended December 25, 2021, the change was primarily attributable to the $16.3 million gain related to the lease deferral with the REIT and $2.9 million gain on lease terminations in the comparative prior period. For the six months ended December 25, 2021, other operating expense (income) included restructuring and reorganizational expenses of $2.2 million.41Non-Operating ExpenseNon-operating (income) expense for the three and six months ended December 25, 2021, was $(2.1) million and $3.3 million as compared to $13.1 million and $33.3 million in the prior year periods. The decrease in total other expense includes a loss on extinguishment of debt of $10.1 million in the comparative prior period, compared to the net gain on extinguishment of debt of $10.2 million in the current period as a result of the $12.4 million gain on extinguishment of debt related to the Sixth Amendment, offset by the $2.2 million loss on extinguishment of debt related to the settlement of the unsecured promissory note in connection with the Private Placement. In addition, a gain on changes in fair value of derivatives of $14.1 million and $16.2 million for the three and six months ended December 25, 2021 contributed to the decrease in total non-operating expenses as a result of the derivative liabilities recognized in the fiscal first quarter of 2022.Provision for Income TaxesMedMen is subject to income taxes in the jurisdictions in which it operates and, consequently, income tax expense is a function of the allocation of taxable income by jurisdiction and the various activities that impact the timing of taxable events. As the Company operates in the legal cannabis industry, the Company is subject to the limits of Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E and a higher effective tax rate than most industries. However, the state of California does not conform to IRC Section 280E and, accordingly, the Company deducts all operating expenses on its California Franchise Tax Returns.The provision for income taxes for the three and six months ended December 25, 2021 was a benefit of $8.1 million and an expense of $11.6 million, respectively, compared to the provision for income tax expense of $22.6 million and $34.8 million for the three months ended December 26, 2020, primarily due to the Company’s forecasted income, related IRC Section 280E expenditures and interest due to the Internal Revenue Service. The Company incurred a large amount of expenses that were not deductible due to IRC Section 280E limitations which resulted in income tax expense being incurred while there were pre-tax losses for the current period.Net LossNet loss from continuing operations for the three months ended December 25, 2021 was $14.9 million, compared to a net loss from continuing operations of $62.6 million for the same period prior year. The improvement in net loss from continuing operations was mainly attributable to the changes in fair value of derivatives of $14.1 million during the fiscal second quarter of 2021, and a decrease in our provision for income taxes. Net loss from continuing operations for the six months ended December 25, 2021 also decreased to $69.0 million from $89.1 million for the same period prior year. The decrease during the six months period as compared to the same period prior year was primarily as result of the effects of non-operating activities that occurred in the prior year, including a loss in extinguishment of debt which did not occur in 2022.42Non-GAAP Financial MeasuresIn addition to providing financial measurements based on GAAP, the Company provides additional financial metrics that are not prepared in accordance with GAAP. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision-making, for planning and forecasting purposes and to evaluate the Company’s financial performance. These non-GAAP financial measures are here in collectively referred to us the “non-GAAP financial measures”.Non-GAAP financial measures are financial measures that are not defined under GAAP. Management believes that these non-GAAP financial measures assess the Company’s ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as they facilitate comparing financial results across accounting periods and to those of peer companies. The Company uses these non-GAAP financial measures and believes they enhance an investors’ understanding of the Company’s financial and operating performance from period to period. Management also believes that these non-GAAP financial measures enable investors to evaluate the Company’s operating results and future prospects in the same manner as management.In particular, the Company continues to make investments in its cannabis properties and management resources to better position the organization to achieve its strategic growth objectives which have resulted in outflows of economic resources. Accordingly, the Company uses these metrics to measure its core financial and operating performance for business planning purposes. In addition, the Company believes investors use both GAAP and non-GAAP measures to assess management’s past and future decisions associated with its priorities and allocation of capital, as well as to analyze how the business operates in, or responds to, swings in economic cycles or to other events that impact the cannabis industry. However, these measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies in the Company’s industry. Accordingly, these non-GAAP financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.These non-GAAP financial measures exclude certain material non-cash items and certain other adjustments the Company believes are not reflective of its ongoing operations and performance. These non-GAAP financial measures are not intended to represent and should not be considered as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP as measures of operating performance or operating cash flows or as measures of liquidity. These non-GAAP financial measures have important limitations as analytical tools and should not be considered in isolation or as a substitute for any standardized measure under GAAP. For example, certain of these non-GAAP financial measures:●exclude certain tax payments that may reduce cash available to the Company;●do not reflect any cash capital expenditure requirements for the assets being depreciated and amortized that may have to be replaced in the future;●do not reflect changes in, or cash requirements for, working capital needs; and●do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments on debt.Other companies in the cannabis industry may calculate these measures differently than the Company does, limiting their usefulness as comparative measures.43Reconciliations of Non-GAAP Financial Measures to GAAP MeasuresRetail Performance Non- GAAP Financial MeasuresWithin the cannabis industry, MedMen is uniquely focused on the retail component of the value chain. On a sequential quarter basis, the Company is providing detail with respect to earnings before interest, taxes, depreciation and amortization (“EBITDA”) attributable to the Company’s national retail operations to show how it is leveraging its retail footprint and strategically investing in the future. The table below highlights the Company’s national Retail Adjusted EBITDA Margin (Non-GAAP), which excludes corporate marketing expenses, distribution expenses, inventory adjustments, and local cannabis and excise taxes. Entity-wide Adjusted EBITDA (Non-GAAP) follows our Retail Performance non-GAAP financial measures.Retail Gross Margin (Non-GAAP) Fiscal Quarter Ended December 25, September 25, 2021 2021 $ Change % Change Gross Profit $ 19.2 $ 17.5 $ 1.7 10 % Gross Margin Rate 49 % 44 % 5 % 12 % Cultivation & Wholesale Revenue (1.3 ) (1.3 ) - 100 % Cultivation & Wholesale Cost of Goods Sold (1.3 ) (4.0 ) 2.7 (68 %) Non-Retail Gross Margin - (2.7 ) 2.7 (100 %) Retail Gross Margin (Non-GAAP) $ 19.2 $ 20.2 $ (1.0 ) (5 %) Retail Gross Margin Rate (Non-GAAP) 51 % 52 % -2 % (3 %) 44Retail Adjusted EBITDA Margin (Non-GAAP) Fiscal Quarter Ended December 25, September 25, 2021 2021 $ Change % Change Net Loss $ (20.4 ) $ (60.6 ) $ 40.2 (66 %) Net Loss from Discontinued Operations, Net of Taxes 5.5 6.4 (0.9 ) (14 %) Provision for Income Tax (Benefit) Expense (8.1 ) 19.7 (27.8 ) (141 %) Other (Income) Expense (2.1 ) 5.5 (7.6 ) (138 %) Excluded Items (1) 0.3 2.2 (1.9 ) (86 %) Loss from Operations Before Excluded Items $ (24.8 ) $ (26.7 ) $ 1.9 (7 %) Non-Retail Gross Margin - (2.7 ) 2.7 (100 %) Non-Retail Operating Expenses (2) (29.4 ) (30.7 ) 1.3 (4 %) Non-Retail EBITDA Margin (29.4 ) (33.4 ) 4.0 (12 %) Retail Adjusted EBITDA Margin (Non-GAAP) $ 4.6 $ 6.7 $ (2.1 ) (31 %) Retail Adjusted EBITDA Margin Rate (Non-GAAP) 12 % 17 % (7 %) (40 %) (1)Items adjusted from Net Loss for the fiscal quarters ended December 25, 2021 and September 25, 2021 include: December 25, September 25, 2021 2021 Realized and Unrealized Loss on Changes in Fair Value of Contingent Consideration $ (0.3 ) $ - Impairment Expense - 0.4 (Gain) Loss On Disposals of Assets, Restructuring Fees and Other Expenses 0.6 1.8 Total Excluded Items $ 0.3 $ 2.2 (2)Non-Retail Operating Expenses Included in Retail Adjusted EBITDA Margin (Non-GAAP) is comprised of the following items: Fiscal Quarter Ended December 25, September 25, 2021 2021 $ Change % Change Cultivation & Wholesale $ 1.1 $ 0.9 $ 0.2 22 % Corporate SG&A 18.9 18.9 - - Depreciation & Amortization 7.6 7.0 0.6 9 % Other (3) 1.8 3.9 (2.1 ) (54 %) Non-Retail Operating Expenses 29.4 30.7 (1.3 ) (4 %) Direct Store Operating Expenses (4) 14.6 13.5 1.1 8 % Excluded Items (1) 0.3 2.3 (2.0 ) (87 %) Total Expenses $ 44.3 $ 46.5 $ (2.2 ) (5 %) (3)Other non-retail operating expenses excluded from Retail Adjusted EBITDA Margin (Non-GAAP) for the fiscal quarters ended December 25, 2021 and September 25, 2021 primarily consist of transaction costs and restructuring costs of $1.6 million and $5.2 million, respectively, and share-based compensation of $0.7 million and $1.6 million, respectively, as commonly excluded from Adjusted EBITDA from Continuing Operations (Non-GAAP).(4)For the fiscal quarters ended December 25, 2021 and September 25, 2021, direct store operating expenses include, but are not limited to, rent, utilities, payroll and payroll related expenses, employee benefits, and security, totaling $13.7 million and $12.9 million, local taxes of nil and $0.3 million, and distribution expenses of $0.9 million and $0.8 million, respectively. Local taxes include cannabis sales and excise taxes imposed by municipalities in which the Company has active retail operations and vary by jurisdiction. Distribution expenses relate to additional porter fees.45The non-GAAP retail performance measures demonstrate the Company’s four-wall margins which reflect the sales of the Company’s retail operations relative to the direct costs required to operate such dispensaries. Retail revenue is related to net sales from the Company’s stores, excluding non-retail revenue, such as cultivation and manufacturing revenue. Similarly, retail cost of goods sold and direct store operating expenses are directly related to the Company’s retail operations. Non-Retail Revenue includes revenue from third-party wholesale sales. Non-Retail Cost of Goods Sold includes costs directly related to third-party wholesale sales produced by the Company’s cultivation and production facilities, such as packaging, materials, payroll, rent, utilities, security, etc. While third-party sales were not significant for the fiscal quarter ended December 25, 2021, Non-Retail Cost of Goods Sold related to cultivation and wholesale operations was $1.3 million due to unallocated overages from increased production burn rate. Non-Retail Operating Expenses include ongoing costs related to the Company’s cultivation and wholesale operations, corporate spending, and depreciation and amortization. Non-Retail EBITDA Margin reflects the gross margins of the Company’s cultivation and wholesale operations excluding any related operating expenses. To determine the Company’s four-wall margins, certain costs that do not directly support the Company’s retail function are excluded from Retail Adjusted EBITDA Margin (Non-GAAP).For the fiscal second quarter of 2022, retail revenue was $37.8 million across the Company’s continuing operations in California, Nevada, Arizona, Illinois and Florida. This represents a 2% decrease, or $0.7 million, over the fiscal first quarter of 2022 of $38.5 million. The decrease in retail revenue from continuing operations was primarily driven by a decrease of $1.2 million in California offset by an increase of $0.5 million in Florida. While there were multiple reasons for the decrease in retail revenue, we believe the primary factors were heightened restrictions due to the Delta and Omicron variant of COVID-19 and increased competition in certain markets.Retail Gross Margin Rate (Non-GAAP), which is Retail Gross Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP), for the fiscal second quarter of 2022 was 51% compared to the fiscal first quarter of 2022 of 52%. Retail Gross Margin (Non-GAAP) is Retail Revenue (Non-GAAP) less the related Retail Cost of Goods Sold (Non-GAAP). The Company had an aggregate Retail Adjusted EBITDA Margin Rate (Non-GAAP), which is Retail Adjusted EBITDA Margin (Non-GAAP) divided by Retail Revenue (Non-GAAP), of 12% for the fiscal second quarter of 2022 which represents a decrease compared to the 17% realized in the fiscal first quarter of 2022 primarily due to increased marketing to drive retail traffic and increased payroll expenses as a result of incremental payroll from stores reopening and the impact of COVID-19 on staffing.Corporate SG&A as a Component of Adjusted EBITDA from Continuing Operations (Non-GAAP)Corporate-level general and administrative expenses across various functions including Marketing, Legal, Retail Corporate, Technology, Accounting and Finance, Human Resources and Security (collectively referred to as “Corporate SG&A”) are combined to account for a significant proportion of the Company’s total general and administrative expenses. Corporate SG&A also includes pre-opening expenses related to general and administrative expenses incurred by the Company at non-operational retail locations, which such expenses would be classified as direct store operating expenses following its opening. Fiscal Quarter Ended December 25, September 25, ($ in Millions) 2021 2021 $ Change % Change General and Administrative $ 35.3 $ 36.5 $ (1.2 ) (3 %) Sales and Marketing 1.1 0.7 0.4 57 % Consolidated SG&A 36.4 37.2 (0.8 ) (2 %) Direct Store Operating Expenses (1) 14.6 13.5 1.1 8 % Cultivation & Wholesale 1.1 0.9 0.2 22 % Other (2) 1.8 3.9 (2.1 ) (54 %) Less: Non-Corporate SG&A 17.5 18.3 (0.8 ) (4 %) Corporate SG&A as a Component of Adjusted EBITDA from Continuing Operations (Non-GAAP) $ 18.9 $ 18.9 $ - - (1)Other non-Corporate SG&A for the fiscal quarters ended December 25, 2021 and September 25, 2021 primarily consist of transaction costs and restructuring costs of $1.6 million and $5.2 million, respectively, and share-based compensation of $0.7 million and $1.6 million, respectively, as commonly excluded from Adjusted EBITDA (Non-GAAP).For the fiscal second quarter of 2022, Adjusted EBITDA from Continuing Operations (Non-GAAP) includes Corporate SG&A (Non-GAAP) of $18.9 million, which is consistent with the fiscal first quarter of 2022.46Adjusted Net Loss from Continuing Operations (Non-GAAP)The table below reconciles Net Loss to Adjusted Net Loss from Continuing Operations (Non-GAAP) for the periods indicated. Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, ($ in Millions) 2021 2020 2021 2020 Net Loss $ (20.4 ) $ (69.0 ) $ (81.0 ) $ (101.7 ) Less: Net Loss from Discontinued Operations, Net of Taxes 5.5 6.4 11.9 12.6 Add (Deduct) Impact of: Transaction Costs & Restructuring Costs 1.6 2.7 6.8 3.5 Share-Based Compensation 0.7 1.6 2.4 2.6 Other Non-Cash Operating Costs (1) (14.2 ) 1.7 (26.6 ) (17.1 ) Income Tax Effects (2) 0.1 (0.4 ) (0.1 ) 8.0 Total Adjustments (11.8 ) 5.6 (17.5 ) (3.0 ) Adjusted Net Loss from Continuing Operations (Non-GAAP) $ (26.7 ) $ (57.0 ) $ (86.6 ) $ (92.1 ) Adjusted Net Loss from Continuing Operations (Non-GAAP) represents the profitability of the Company excluding unusual and infrequent expenditures and non-cash operating costs. The improvements in Adjusted Net Loss from Continuing Operations (Non-GAAP) were primarily due to the increase revenue and gross profit as the Company recovers from the COVID-19 impact compared to the prior period and changes in the provision for income taxes as described above.EBITDA and Adjusted EBITDA from Continuing Operations (Non-GAAP)The table below reconciles Adjusted Net Loss to EBITDA from Continuing Operations (Non-GAAP) and Adjusted EBITDA from Continuing Operations (Non-GAAP) for the periods indicated. Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, ($ in Millions) 2021 2020 2021 2020 Net Loss $ (20.4 ) $ (69.0 ) $ (81.0 ) $ (101.7 ) Less: Net Loss from Discontinued Operations, Net of Taxes 5.5 6.4 11.9 12.6 Add (Deduct) Impact of: Net Interest and Other Financing Costs 9.6 7.1 19.6 15.9 Provision for Income Taxes (8.1 ) 22.6 11.6 34.8 Amortization and Depreciation 10.1 13.9 25.5 23.7 Total Adjustments 11.6 43.6 56.7 74.4 EBITDA from Continuing Operations (Non-GAAP) $ (3.3 ) $ (19.0 ) $ (12.4 ) $ (14.7 ) Add (Deduct) Impact of: Transaction Costs & Restructuring Costs 1.6 2.7 6.8 3.5 Share-Based Compensation 0.7 1.6 2.4 2.6 Other Non-Cash Operating Costs (1) (14.2 ) 1.7 (26.6 ) (17.1 ) Total Adjustments (11.9 ) 6.0 (17.4 ) (11.0 ) Adjusted EBITDA from Continuing Operations (Non-GAAP) $ (15.2 ) $ (13.0 ) $ (29.8 ) $ (25.7 ) (1)Other non-cash operating costs for the periods presented were as follows: Three Months Ended Six Months Ended December 25, December 26, December 25, December 26, ($ in Millions) 2021 2020 2021 2020 Change in Fair Value of Derivative Liabilities $ (14.1 ) $ 0.2 $ (16.2 ) $ (0.1 ) Gain on Disposal of Assets Held For Sale - 2.0 - (10.5 ) Change in Fair Value of Contingent Consideration (0.3 ) 0.1 (0.3 ) 0.4 Gain/Loss on Lease Termination 0.2 (1.3 ) 0.2 (17.9 ) Gain/Loss on Extinguishment of Debt - 0.9 (10.2 ) 11.1 Gain/Loss from Disposal of Assets (0.1 ) 0.5 (0.1 ) 0.4 Impairment Expense - - 0.4 0.8 Other Non-Cash Operating Costs 0.2 (0.7 ) (0.3 ) (1.2 ) Total Other Non-Cash Operating Costs $ (14.2 ) $ 1.7 $ (26.6 ) $ (17.1 ) (2)Income tax effects to arrive at Adjusted Net Loss from Continuing Operations (Non-GAAP) are related to temporary tax differences in which a future income tax benefit exists, such as changes in fair value of investments, assets held for sale and other assets, changes in fair value of contingent consideration, loss from disposal of assets, and impairment expense. The income tax effect is calculated using the federal statutory rate of 21.0% and statutory rate for the state in which the related asset is held or the transaction occurs, most of which is in California with a statutory rate of 8.84%.EBITDA from Continuing Operations (Non-GAAP) represents the Company’s current operating profitability and ability to generate cash flow and includes significant non-cash operating costs. Net Loss is adjusted for interest and financing costs as a direct result of debt financings, income taxes, and amortization and depreciation expense to arrive at EBITDA from Continuing Operations (Non-GAAP). Considering these adjustments, the Company had EBITDA from Continuing Operations (Non-GAAP) of $(3.3) million and $(12.4) million for the three and six months ended December 25, 2021 compared to $(19.0) million and $(14.7) million for the comparative prior period. The change in EBITDA from Continuing Operations (Non-GAAP) was primarily due to other non-cash operating costs for the changes in fair value of derivative liabilities and extinguishments of debt as described above. For the three and six months ended December 25, 2021, Adjusted EBITDA from Continuing Operations (Non-GAAP) of $(15.2) million and $(29.8) million compared to $(13.0) million and $(25.7) million for the three and six months ended December 26, 2020, respectively. The increase of $1.9 million for the six months ended December 25, 2021 and December 26, 2020 is primarily due to an increase in general and administrative expenses affecting Net Loss, offset by the increase in revenue and gross profit. The financial performance of the Company is expected to improve as the Company has a clear path towards profitability, and coupled with its stabilized liquidity, is properly repositioned the Company for growth. Refer to Item 2 “Liquidity and Capital Resources” for further discussion of management’s future outlook.Refer to Item 2 “Retail Performance” above for reconciliations of Retail Adjusted EBITDA.48Cash FlowsThe following table summarizes the Company’s consolidated cash flows for the six months ended December 25, 2021 and December 26, 2020: Six Months Ended December 25, December 26, ($ in Millions) 2021 2020 $ Change % Change Net Cash Used in Operating Activities $ (49.5 ) $ (30.3 ) $ (19.2 ) 63 % Net Cash (Used in) Provided by Investing Activities (7.6 ) 15.7 (23.3 ) (148 %) Net Cash Provided by Financing Activities 93.2 11.8 81.4 690 % Net Increase (Decrease) in Cash and Cash Equivalents 36.1 (2.8 ) 38.9 (1,389 %) Cash Included in Assets Held for Sale (0.3 ) - (0.3 ) 100 % Cash and Cash Equivalents, Beginning of Period 11.9 9.6 2.3 24 % Cash and Cash Equivalents, End of Period $ 47.7 $ 6.8 $ 40.9 601 % Cash Flow from Operating ActivitiesNet cash used in operating activities was $49.5 million for the three months ended December 25, 2021, an increase of $19.2 million, or 63%, compared to $30.3 million for the six months ended December 26, 2020. The increase was primarily driven by an increase in cash used for income taxes.Cash Flow from Investing ActivitiesNet cash used in investing activities was $7.6 million for the six months ended December 25, 2021, a decrease of $23.3 million, from the $15.7 million of net cash provided from investing activities in the prior year. The decrease in net cash provided in investing activities was primarily in the prior period due to the Company’s strategic plan to divest non-core assets during the comparative prior period, resulting in $18.8 million received from proceeds from the sale of assets held for sale. In the prior period net cash used was also impacted by an increase in purchases of property and equipment in the current period of $7.1 million as compared to $1.2 million in the prior year as the Company reopened construction-in-progress in fiscal year 2022.Cash Flow from Financing ActivitiesNet cash provided by financing activities was $93.2 million for the three months ended December 25, 2021, an increase of $81.4 million, compared to $11.8 million for the six months ended December 26, 2020. The increase in change of net cash provided by financing activities was primarily due to the $95.0 million for the issuance of equity instruments for cash and the $5.0 million from the unsecured promissory note. The increase in debt and equity financings was offset by payments of stock issuance costs of $5.4 million in connection with such capital transactions.49 Liquidity and Going Concern25, 2021,24, 2022, the Company had cash and cash equivalents of $47.7$15.6 million and net working capital deficit of $191.2$137.4 million. The Company has incurred net losses from continuing operations of $23.0$15.1 million and $57.5compared to $8.2 million for the three and six months then ended respectively, used cash in continued operating activities of $45.6 million so far in the first half of the yearDecember 24, 2022 and anticipates that the Company will continue to incur losses until such time as revenues exceed operating costs. On January 31, 2022, the Company’s term loans of $113.6 million as of December 25, 2021, became due and the Company entered into an agreement (the “Sixth Modification to Senior Secured Term Loan”, or the “Sixth Modification”) with the lender to extend the maturity date until July 31, 2022 and August 1, 2021 for the various loans included in the Senior Secured Term Loan Facility. See “Note 10 – Notes Payable”, for additional information about the Senior Secured Term Loan Facility, and “Note 23 – Subsequent Events” for more information about the Sixth Modification.respectively. The conditions described above raise substantial doubt with respect to the Company’s ability to meet its obligations for at least one year from the issuance of these Condensed Consolidated Financial Statements, and therefore, to continue as a going concern.The Sixth Modification requires the Company to execute certain actions including the conditional purchase of the term loans by Superhero Acquisition, L.P., an existing lender in the Company’s Convertible Facility, also covenants related to strategic actions the Company must implement it if it is unable to pay the term loans by the extended maturity date. strategic cost savings plan, theand various strategic actions, which may include divestingincluding the successful negotiations of lower costs of occupancy with our master lease landlord and other landlords, divestiture of non-core assets including but not limited to the current asset group held for sale, New York, as well continuing its on-going revenue and vendor strategy of market expansion and retail revenue and gross margin growth. We also need to obtain an extension or a refinancing of our debt-in-default with the secured senior lender. Our annual operating plan for fiscal year 2023 estimates we will be able to manage our ongoing operations. However, our cash needs are significant and not achievable with the current cash flow from operations. If the above conditional purchase of the term loans and/or the strategic actions, for any reason, are inaccessible, it wouldwill have a significantly negative effect on the Company’s financial condition. Additionally, we expect to continue to manage the Company’s operating expenses and reduce its projected cash requirements through reduction of its expenses by delaying new store development, permanently or temporarily closing stores that are deemed to be performing below expectations, and/or implementing other restructuring activities. Furthermore, COVID-19 and the impact the global pandemic has had and will continue to have on the broader retail environment could also have a significant impact on the Company’s financial operations.25, 2021,24, 2022, the accompanying consolidated financial statementsConsolidated Financial Statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated condensed financial statementsCondensed Consolidated Financial Statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.25, 202124, 2022 and June 26, 2021: December 25, June 26, ($ in Millions) 2021 2021 $ Change % Change Cash and Cash Equivalents $ 47.7 $ 11.9 $ 35.8 301 % Total Current Assets $ 134.8 $ 96.7 $ 38.1 39 % Total Assets $ 490.9 $ 472.5 $ 18.4 4 % Total Current Liabilities $ 333.6 $ 288.6 $ 45.0 16 % Notes Payable, Net of Current Portion $ 78.0 $ 87.6 $ (9.6 ) (11 %) Total Liabilities $ 710.2 $ 726.1 $ (15.9 ) (2 %) Total Shareholders’ Equity $ (219.3 ) $ (253.6 ) $ 34.3 (14 %) Working Capital Deficit $ (191.2 ) $ (191.9 ) $ (0.7 ) 0 % As of December 25, 2021,2022:($ in Millions) December 24,
2022June 25,
2022$ Change % Change Cash and Cash Equivalents $ 15.6 $ 10.8 $ 4.8 45 % Total Current Assets $ 100.2 $ 161.5 $ (61.3) (38 %) Total Assets $ 238.5 $ 323.2 $ (84.7) (26 %) Total Current Liabilities $ 237.6 $ 319.6 $ (81.9) (26 %) Notes Payable, Net of Current Portion $ 74.1 $ 74.4 $ (0.3) — % Total Liabilities $ 567.3 $ 641.7 $ (74.5) (12 %) Total Shareholders’ Equity $ (328.8) $ (318.5) $ (10.3) 3 % Working Capital Deficit $ (137.4) $ (158.1) $ 20.7 (13 %) had $47.7 millioncompleted the sale of cash and cash equivalents and $191.2 millionits operations in the state of working capital deficit, compared to $11.9 millionFlorida at the final sales price of cash and cash equivalents and $191.9 million$67,000,000 which comprised of working capital deficit as of June 26, 2021. The increase$63,000,000 in cash and $4,000,000 in liabilities to be assumed by the Buyer. The Buyer made a cash equivalents was primarily due the $100.0 million Private Placement duringpayment of $40,000,000 at closing, $11,500,000 on September 15, 2023, and is required to make an additional installment payment of $11,500,000 on or before March 15, 2023. During the fiscal firstthird quarter of 2022, which helped stabilize liquidity and will allow net proceeds toto prioritize new market opportunitieswere $19,558,947 after a principal repayment of $31,599,999 on the Senior Secured Term Loans with Hankey Capital. The final cash payment of $11,500,000 remains due and existing operations over near-term balance sheet management. In addition, on August 17, 2021, the Company amended the Convertible Facility wherein the maturity date was extended to August 17, 2028receivable as of December 24, 2022. The Senior Secured Term Loans remains outstanding and any cash interest obligation was eliminated, instead providing for paid-in-kind interest.$6.8$20.7 million decreaseimprovement in working capital deficit was primarily related to an increase of $35.8the $31.6 million in cash as described aboveprincipal repayment on the Senior Secured Term Loans that matured on July 31, 2022 and an increase of $1.6 million in accounts receivable and prepaid expenses. The increase in current liabilities was due to an increase of $14.3 million in derivative liabilities related to the top-up provision of the Convertible Facility and the Short-Term Warrant under the Private Placement recognized during the fiscal first quarter of 2022, an increase of $18.4 million in current notes payable primarily related to the existing senior secured term loan, and an increase of $15.7 million in income taxes payable, offset by a $3.4 million decrease in other current liabilities related to a decrease in acquisition payable as a result of settlements during the current period and a decrease in accrued interest payable as a result of the Sixth Amendment of the Convertible Facility. the operationalization of existing licenses, and the continued stewardship of the Company’s financial resources. The ability to fund working capital needs will also be dependent on the Company’s ability to raise additional debt and equity financing.financing and execute cost savings plans. Three Months Ended Six Months Ended ($ in Millions) December 24,
2022December 25,
2021$ Change % Change December 24,
2022December 25,
2021$ Change % Change (unaudited) (unaudited) (unaudited) (unaudited) Revenue $ 29.6 $ 35.5 $ (5.9) (17 %) $ 59.6 $ 72.3 $ (12.7) (18 %) Cost of Goods Sold 14.5 17.6 (3.1) (18 %) 29.6 37.0 (7.4) (20 %) Gross Profit 15.1 17.9 (2.8) (16 %) 30.0 35.3 (5.3) (15 %) Operating Expenses: General and Administrative 18.3 31.3 (13.0) (42 %) 36.5 63.9 (27.4) (43 %) Sales and Marketing 0.6 1.0 (0.4) (40 %) 1.0 1.6 (0.6) (38 %) Depreciation and Amortization 3.5 6.4 (2.9) (45 %) 7.4 12.2 (4.8) (39 %) Realized and Unrealized Changes in Fair Value of Contingent Consideration — (0.3) 0.3 — (0.9) (0.3) (0.6) — Impairment Expense 5.1 — 5.1 — % 6.7 0.4 6.3 1575 % Other Operating (Income) Expense (5.6) 0.6 (6.2) (1033 %) (7.5) 2.8 (10.3) (368 %) Total Operating Expenses 21.8 39.0 (21.3) (55 %) 43.2 80.7 (21.3) (26 %) Loss from Operations (6.7) (21.1) 14.4 (68 %) (13.2) (45.4) 32.2 (71 %) Non-Operating (Income) Expenses: Interest Expense 9.7 8.1 1.6 20 % 19.7 16.2 3.5 22 % Accretion of Debt Discount and Loan Origination Fees 1.5 1.3 0.2 16 % 2.9 7.6 (4.7) (62 %) Change in Fair Value of Derivatives (3.9) (14.1) 10.2 (72 %) (3.1) (16.2) 13.1 (81 %) Gain on Extinguishment of Debt — — — (10.2) Total Non-Operating Expense 7.3 (4.8) 12.1 (252 %) 19.5 (2.6) 22.1 (850 %) Loss from Continuing Operations Before Provision for Income Taxes (14.0) (16.4) 2.4 (15 %) (32.7) (42.8) 10.1 (24 %) Provision for Income Tax Expense (1.1) 8.1 (9.2) (114 %) (6.8) (11.6) 4.8 (41 %) Net Loss from Continuing Operations (15.1) (8.2) (6.9) 84 % (39.4) (54.4) 15.0 (28 %) Net Income (Loss) from Discontinued Operations, Net of Taxes (2.3) (12.1) 9.8 (81 %) 26.1 (26.6) 52.7 (198 %) Net Income (Loss) (17.3) (20.4) 3.1 (15 %) (13.3) (81.0) 67.7 (84 %) Net Loss Attributable to Non-Controlling Interest (1.1) (1.3) 0.2 (15 %) (1.2) (6.6) 5.4 (82 %) Net Loss Attributable to Shareholders of MedMen Enterprises Inc. $ (16.2) $ (19.0) $ 2.8 (15 %) $ (12.0) $ (74.4) $ 62.4 (84 %) EBITDA from Continuing Operations (Non-GAAP) $ 0.7 $ (0.1) $ 0.8 (800 %) $ (2.6) $ (5.8) $ 3.2 (55 %) Adjusted EBITDA from Continuing Operations (Non-GAAP) $ — $ (12.0) $ 12.0 (100 %) $ 0.2 $ (14.2) $ 14.4 (101 %) Three Months Ended Six Months Ended ($ in Millions) December 24,
2022December 25,
2021$ Change % Change December 24,
2022December 25,
2021$ Change % Change California $ 19.6 $ 23.4 $ (3.8) (16) % $ 39.5 $ 48.0 $ (8.5) (18) % Nevada 2.8 3.9 (1.1) (28) % 5.8 7.9 (2.1) (27) % Illinois 3.1 4.1 (1.0) (24) % 6.6 8.4 (1.8) (21) % Arizona 3.3 4.2 (0.9) (21) % 6.1 7.9 (1.8) (23) % Massachusetts 0.7 — 0.7 — % 1.5 — 1.5 — % Revenue from Continuing Operations $ 29.5 $ 35.5 $ (6.0) (17) % $ 59.6 $ 72.3 $ (12.7) (18) % Revenue from Discontinued Operations $ 2.3 $ 8.1 $ (5.8) (72) % $ 5.9 $ 15.4 $ (9.5) (62) % Total Revenue $ 31.8 $ 43.6 $ (11.8) (27) % $ 65.5 $ 87.7 $ (22.2) (25) % Three Months Ended Six Months Ended ($ in Millions) December 24, 2022 December 25, 2021 December 24, 2022 December 25, 2021 Net Loss $ (17.3) $ (20.4) $ (13.3) $ (81.0) Less: Net (Income) Loss from Discontinued Operations, Net 2.3 12.1 (26.1) 26.6 Add (Deduct) Impact of: 11.2 9.4 22.6 23.9 Provision for Income taxes 1.1 (8.1) 6.8 11.6 Amortization and Depreciation 3.5 6.9 7.5 13.1 EBITDA from Continuing Operations $ 0.8 $ (0.1) $ (2.5) $ (5.8) Other Operating (Income) Expense: Share-based Compensation $ 2.1 $ 0.7 3.0 2.4 Change in Fair Value of Derivative Liabilities (3.9) (14.1) (3.1) (16.2) Change in Fair Value of Contingent Consideration — (0.3) (0.9) (0.3) Impairment Expense 5.1 — 6.7 0.4 (Gain) Loss on Disposals of Assets 1.2 (0.1) 1.4 (0.1) Restructuring and Reorganization Expense — 1.6 0.9 5.6 Gain on Lease Terminations (1.9) 0.2 (3.5) 0.2 (Gain) Loss on Disposal of Assets Held for Sale (0.1) — 0.5 — Legal Settlements (3.5) — (3.5) — Non-Cash Rent Expense 0.9 — 1.6 — Other Non-Cash Operating Costs (0.6) 0.2 (0.4) (0.3) Total Adjustments (0.7) (11.8) 2.7 (8.3) Adjusted EBITDA from Continuing Operations $ 0.1 $ (11.9) $ 0.2 $ (14.1) 50Six Months Ended ($ in Millions) December 24, 2022 December 25, 2021 $ Change % Change Net Cash Used in Operating Activities $ (8.3) $ (49.9) $ 41.6 (83 %) Net Cash Provided by (Used in) Investing Activities 45.5 (7.6) 53.1 (701 %) Net Cash (Used in) Provided by Financing Activities (32.4) 93.2 (125.5) (135 %) Net Increase in Cash and Cash Equivalents 4.8 35.7 (30.9) (87 %) Cash Included in Assets Held for Sale — (0.3) 0.3 (100 %) Cash and Cash Equivalents, Beginning of Period 10.8 11.6 (0.8) (7 %) Cash and Cash Equivalents, End of Period $ 15.6 $ 47.0 $ (31.4) (67 %) The Company’s approach to managing liquidity is to ensure that it will have sufficient liquidity to settle obligations and liabilities when due.Amendment and Extension of Convertible FacilityOn April 23, 2019, the Company secured a senior secured convertible credit facility (the “Convertible Facility”) to provide up to $250,000,000 in gross proceeds, arranged by Gotham Green Partners (“GGP”). The Convertible Facility has been accessed to date through issuances to the lenders of convertible senior secured notes (“GGP Notes”, or the “Notes”) co-issued by the Company and MM Can USA, Inc. (“MM CAN” or “MedMen Corp.”). As of December 25, 2021, the Company has drawn down on a total of $165,000,000 on the Convertible Facility. The principal amount of the Convertible Facility has been and is anticipated to be used for ongoing operations, capital expenditures and other corporate purposes.On August 17, 2021, the Company announced that Superhero Acquisition, L.P. (“Superhero”), a newly formed limited partnership established by Tilray, Inc. (“Tilray”) and other strategic investors , acquired a majority of the outstanding GGP Notes. Under the terms of the transaction Superhero acquired an aggregate principal amount of approximately $165,800,000 of the Notes and warrants issued in connection with the Convertible Facility, all of which were originally issued by MedMen and held by GGP, representing 75% of the outstanding Notes and 65% of the outstanding warrants under the Convertible Facility. Specifically, Tilray’s interest in the SPV represents rights to 68% of the Notes and related warrants held by the SPV, which are convertible into, and exercisable for, approximately 21% of the outstanding Class B Subordinate Voting Shares of MedMen upon closing of the transaction. Tilray’s ability to convert the Notes and exercise the warrants is dependent upon U.S. federal legalization of cannabis or Tilray’s waiver of such requirement as well as any additional regulatory approvals. Tilray also has the right to appoint two non-voting observers of the Company’s Board of Directors.51In connection with the sale of the Notes, the Company amended and restated the Convertible Facility (the “Sixth Amendment”) to, among other things, extend the maturity date to August 17, 2028, eliminate any cash interest obligations, and instead provide for payment-in-kind interest, eliminate certain repricing provisions, and eliminate and revise certain restrictive covenants. The amendments are intended to provide MedMen the flexibility to execute on its growth priorities and explore additional strategic opportunities. In connection with the Sixth Amendment, accrued payment-in-kind interest on the Notes will be convertible at price equal to the higher of: (a) trailing 30-day volume weighted average price (“VWAP”) of the Company’s Subordinate Voting Shares or (b) the lowest discounted price available pursuant to the pricing policies of the Canadian Securities Exchange (“CSE”). The Notes may not be prepaid until the federal legalization of marijuana. The Notes, as amended, provide the holders with a top-up right to acquire additional Subordinate Voting Shares and a pre-emptive right with respect to future financings of the Company, subject to certain exceptions, upon the issuance by MedMen of certain equity or equity-linked securities. No changes have been made to the conversion and exercise prices of the Notes or related Warrants. In connection with the Sixth Amendment, GGP can nominate an individual to serve on the Company’s Board of Directors so long as GGP’s diluted ownership percentage is at least 10%. Refer to “Note 11 – Senior Secured Convertible Credit Facility” of the condensed consolidated financial statements in Item 1 for further information.Backstopped Equity InvestmentOn August 17, 2021, the Company entered into subscription agreements with various investors led by Serruya Private Equity Inc. (“SPE”) to purchase $100,000,000 of units (each, a “Unit”) of the Company at a purchase price of $0.24 per Unit (the “Private Placement”) wherein certain investors associated with SPE agreed to backstop the Private Placement (the “Backstop Commitment”). Each Unit consisted of one Class B Subordinate Voting Share and one-quarter share purchase warrant. Each warrant permits the holder to purchase one Subordinate Voting Share at an exercise price of $0.288 per share for a period of five years from the date of issuance. The Company issued a total of 416,666,640 Subordinate Voting Shares and 104,166,660 warrants for gross proceeds of $100,000,000. The proceeds from the Private Placement will allow MedMen to expand its operations in key markets such as California, Florida, Illinois and Massachusetts and identify and accelerate further growth opportunities across the United States.Each Unit issued to certain funds associated with SPE consisted of one Class B Subordinate Voting Share and one-quarter of one share purchase warrant, plus a proportionate interest in a short-term warrant (the “Short-Term Warrant”) which expired on December 31, 2021. At the option of the holders and upon payment of $30,000,000, the Short-Term Warrant entitles the holders to acquire (i) an aggregate of 125,000,000 Units at an exercise price of $0.24 per Unit, or (ii) $30,000,000 principal amount of notes at par, convertible into 125,000,000 Subordinate Voting Shares at a conversion price of $0.24 per share under the terms of the Convertible Facility. The Company will use any proceeds, less fees and expenses, from exercise of the Short-Term Warrant to pay down the existing senior secured term loan with Hankey Capital if any indebtedness is then outstanding.In consideration for the Backstop Commitment, the Company paid a fee of $2,500,000 in the aggregate to such parties in the form of 10,416,666 Class B Subordinate Voting Shares at a deemed price of $0.24 per share. In connection with the equity financing, the Company granted SPE the right to designate one individual to be nominated to serve as a director of the Company.Unsecured Promissory NoteOn July 29, 2021, the Company entered into a short-term unsecured promissory note in the amount of $5,000,000 with various investors led by SPE wherein the note bears interest at a rate of 6.0% per annum payable quarterly in arrears with a maturity date of August 18, 2021. On August 17, 2021, the Company settled the promissory note by the issuance of 20,833,333 Units, consisting of 20,833,333 Subordinate Voting Shares and 5,208,333 warrants based on an issue price of $0.24 and the relative portion of the Short-Term Warrant, issued as part of the Private Placement.Unsecured Convertible FacilityOn September 16, 2020, the Company entered into an unsecured convertible debenture facility (the “Unsecured Convertible Facility”) for total available proceeds of $10,000,000 callable in tranches of $1,000,000 each. The debentures provide for the automatic conversion into Subordinate Voting Shares in the event that the VWAP is 50% above the conversion price on the CSE for 45 consecutive trading days.On June 28, 2021, the remaining balance of the Unsecured Convertible Facility of $2,500,000 was automatically converted into 16,014,664 Class B Subordinate Voting Shares in the amount of $2,007,620. In addition, 8,807,605 of the outstanding warrants under the Unsecured Convertible Facility were exercised at varying prices for a net exercise price of $1,622,377. As of December 25, 2021, the outstanding balance of the Unsecured Convertible Facility was nil.52Partnership with Foundry Works, Inc.On October 1, 2021, the Company announced that LitHouse Farms, a subsidiary of Foundry Works, Inc. (“Foundry”), will manage its cultivation and manufacturing operations at its facilities in Desert Hot Springs, California (“DHS”) and Sparks, Nevada (“Sparks”). Licensed operations at the facilities will be carried on under management agreements which include purchase options for nominal consideration, subject to regulatory approval. Concurrent with the transaction, Foundry entered into a sublease agreement for DHS worth approximately $3,200,000 per year beginning in its first year, increasing to approximately $4,600,000 per year in its sixth year, subject to 3% annual escalators thereafter through March 2039. Foundry also entered into a sublease agreement for Sparks worth approximately $2,400,000 per year beginning in its first year, increasing to approximately $3,400,000 per year in its sixth year, subject to 3% annual escalators thereafter through January 2039. The cash flow accretive partnership will help reduce the significant fixed costs associated with the facilities.For the six months ended December 25, 2021, the Company’s monthly burn rate, which was calculated as cash spent per month in operating activities, was approximately $8.3 million compared to a monthly burn rate of approximately $5.1 million for the six months ended December 26, 2020. During the fiscal first quarter of 2022, the Company shifted its focus from a turnaround plan that took place during fiscal year 2021, which resulted in the divestiture of non-core assets and lease modifications, and turned to a growth plan with new capital to capitalize on further opportunities. As of December 25, 2021, cash generated from ongoing operations may not be sufficient to fund operations and, in particular, to fund the Company’s growth strategy in the short-term or long-term.The restructuring of the Convertible Facility and the successful closing of the Private Placement with investors led by SPE during the fiscal first quarter of 2022 stabilized the Company’s liquidity and properly positions the Company for growth to profitability. Management evaluated its financial condition as of December 25, 2021 in conjunction with recent transactions which free up capital subsequent to the current reporting period as discussed below.Subsequent EventsRefer to Part I, Financial Information, Note 23, “Subsequent Events” of this interim report. 26, 202125, 2022 that have a significant effect on the amounts recognized in the interim consolidated financial statementsCondensed Consolidated Financial Statements as of and for the fiscal quarter ended December 25, 2021.24, 2022. See “Note 2 – Summary of Significant Accounting Policies” in the condensed consolidated financial statementsCondensed Consolidated Financial Statements in Item 1 for recently adopted accounting standards. For more information on the Company’s critical accounting estimates, refer to the annual MD&A“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Annual Report on Form 10-K for the fiscal year ended June 26, 2021. A25, 2022. In addition, a detailed description of our critical accounting policies and recent accounting pronouncements are detailed in Part I, “Item 88. Financial Statements and Supplementary Data” of the 2021Annual Report on Form 10.10-K for the fiscal year ended June 25, 2022.53All related party balancesAs of December 24, 2022 and June 25, 2022 there were no amounts due from or due to the Company as of December 25, 2021 and June 26, 2021 did not have any formal contractual agreements regarding payment terms or interest. For amounts due from and to related parties referthat were recorded in the Consolidated Balance Sheets. Refer to “Note 19 – Related Party Transactions” of the Consolidated Financial Statements for the three and six months ended December 25, 2021under Part I, “Item 1. Notes to Condensed Consolidated Financial Statements”, which is incorporated in Item 1.Gotham Green PartnersAs discussed in Item 2 “Liquidity and Capital Resources” and Item 2 “Quarterly Highlights”, the Company has engaged in a strategic partnership with Gotham Green Partners, a related party. The arrangement is to provide financing to the Company in the form of a credit facility up to $250,000,000 accessed through issuances of convertible senior secured notes (the “Notes”) co-issuedthis item by the Company and MM CAN USA, Inc. reference. Notes are convertible, at the option of the holder, into Subordinate Voting Shares at any time prior to the close of business on the last business day immediately preceding the maturity date of April 23, 2022. In addition, upon issuance of any Notes, the lenders are issued share purchase warrants (the “Warrants”) of the Company, each of which are exercisable to purchase one Subordinate Voting Share for 36 months from the date of issue. The Notes and the Warrants, and any Subordinate Voting Shares issuable as a result of a conversion of the Notes or exercise of the Warrants, will be subject to a four-month hold period from the date of issuance of such Notes or such Warrants, as applicable, in accordance with applicable Canadian securities laws. While the Notes are outstanding, the lenders will be entitled to the collective rights to appoint a representative to attend all meetings of the Board of Directors in a non-voting observer capacity. GGP has the ability to nominate an individual to serve on the Company’s Board of Directors for so long as GGP’s diluted ownership percentageeach receive quarterly fees of $200,000 of which one-third is at least 10%. The convertible facility bears interest at a rate of LIBOR plus 6.0% per annum. All convertible notes will have a maturity date of 36 months from the maturity date, with a twelve-month extension feature available to the Company on certain conditions. paid in cash and two-thirds is paid in Class B Subordinate Voting Shares.February 3,December 24, 2022, the Company has drawn down a total of $165.0 million on approximately $165,000,000 of the Convertible Facility. Refer to “Note 11 – Senior Secured Convertible Credit Facility”Facility, has accrued paid-in-kind interest of the Consolidated Financial Statements for the three$51.1 million with an aggregate weighted average conversion price of approximately $0.24 per share, and six months ended December 25, 2021 in Item 1.Tilray, Inc.In August 2021, Superhero,an aggregate of 192,981,432 warrants with a newly formed limited partnership established by Tilray and other strategic investors acquired the majorityweighted average exercise price of the outstanding Notes and Warrants held by GGP by acquiring 75% of the outstanding Notes and 65% of the outstanding warrants under the Convertible Facility. Specifically, Tilray’s interest in the SPV represents rights to 68% of the Notes and related Warrants held by the Superhero, which are convertible into, and exercisable for, approximately 21% of the outstanding Class B Subordinate Voting Shares of MedMen. While the Notes are outstanding, Tilray will have the right to appoint two representatives to attend all meetings of the Board of Directors in a non-voting observer capacity.Serruya Private Equity, Inc.In August 2021, the Company executed an equity offering with various investors led by Serruya Private Equity, Inc. in which the Company issued 416,666,640 Subordinate Voting Shares and 104,166,660 warrants for gross proceeds of $100,000,000. SPE can nominate one member to the Board of Directors so long as SPE has at least 9% of the Class B Subordinate Voting Shares on fully-diluted basis. In connection with the Private Placement, the Company appointed Michael Serruya, SPE’s Managing Director, as a member of its board of directors. In November 2021, the Company appointed Michael Serruya, SPE’s Managing Director, as its Chairman and Interim Chief Executive Officer.SierraConstellation PartnersIn March 2020, the Company entered into restructuring plan and retained SierraConstellation Partners (“SCP”) wherein Tom Lynch, a Partner and Senior Managing Director at SCP, was appointed as Chief Executive Officer and Chairman of the Board and Tim Bossidy, a Director at SCP, was appointed as Chief Operating Officer. As of December 25, 2021, Mr. Lynch and Mr. Bossidy are no longer with the Company. In December 2020, Reece Fulgham, a Managing Director at SCP, was appointed as Interim Chief Financial Officer. As of December 25, 2021, the Company had paid $1,896,760 in fees to SCP for interim management and restructuring support during the current fiscal year. In addition, during the six months ended December 25, 2021, Mr. Lynch and Mr. Bossidy each received 214,030 stock options and 850,036 restricted stock units.54QUANTITAVEQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAct”Act”), as of December 25, 2021,24, 2022, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report.There•general ledgers are not being reviewed regularly for assets that may not be recoverable or viable,25, 202124, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.55Other than noted below, there have been no material developments during the fiscal quarter covered by this Report forthat were disclosed in our Annual Report on Form 10-K filed on September 24, 2021.On November 23, 2021,please see the Company announced that it had prevailed in a lawsuit brought by former CFO James Parker. In 2019, Parker filed suit against the Company, alleging wrongful termination, breach of contract and retaliation, seeking in excess of $20,000,000.00 in damages. The jury determined that the lawsuit and claims were baseless and without merit, ruling in favor of the Company on all claims and determining that the Company does not owe Parker any damages. The Company also asserted affirmative claims against Parker. The jury found that Parker breached his contract, his fiduciary duty, his duty of loyalty, misappropriated trade secrets, and committed conversion, but that there was no harm/damage resulting from his misconduct.On January 13, 2022, Ascend Wellness Holdings, Inc. and AWH New York, LLC filed a complaintdescription set forth in the Supreme Court“Claims and Litigation” section in Note 18 - Commitments and Contingencies in the notes to consolidated financial statements in Item 1 of the StatePart I of New York, New York County, Commercial Division, against MedMen NY, Inc., MM Enterprises USA, LLC, Project Compassion NY, LLC and Project Compassion Capital, LLC seeking specific performance and a declaratory judgement relating to the Investment Agreement dated February 25, 2021 between the parties.item.During the fiscal quarter ended December 25, 2021, in addition to issuances previously reported on Form 8-K, the Company issued the securities listed below:●On October 28, 2021. the Company issued 98,118 Class B Subordinate Voting Shares to Runway Strategies in connection with a vendor settlement.●On December 9, 2021, the Company issued an aggregate of 714,356 Class B Subordinate Voting Shares to non-employee directors of the Board of Directors in connection with their fees that are paid on a quarterly basis.Such securities were issued and sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act. Each of the investors has represented to the Company, among other things, that it is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Securities Act). The offer and sale of such securities and the Shares issuable upon exercise thereof, as applicable, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.None.” under Part I, “Item 1. Notes to Condensed Consolidated Financial Statements”, which is incorporated in this item by reference.None.56Incorporated by Reference Exhibit No. Exhibit Description Exhibit DescriptionFormFile No. FormExhibitFiling Date File No.Filed/
Furnished
HerewithExhibitFiling DateFiled/FurnishedHerewith31.1 ✓ ✓31.2 ✓ ✓32.1* ✓ ✓101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document. ✓ 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. ✓ 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. ✓ 101.LAB XBRL Taxonomy Extension Label Linkbase Document. ✓ 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. ✓ 104 Cover Page Interactive Data File. (Formatted as Inline XBRL and contained in Exhibit 101.) ✓ *This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.Dated: February 8, 20222, 2023MEDMEN ENTERPRISES INC /s/ Reece FulghamBy: Reece FulghamAna BowmanIts: Chief Financial Officer 58