The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(30,871
|
)
|
|
$
|
(47,852
|
)
|
Less: Income from discontinued operations
|
|
|
17,071
|
|
|
|
3,704
|
|
Net loss from continuing operations
|
|
|
(13,800
|
)
|
|
|
(44,148
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
650
|
|
|
|
2,217
|
|
Depreciation and amortization
|
|
|
6,314
|
|
|
|
6,396
|
|
Impairment loss
|
|
|
19,910
|
|
|
|
8,313
|
|
Gain on sale of assets
|
|
|
(35
|
)
|
|
|
(788
|
)
|
Amortization of operating lease right of use asset
|
|
|
857
|
|
|
|
805
|
|
Non-cash interest expense
|
|
|
1,004
|
|
|
|
7,880
|
|
Stock-based compensation
|
|
|
2,175
|
|
|
|
5,287
|
|
Unrealized gain on investments
|
|
|
(29,045
|
)
|
|
|
-
|
|
Loss recognized upon consolidation of equity interests
|
|
|
-
|
|
|
|
1,067
|
|
Other
|
|
|
841
|
|
|
|
(84
|
)
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
-
|
|
Accounts receivable
|
|
|
(256
|
)
|
|
|
(715
|
)
|
Inventory
|
|
|
2,732
|
|
|
|
(3,117
|
)
|
Prepaid expenses and other current assets
|
|
|
441
|
|
|
|
(56
|
)
|
Other assets
|
|
|
(920
|
)
|
|
|
(148
|
)
|
Accounts payable and accrued expenses
|
|
|
(174
|
)
|
|
|
2,464
|
|
Operating lease liabilities
|
|
|
(786
|
)
|
|
|
2,116
|
|
Net cash provided by / (used in) operating activities - continuing operations
|
|
|
(10,092
|
)
|
|
|
(12,511
|
)
|
Net cash provided by / (used in) operating activities - discontinued operations
|
|
|
(4,748
|
)
|
|
|
(2,229
|
)
|
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES
|
|
|
(14,840
|
)
|
|
|
(14,740
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property, equipment and leasehold improvements
|
|
|
(1,473
|
)
|
|
|
(1,591
|
)
|
Insurance proceeds for damaged assets
|
|
|
452
|
|
|
|
-
|
|
Purchase of equity investment
|
|
|
-
|
|
|
|
(400
|
)
|
Issuance of note receivable
|
|
|
(250
|
)
|
|
|
(1,800
|
)
|
Purchase of intangible assets
|
|
|
-
|
|
|
|
-
|
|
Cash from acquisitions
|
|
|
57
|
|
|
|
127
|
|
Proceeds from sales of assets
|
|
|
35
|
|
|
|
1,249
|
|
Net cash provided by / (used in) investing activities - continuing operations
|
|
|
(1,179
|
)
|
|
|
(2,415
|
)
|
Net cash provided by / (used in) investing activities - discontinued operations
|
|
|
12,982
|
|
|
|
3,044
|
|
NET CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES
|
|
|
11,803
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of notes payable
|
|
|
2,954
|
|
|
|
13,000
|
|
Payments of debt principal
|
|
|
(506
|
)
|
|
|
(2,150
|
)
|
Proceeds from issuance of common stock
|
|
|
250
|
|
|
|
4,500
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
(808
|
)
|
Cash paid for acquisition of non-controlling interest
|
|
|
-
|
|
|
|
(6,250
|
)
|
Cash contribution from non-controlling interest
|
|
|
152
|
|
|
|
1
|
|
Cash distribution to non-controlling interest
|
|
|
(144
|
)
|
|
|
-
|
|
Other
|
|
|
(8
|
)
|
|
|
(150
|
)
|
Net cash provided by / (used in) financing activities - continuing operations
|
|
|
2,698
|
|
|
|
8,143
|
|
Net cash provided by / (used in) financing activities - discontinued operations
|
|
|
-
|
|
|
|
-
|
|
NET CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
|
|
|
2,698
|
|
|
|
8,143
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
(339
|
)
|
|
|
(5,968
|
)
|
Cash at beginning of period
|
|
|
1,226
|
|
|
|
7,194
|
|
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD
|
|
$
|
888
|
|
|
$
|
1,226
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,177
|
|
|
$
|
1,594
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Consolidation of NuLeaf net assets
|
|
$
|
-
|
|
|
$
|
11,957
|
|
Financing Fees in accounts payable
|
|
$
|
-
|
|
|
$
|
165
|
|
Stock issued for the acquisition of OneQor
|
|
$
|
9,305
|
|
|
$
|
-
|
|
Warrants issued in conjunction with debt
|
|
$
|
-
|
|
|
$
|
183
|
|
Stock issued for prior bonuses
|
|
$
|
469
|
|
|
$
|
-
|
|
Fixed assets in accounts payable
|
|
$
|
484
|
|
|
$
|
-
|
|
Non-cash contributions from non-controlling interest
|
|
$
|
-
|
|
|
$
|
702
|
|
Debt principal and interest converted to common stock
|
|
$
|
2,444
|
|
|
$
|
13,200
|
|
Beneficial conversion feature recorded for Dominion debt
|
|
$
|
-
|
|
|
$
|
5,795
|
|
The accompanying notes are an integral part of the consolidated financial statements.
TERRA TECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Organization
References in this document to “the Company”, “Terra Tech”, “we”, “us”, or “our” are intended to mean Terra Tech Corp., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.
Terra Tech is a holding company with the following subsidiaries:
•
|
620 Dyer LLC, a California corporation (“Dyer”);
|
•
|
1815 Carnegie LLC, a California limited liability company (“Carnegie”);
|
•
|
Black Oak Gallery, a California corporation (“Black Oak”);
|
•
|
Blüm San Leandro, a California corporation (“Blüm San Leandro”);
|
•
|
GrowOp Technology Ltd., a Nevada corporation (“GrowOp Technology”);
|
•
|
IVXX, Inc., a California corporation (“IVXX Inc.”; together with IVXX LLC, “IVXX”);
|
•
|
IVXX, LLC, a Nevada limited liability company (“IVXX LLC”);
|
•
|
MediFarm, LLC, a Nevada limited liability company (“MediFarm”);
|
•
|
MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”);
|
•
|
MediFarm II, LLC, a Nevada limited liability company (“MediFarm II”); and
|
•
|
MediFarm So Cal, Inc., a California corporation (“MediFarm SoCal”)
|
•
|
121 North Fourth Street, LLC, a Nevada limited liability company ("121 North Fourth")
|
•
|
OneQor Technologies, Inc., a Delaware corporation ("OneQor")
|
The Company is a retail, production and cultivation company, with an emphasis on providing the highest quality of medical and adult use cannabis products. We currently have a concentrated cannabis interest in California. All of the Company’s cannabis dispensaries operate under the name Blüm. The Company’s cannabis dispensaries in California operate as Black Oak Gallery in Oakland and Blum San Leandro in San Leandro and offer a broad selection of medical and adult-use cannabis products including flowers, concentrates and edibles.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Securities Exchange Commission (“SEC”) Form 10-K and Regulation S-X and reflect the accounts and operations of the Company and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of FASB or ASC 810, “Consolidation”, we consolidate any variable interest entity (“VIE”), of which we are the primary beneficiary. The typical condition for a controlling financial interest ownership is holding a majority of the voting interests of an entity; however, a controlling financial interest may also exist in entities, such as VIEs, through arrangements that do not involve controlling voting interests. ASC 810 requires a variable interest holder to consolidate a VIE if that party has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. We do not consolidate a VIE in which we have a majority ownership interest when we are not considered the primary beneficiary. We evaluate our relationships with all the VIEs on an ongoing basis to reassess if we continue to be the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of operations and cash flows for the years ended December 31, 2020 and 2019 have been included.
Going Concern
The accompanying financial statements have been prepared assuming that we will continue as a going concern. The risks and uncertainties on the future of our business due to COVID-19 and regulatory uncertainty, combined with the fact that we have historically lost money, have in the past, raised substantial doubt as to our ability to continue as a going concern. However, management feels that proceeds due from its Hydrofarm investment, proceeds from the Nevada asset sales, management’s past and on-going efforts to trim costs and management’s recent efforts to boost sales will lead to cash sustainability. Therefore management feels that there is no material uncertainty as to the Company’s ability to continue as a going concern.
Non-Controlling Interest
Non-controlling interest is shown as a component of stockholders’ equity on the consolidated balance sheets and the share of income (loss) attributable to non-controlling interest is shown as a component of income (loss) in the consolidated statements of operations.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to allowances for doubtful accounts, sales returns, inventory valuation, stock-based compensation expense, goodwill and purchased intangible asset valuations, investments, deferred income tax asset valuation allowances, uncertain tax positions, and litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss, revenues and stockholders’ equity. See Note 19, “Discontinued Operations” for further discussion regarding discontinued operations.
Trade and other Receivables
The Company extends non-interest bearing trade credit to its customers in the ordinary course of business which is not collateralized. Accounts receivable are shown on the face of the consolidated balance sheets, net of an allowance for doubtful accounts. The Company analyzes the aging of accounts receivable, historical bad debts, customer creditworthiness and current economic trends, in determining the allowance for doubtful accounts. The Company does not accrue interest receivable on past due accounts receivable. The reserve for doubtful accounts was zero and $0.44 million as of December 31, 2020 and 2019, respectively.
Investments
Investments in unconsolidated affiliates are accounted for under the cost or the equity method of accounting, as appropriate. The Company accounts for investments in limited partnerships or limited liability corporations, whereby the Company owns a minimum of 5% of the investee’s outstanding voting stock, under the equity method of accounting. These investments are recorded at the amount of the Company’s investment and adjusted each period for the Company’s share of the investee’s income or loss, and dividends paid. As investments accounted for under the cost method do not have readily determinable fair values, the Company only estimates fair value if there are identified events or changes in circumstances that could have a significant adverse effect on the investment’s fair value.
Publicly held equity securities are recorded at fair value with unrealized gains or losses resulting from changes in fair value reflected as unrealized gains or losses on equity securities in our consolidated statements of operations.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method of accounting. The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items and reserves. The reserve estimate for excess and obsolete inventory is based on expected future use. The reserve estimates have historically been consistent with actual experience as evidenced by actual sale or disposal of the goods.
Prepaid Expenses and Other Current Assets
Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance, and service or other contracts requiring up-front payments.
Property, Equipment and Leasehold Improvements, Net
Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The approximate useful lives for depreciation of our property, equipment and leasehold improvements are as follows: thirty-two years for buildings; three to eight years for furniture and equipment; three to five years for computer and software; five years for vehicles and the shorter of the estimated useful life or the underlying lease term for leasehold improvements. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred.
Expenditures for major renewals and improvements are capitalized, while minor replacements, maintenance and repairs, which do not extend the asset lives, are charged to operations as incurred. Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included in operations. The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of ASC 360, “Property, Plant, and Equipment.” When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. See Note 7, “Property, Equipment and Leasehold Improvements, Net” for further information.
Intangible Assets
Intangible assets continue to be subject to amortization, and any impairment is determined in accordance with ASC 360, “Property, Plant, and Equipment,” intangible assets are stated at historical cost and amortized over their estimated useful lives. The Company uses a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows:
Customer Relationships
|
|
3 to 5 Years
|
|
Trademarks
|
|
2 to 8 Years
|
|
Dispensary Licenses
|
|
14 Years
|
|
The Company reviews intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), the Company will write the carrying value down to the fair value in the period identified.
Intangible assets that have indefinite useful lives are tested annually for impairment, or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the asset group exceeds its fair value.
Goodwill
Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired, and liabilities assumed in a business acquisition. In accordance with ASC 350, “Intangibles-Goodwill and Other,” goodwill and other intangible assets with indefinite lives are no longer subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired.
The Company reviews the goodwill allocated to each of our reporting units for possible impairment annually as of September 30 and whenever events or changes in circumstances indicate carrying amount may not be recoverable. In the impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit.
The carrying amount of each reporting unit is determined based upon the assignment of our assets and liabilities, including existing goodwill and other intangible assets, to the identified reporting units. Where an acquisition benefits only one reporting unit, the Company allocates, as of the acquisition date, all goodwill for that acquisition to the reporting unit that will benefit. Where the Company has had an acquisition that benefited more than one reporting unit, The Company has assigned the goodwill to our reporting units as of the acquisition date such that the goodwill assigned to a reporting unit is the excess of the fair value of the acquired business, or portion thereof, to be included in that reporting unit over the fair value of the individual assets acquired and liabilities assumed that are assigned to the reporting unit.
If the carrying amount of a reporting unit is in excess or its fair value, the Company recognizes an impairment charge equal to the amount in excess.
Notes Receivable
The Company reviews all outstanding notes receivable for collectability as information becomes available pertaining to the Company’s inability to collect. An allowance for notes receivable is recorded for the likelihood of non-collectability. The Company accrues interest on notes receivable based net realizable value. The allowance for uncollectible notes was zero and $1.83 million as of December 31, 2020 and 2019, respectively.
Assets Held for Sale and Discontinued Operations
Assets held for sale represent furniture, equipment, and leasehold improvements less accumulated depreciation as well as any other assets that are held for sale in conjunction with the sale of a business. The Company records assets held for sale in accordance with ASC 360, “Property, Plant, and Equipment,” at the lower of carrying value or fair value less costs to sell. Fair value is based on the estimated proceeds from the sale of the facility utilizing recent purchase offers, market comparables and/or data. Our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility’s acceptable sale price. The reclassification takes place when the assets are available for immediate sale and the sale is highly probable. These conditions are usually met from the date on which a letter of intent or agreement to sell is ready for signing. The Company follows the guidance within ASC 205, “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity” when assets held for sale represent a strategic shift in the Company’s operations and financial results.
Fair Value of Financial Instruments, Non-Financial Instruments and Derivative Assets
The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities that are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 –Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.
In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments.
The following table presents the Company’s financial instruments that are measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2020:
Investments:
|
|
Amount
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Warrants to acquire shares of HydroFarm
|
|
$
|
10,195
|
|
|
$
|
-
|
|
|
$
|
10,195
|
|
|
$
|
-
|
|
Shares in HydroFarm
|
|
|
23,850
|
|
|
|
-
|
|
|
|
23,850
|
|
|
|
-
|
|
Option to acquire Edible Garden Inc
|
|
|
330
|
|
|
|
-
|
|
|
|
-
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,375
|
|
|
$
|
-
|
|
|
$
|
34,045
|
|
|
$
|
330
|
|
Business Combinations
The Company accounts for its business acquisitions in accordance with ASC 805-10, “Business Combinations.” The Company allocates the total cost of the acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, the Company identifies and attributes values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions regarding multiple, highly subjective variables, including those with respect to future cash flows, discount rates, asset lives, and the use of different valuation models, and therefore require considerable judgment. The Company’s estimates and assumptions are based, in part, on the availability of listed market prices or other transparent market data. These determinations affect the amount of amortization expense recognized in future periods. The Company bases its fair value estimates on assumptions it believes to be reasonable but are inherently uncertain.
Revenue Recognition and Performance Obligations
The Company recognizes revenue from manufacturing and distribution product sales when our customers obtain control of our products. Revenue from our retail dispensaries is recorded at the time customers take possession of the product. Revenue from our retail dispensaries is recognized net of discounts, promotional adjustments and returns. We collect taxes on certain revenue transactions to be remitted to governmental authorities, which may include sales, excise and local taxes. These taxes are not included in the transaction price and are, therefore, excluded from revenue. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase.
Revenue related to distribution customers is recorded when the customer is determined to have taken control of the product. This determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with collected taxes recorded as current liabilities until remitted to the relevant government authority.
Disaggregation of Revenue
See Note 20, “Segment Information” for revenues disaggregated by type as required by ASC Topic 606. The company believes this level of disaggregation sufficiently depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. The table below shows the revenue break between California operations and Nevada operations for the years ended December 31, 2020 and 2019.
|
|
(in thousands)
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
California
|
|
$
|
6,161
|
|
|
$
|
12,413
|
|
Nevada
|
|
|
8,126
|
|
|
|
4,075
|
|
Total
|
|
$
|
14,287
|
|
|
$
|
16,488
|
|
Contract Balances
Due to the nature of the Company’s revenue from contracts with customers, the Company does not have material contract assets or liabilities that fall under the scope of ASC Topic 606.
Contract Estimates and Judgments
The Company’s revenues accounted for under ASC Topic 606, generally, do not require significant estimates or judgments based on the nature of the Company’s revenue streams. The sales prices are generally fixed at the point of sale and all consideration from contracts is included in the transaction price. The Company’s contracts do not include multiple performance obligations or material variable consideration.
Cost of Goods Sold
Cannabis Dispensary, Cultivation and Production
Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as packaging and delivery costs. It also includes the labor and overhead costs incurred in cultivating and producing cannabis flower and cannabis-derived products. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs.
Advertising Expenses
The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Other Expenses – Advertising Cost.” Advertising expenses from continuing operations totaled $0.19 million and $1.49 million in the years ended December 31, 2020 and 2019, respectively.
Stock-Based Compensation
The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation – Stock Compensation”, which requires fair value measurement on the grant date and recognition of compensation expense for all stock-based payment awards made to employees and directors, including restricted stock awards. For stock options, the Company estimates the fair value using a closed option valuation (Black-Scholes) model. The fair value of restricted stock awards is based upon the quoted market price of the common shares on the date of grant. The fair value is then expensed over the requisite service periods of the awards, net of estimated forfeitures, which is generally the performance period and the related amount is recognized in the consolidated statements of operations.
The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future. The Company accounts for forfeitures of stock-based awards as they occur.
Income Taxes
The provision for income taxes is determined in accordance with ASC 740, “Income Taxes”. The Company files a consolidated United States federal income tax return. The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. At December 31, 2020 and 2019, such net operating losses were offset entirely by a valuation allowance.
The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50.0% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations.
Loss Per Common Share
In accordance with the provisions of ASC 260, “Earnings Per Share,” net loss per share is computed by dividing net loss by the weighted-average shares of common stock outstanding during the period. During a loss period, the effect of the potential exercise of stock options, warrants, convertible preferred stock, and convertible debt are not considered in the diluted loss per share calculation since the effect would be anti-dilutive. The results of operations were a net loss for the years ended December 31, 2020 and 2019. Therefore, the basic and diluted weighted-average shares of common stock outstanding were the same for all years.
Potentially dilutive securities that are not included in the calculation of diluted net loss per share because their effect is anti-dilutive are as follows (in common equivalent shares):
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Common stock warrants
|
|
|
1,076,555
|
|
|
|
1,313,459
|
|
Common stock options
|
|
|
17,492,830
|
|
|
|
12,365,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,569,385
|
|
|
|
13,678,754
|
|
Recently Adopted Accounting Standards
FASB Accounting Standards Update (“ASU”) No. 2016-13, “Measurement of Credit Losses on Financial Instruments” - Issued in June 2016, ASU 2016-13 replaces the “incurred loss” credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates. The Company adopted the standard January 1, 2020. Adoption had no material impact on the Company’s financial position or results of operations.
Recently Issued Accounting Standards
FASB ASU No. 2020-06 “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” - Issued in August 2020, ASU 2020-06 simplifies the accounting for convertible instruments by eliminating the requirement to separate embedded conversion features from the host contract when the conversion features are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital. By removing the separation model, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost and the interest rate on convertible debt instruments will typically be closer to the coupon interest rate when applying the guidance in Topic 835, Interest. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those years. The Company is currently evaluating the adoption date and impact adoption will have on its financial position and results of operations.
FASB ASU No. 2019-12, “Simplifying the Accounting for Income Taxes” - Issued in December 2019, ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes 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. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the adoption date and impact, if any, adoption will have on its financial position and results of operations.
NOTE 3 – CONCENTRATIONS OF BUSINESS AND CREDIT RISK
The Company maintains cash balances in several financial institutions that are insured by either the Federal Deposit Insurance Corporation or the National Credit Union Association up to certain federal limitations. At times, the Company’s cash balance exceeds these federal limitations and it maintains significant cash on hand at certain of its locations. The Company has not historically experienced any material loss from carrying cash on hand. The amount in excess of insured limitations was $0.06 million and $0.18 million as of December 31, 2020 and 2019, respectively.
The Company provides credit in the normal course of business to its customers. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. There were no customers that comprised more than 10.0% of the Company’s revenue for the year ended December 31, 2020 and 2019.
The Company sources cannabis products for retail, cultivation and production from various vendors. However, as a result of the new regulations in the State of California, the Company’s California retail, cultivation and production operations must use vendors licensed by the State effective January 1, 2018. As a result, we are dependent upon the licensed vendors in California to supply products as of that date. If the Company is unable to enter into a relationship with sufficient members of properly licensed vendors, the Company’s sales may be impacted. During the year ended December 31, 2020 and 2019, we did not have any concentration of vendors for inventory purchases. However, this may change depending on the number of vendors who receive appropriate licenses to operate in the State of California.
NOTE 4 – VARIABLE INTEREST ENTITY ARRANGEMENTS
NuLeaf, Inc.
On October 26, 2017, the Company entered into operating agreements with NuLeaf, Inc. and formed NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC (collectively “NuLeaf”) to build and operate cultivation and production facilities of cannabis products in Nevada. The agreements were subject to approval by the State of Nevada, the City of Sparks and the City of Reno in Nevada. Under the terms of the agreements, the Company remitted to NuLeaf an upfront investment of $4.50 million in the form of convertible loans bearing an interest rate of 6% per annum. On June 28, 2018, the Company received approval from the State of Nevada. The remaining required approvals from local authorities were received in July 2018. As a result, the notes receivable balance was converted into a 50% ownership interest in NuLeaf. The investment in NuLeaf was initially recorded at cost and accounted for using the equity method.
In February 2019, we amended and restated the NuLeaf agreements and obtained control of the operations of NuLeaf. The Company has determined these entities are variable interest entities in which the Company is the primary beneficiary by reference to the power and benefits criterion under ASC 810, “Consolidation.” The provisions within the amended agreement granted the Company the power to manage and make decisions that affect the operation of these entities. As the primary beneficiary of NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC, the Company began consolidating the accounts and operations of these entities on March 1, 2019. All intercompany transactions are eliminated in the unaudited consolidated financial statements. Effective March 1, 2019, we remeasured our equity method investment in NuLeaf to fair value and consolidated the results of NuLeaf within our consolidated financial statements.
Revenue and net loss attributed to NuLeaf is $8.13 million and $4.08 million, respectively, for the year ended December 31, 2020. The aggregate carrying values of Sparks Cultivation, LLC and NuLeaf Reno Production, LLC assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows:
|
|
(in thousands)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
671
|
|
|
$
|
243
|
|
Accounts receivable, net
|
|
|
483
|
|
|
|
16
|
|
Inventory
|
|
|
3,118
|
|
|
|
2,910
|
|
Prepaid expenses and other current assets
|
|
|
21
|
|
|
|
35
|
|
Total current assets
|
|
|
4,293
|
|
|
|
3,204
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net
|
|
|
7,442
|
|
|
|
9,543
|
|
Other assets
|
|
|
395
|
|
|
|
598
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
12,130
|
|
|
$
|
13,345
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
396
|
|
|
$
|
213
|
|
Total long-term liabilities
|
|
|
307
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
$
|
703
|
|
|
$
|
628
|
|
NOTE 5 – INVESTMENTS IN UNCONSOLIDATED AFFILIATES
Hydrofarm
On August 28, 2018, the Company entered into a Subscription Agreement with Hydrofarm Holdings Group, Inc. (“Hydrofarm”), one of the leading independent providers of hydroponic products in North America, pursuant to which the Company agreed to purchase from Hydrofarm and Hydrofarm agreed to sell to the Company 2,000,000 “Units”, each Unit consisting of one share of common stock and one warrant to purchase one-half of a share of common stock for an initial exercise price of $5.00 per share, for $2.50 per Unit for an aggregate purchase price of $5.00 million. The investment in Hydrofarm was recorded at cost and was included in other assets on the consolidated balance sheet as of December 31, 2019.
On November 24, 2020, Hydrofarm’s board of directors and stockholders approved an amendment to their amended and restated certificate of incorporation effecting a 1-for-3.3712 reverse stock split of their issued and outstanding shares of common stock. Subsequent to the reverse split, the Company owned 593,261 shares of common stock in Hydrofarm, with an exercise price at $8.43 per share, and 296,630 warrants to purchase one share of common stock, with an exercise price of $16.86 per share.
On December 14, 2020, Hydrofarm announced the closing of its initial public offering; shares of Hydrofarm began trading on the Nasdaq Global Select Market under the ticker symbol “HYFM.” Hydrofarm’s common shares outstanding on the closing date were 31,720,727; the Company’s ownership percentage in Hydrofarm was approximately 1.9%.
Upon closing of Hydrofarm’s initial public offering, the Company determined that the investment in Hydrofarm no longer qualifies to be stated at cost, as the equity security has a readily determinable value and therefore should be recorded at fair value. In the fourth quarter of 2020, the Company recorded its investment in Hydrofarm of 593,261 common shares at fair value, and the warrants to acquire an additional 296,630 of Hydrofarm common stock at an exercise price of $16.86, at their respective fair values. The difference in basis was recorded in current period earnings.
NOTE 6 – INVENTORY
Raw materials consists of material for NuLeaf and IVXX’s lines of cannabis pure concentrates. Work-in-progress consists of cultivation materials and live plants grown at NuLeaf and Black Oak Gallery. Finished goods consists of cannabis products sold in retail.
Inventory as of December 31, 2020 and 2019 consisted of the following:
|
|
(in thousands)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
39
|
|
|
$
|
2,400
|
|
Work-in-progress
|
|
|
1,196
|
|
|
|
2,677
|
|
Finished goods
|
|
|
367
|
|
|
|
275
|
|
Inventory reserve
|
|
|
-
|
|
|
|
(1,018
|
)
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
1,602
|
|
|
$
|
4,334
|
|
NOTE 7 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment, and leasehold improvements, net consists of the following:
|
|
(in thousands)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Land and building
|
|
$
|
11,206
|
|
|
$
|
11,206
|
|
Furniture and equipment
|
|
|
2,913
|
|
|
|
2,787
|
|
Computer hardware
|
|
|
215
|
|
|
|
299
|
|
Leasehold improvements
|
|
|
16,459
|
|
|
|
16,545
|
|
Construction in progress
|
|
|
9,922
|
|
|
|
9,676
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
40,715
|
|
|
|
40,513
|
|
Less accumulated depreciation
|
|
|
(8,235
|
)
|
|
|
(5,044
|
)
|
Property, equipment and leasehold improvements, net
|
|
|
|
|
|
|
|
|
|
|
$
|
32,480
|
|
|
$
|
35,469
|
|
Depreciation expense related to property, equipment and leasehold improvements for the years ended December 31, 2020 and 2019 was $3.77 million and $3.38 million, respectively.
Assets Divested
Blum Santa Ana
On February 26, 2020, the Company agreed to transfer governance and control of our dispensary operation located at 2911 Tech Center Drive, Santa Ana, CA to Martin Vivero and Tetra House Co. (“Tetra”), who are unaffiliated third parties. The Company received $2.00 million at closing and $1.45 million during the 3rd Quarter of 2020 in exchange for these assets. MediFarm So Cal Inc. (“MediFarm So Cal”), a wholly-owned subsidiary of the Company, terminated the existing management services agreement with 55 OC Community Collective Inc. (“55 OC”). 55 OC is a mutual benefit corporation which holds a cannabis license with the City of Santa Ana in the State of California. Previously, MediFarm So Cal managed the dispensary known as “Blum Santa Ana” under the license of 55 OC. Control of 55 OC was transferred to Mr. Vivero and Tetra House Co. via a new management services agreement and the appointment of Mr. Vivero to the Board of Directors of 55 OC, which was pending final regulatory approval as of the date of our report.
The Company recognized a loss upon sale of the assets equal to the difference between the consideration paid and the book value of the assets as of the disposition date, less direct costs to sell, and reflected such loss in discontinued operations.
The following table summarizes the transaction:
|
|
(in thousands)
|
|
Total consideration
|
|
$
|
3,800
|
|
|
|
|
|
|
Net book value of assets divested and liabilities transferred
|
|
|
|
|
Inventory
|
|
|
23
|
|
Prepaid and other current assets
|
|
|
33
|
|
Property, plant & equipment
|
|
|
98
|
|
Intangible assets and goodwill
|
|
|
6,565
|
|
Other long-term assets
|
|
|
54
|
|
Lease liability, net of right-of-use asset
|
|
|
(78
|
)
|
Net book value of assets divested and liabilities transferred
|
|
|
6,694
|
|
Loss on sale
|
|
$
|
(2,894
|
)
|
Edible Garden
On March 30, 2020, Edible Garden Corp. (“Edible Garden”), a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with Edible Garden Incorporated (the “Purchaser”), pursuant to which Edible Garden sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). The consideration paid for the Business included a five-year $3.00 million secured promissory note bearing interest at 3.5% per annum, which is reflected within the assets under discontinued operations, and two option agreements to purchase up to a 20% interest in the Purchaser for a nominal fee. The first option gives the Company the right to purchase a 10% interest in the Purchaser for one dollar at any time between the one and five-year anniversary of the transaction, or at any time should a change in control event or public offering occur. The second option gives the Company the right to purchase an additional 10% interest in the Purchaser for one dollar at any point prior to the five-year anniversary of the transaction. The second option is automatically terminated upon payment in full of the $3.00 million secured promissory note.
Michael James, the Company’s former Chief Financial Officer, is a principal of the Purchaser. There is no material relationship between the Company or its affiliates and the Purchaser other than as set forth in the previous sentence. The Purchase Agreement contains customary conditions, representations, warranties, indemnities and covenants by, among, and for the benefit of the parties.
The Company recognized a loss upon sale of the assets equal to the difference between the consideration paid and the book value of the assets as of the disposition date and reflected such loss in discontinued operations. The following table summarizes the transaction:
|
|
(in thousands)
|
|
Consideration
|
|
|
|
Fair value of note receivable
|
|
$
|
2,960
|
|
Fair value of options
|
|
|
330
|
|
Less: cash transferred to purchaser
|
|
|
(30
|
)
|
Total consideration
|
|
$
|
3,260
|
|
|
|
|
|
|
Net book value of assets divested and liabilities transferred
|
|
|
|
|
Accounts receivable
|
|
$
|
360
|
|
Inventory
|
|
|
520
|
|
Other current assets
|
|
|
80
|
|
Property, plant and equipment
|
|
|
4,100
|
|
Intangible assets
|
|
|
70
|
|
Other long-term assets
|
|
|
200
|
|
Accounts payable and accrued expenses
|
|
|
(1,700
|
)
|
Lease liabilities, net of right of use assets
|
|
|
(70
|
)
|
Net book value of assets divested and liabilities transferred
|
|
|
3,560
|
|
Loss on sale
|
|
$
|
(300
|
)
|
Carnegie
On July 30, 2020, 1815 Carnegie LLC completed a transaction to sell real property in Santa Ana, CA to Dyer 18 LLC, an unaffiliated third party, for total cash consideration of $8.20 million and a gain of $1.2 million.
NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Goodwill
Goodwill arises from the purchase price for acquired businesses exceeding the fair value of tangible and intangible assets acquired less assumed liabilities.
Goodwill is reviewed annually for impairment or more frequently if impairment indicators arise. The Company conducts its annual goodwill impairment assessment as of the last day of the third quarter, or more frequently under certain circumstances. For the purpose of the goodwill impairment assessment, the Company has the option to perform a qualitative assessment (commonly referred to as “step zero”) to determine whether further quantitative analysis for impairment of goodwill or indefinite-lived intangible assets is necessary or a quantitative assessment (“step one”) where the Company estimates the fair value of each reporting unit using a discounted cash flow method (income approach). Goodwill is assigned to the reporting unit, which is the operating segment level or one level below the operating segment. The balance of goodwill at December 31, 2020 and 2019 was $6.17 million and $21.47 million, respectively and was attributed to the Cannabis reportable segment.
The table below summarizes the changes in the carrying amount of goodwill:
Balance at December 31, 2018
|
|
$
|
28,921
|
|
Impairment
|
|
|
(7,450
|
)
|
Balance at December 31, 2019
|
|
|
21,471
|
|
Impairment
|
|
|
(15,300
|
)
|
Balance at December 31, 2020
|
|
$
|
6,171
|
|
The Company tests for impairment annually on September 30, and between annual tests if the Company becomes aware of an event or a change in circumstances that would indicate the carrying value may be impaired. During the first quarter of 2020, the impact of COVID-19 on the retail industry as well as uncertainty around when the Company would be able to resume its normal operations contributed to a significant and prolonged decline in the Company’s stock price, resulting in the market capitalization of the Company falling below its carrying value. As a result, management determined that a triggering event had occurred as it was more likely than not that the carrying values of the Black Oak Gallery reporting unit exceeded its fair value. Accordingly, the Company performed a quantitative assessment of the fair value of Black Oak Gallery’s goodwill as of March 31, 2020 using a market capitalization approach. This analysis resulted in an impairment charge of $4.20 million recorded in the first quarter of 2020. The goodwill impairment charge was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.
During the second quarter of 2020, COVID-19 and civil unrest in Oakland, California continued to have a material negative impact on the financial results of the Black Oak Gallery reporting unit. As a result, management determined that a triggering event had occurred as it was more likely than not the carrying value Black Oak Gallery’s goodwill exceeded its fair value. Accordingly, the Company performed a quantitative assessment of the fair value of Black Oak Gallery’s goodwill as of June 30, 2020 using an income approach. The analysis resulted in an impairment charge of $2.75 million recorded in the second quarter of 2020. The goodwill impairment charge was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.
During the third quarter of 2020, COVID-19 and the aftermath of civil unrest in Oakland, California continued to have a material negative impact on the financial results of the Black Oak Gallery reporting unit. The Company completed its annual testing for impairment as of September 30, 2020 using the Guideline Public Company method. The results of the step one assessment indicated the carrying value of the reporting unit exceeded the fair value by $8.35 million as of September 30, 2020. As a result, the Company recognized an impairment charge of $8.35 million during the third quarter of 2020.
During the fourth quarter of 2020, Black Oak’s dispensary reopened and revenue climbed to levels seen in Q2, before the store was forced to close for repairs due to the rioting/civil unrest. There were no significant one-time events that took place in Q4 or significant fluctuations in financial metrics. The Company’s overall market capitalization increased from $14.8M to $29.68M. The overall outlook for the cannabis industry also improved during the fourth quarter of 2020, largely due to the election results (Joe Biden pledged to decriminalize marijuana at a federal level). Management assessed all intangible assets (definite-lived and indefinite-lived) and investments for potential impairment and concluded that there were no indications of impairment in the fourth quarter of 2020.
The impairment charges relating to goodwill and other assets are presented in the “Impairment of Assets” line in the Consolidated Statements of Operations.
Intangible Assets Net
Intangible assets consisted of the following as of December 31, 2020 and 2019:
|
|
(in Thousands)
|
|
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
|
Estimated Useful Life
in Years
|
|
|
Gross
Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Net
Carrying Amount
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated Amortization
|
|
|
Net
Carrying
Value
|
|
Amortizing Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Relationships
|
|
3 to 5
|
|
|
$
|
7,400
|
|
|
$
|
(7,400
|
)
|
|
$
|
-
|
|
|
$
|
7,860
|
|
|
$
|
(5,608
|
)
|
|
$
|
2,252
|
|
Trademarks and Patent
|
|
2 to 8
|
|
|
|
196
|
|
|
|
(187
|
)
|
|
|
9
|
|
|
|
196
|
|
|
|
(166
|
)
|
|
|
30
|
|
Dispensary Licenses
|
|
14
|
|
|
|
10,270
|
|
|
|
(3,485
|
)
|
|
|
6,785
|
|
|
|
10,270
|
|
|
|
(2,751
|
)
|
|
|
7,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Amortizing Intangible Assets
|
|
|
|
|
|
|
17,866
|
|
|
|
(11,072
|
)
|
|
|
6,794
|
|
|
|
18,326
|
|
|
|
(8,525
|
)
|
|
|
9,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Amortizing Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade Name
|
|
Indefinite
|
|
|
|
920
|
|
|
|
-
|
|
|
|
920
|
|
|
|
5,070
|
|
|
|
-
|
|
|
|
5,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Amortizing Intangible Assets
|
|
|
|
|
|
|
920
|
|
|
|
-
|
|
|
|
920
|
|
|
|
5,070
|
|
|
|
-
|
|
|
|
5,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Intangible Assets, Net
|
|
|
|
|
|
$
|
18,786
|
|
|
$
|
(11,072
|
)
|
|
$
|
7,714
|
|
|
$
|
23,396
|
|
|
$
|
(8,525
|
)
|
|
$
|
14,871
|
|
Long-lived assets other than goodwill and indefinite-lived intangible assets, held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company evaluates recoverability of assets to be held and used and if the carrying value is not recoverable, the Company fair values the asset and compares to the carrying value. If the asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. The analysis for impairment of long-lived assets other than goodwill and indefinite-lived intangible assets is the first impairment analysis performed and related impairment charges are recognized before the impairment of goodwill analysis.
During 2020, the impact of COVID-19 on the retail industry had a negative impact on our revenues and management was forced to limit store operating hours due to the pandemic. Management believes the COVID-19 outbreak will continue to have a material negative impact on the Company’s financial results. These factors, including management’s revised forecast for the future performance of our Black Oak Gallery reporting unit, indicated the carrying value of Black Oak Gallery’s customer relationships and trade name may not be recoverable. Management evaluated the recoverability of the customer relationships using level 3 inputs and a probability-weighted approach to assess the potential impact of a long-term decline in our existing customer base due to the COVID-19 pandemic. The recoverability test indicated that the book value of customer relationships exceeded fair value. As a result, the Company recognized impairment charges of $0.46 million during 2020.
The company evaluates impairment of the Black Oak Gallery trade name using level 3 inputs and an income approach. The recoverability test indicated that the book value of the trade name exceeded the fair value. The Company recognized impairment charges of $4.15 million in 2020.
The Company recorded amortization expense of $2.55 million and $3.02 million for the years ended December 31, 2020 and 2019, respectively. Based solely on the amortizable intangible assets recorded as of December 31, 2020, the Company estimates amortization expense for the next five years to be as follows:
|
|
(in thousands)
|
|
|
|
Year Ending December 31,
|
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025 and thereafter
|
|
|
Total
|
|
Amortization expense
|
|
$
|
742
|
|
|
$
|
734
|
|
|
$
|
734
|
|
|
$
|
734
|
|
|
$
|
3,851
|
|
|
$
|
6,794
|
|
Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes.
NOTE 9 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
|
|
(in thousands)
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
6,027
|
|
|
$
|
5,181
|
|
Sales & Local Tax Payable
|
|
|
258
|
|
|
|
210
|
|
Accrued Payroll
|
|
|
68
|
|
|
|
647
|
|
Accrued Expenses
|
|
|
2,268
|
|
|
|
3,488
|
|
|
|
|
|
|
|
|
|
|
Total Accounts Payable and Accrued Expenses
|
|
$
|
8,621
|
|
|
$
|
9,526
|
|
NOTE 10 – NOTES PAYABLE
Notes payable consists of the following:
|
|
(in thousands)
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Promissory note dated November 22, 2017, issued for the purchase of real property. Matures December 1, 2020, with an option to extend the maturity date 1 year. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. In the event of default, the note is convertible at the holder's option.
|
|
$
|
-
|
|
|
$
|
4,500
|
|
Promissory note dated January 18, 2018, issued for the purchase of real property. The promissory note is collateralized by the land and building purchased and matures January 18, 2022. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter. The full principle balance and accrued interest are due at maturity. In the event of default, the note is convertible at the holder's option.
|
|
|
6,500
|
|
|
|
6,500
|
|
Promissory note dated October 5, 2018, issued for the purchase of real property. Matures October 5, 2021. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. In the event of default, the note is convertible at the holder's option.
|
|
|
1,600
|
|
|
|
1,600
|
|
Promissory note dated June 11, 2019, issued to accredited investors, which matures December 31, 2021 and bears interest at a rate of 7.5% per annum. The conversion price is the lower of $4.50 or 87% of the average of the two (2) lowest VWAPs in the thirteen (13) trading days prior to the conversion date.
|
|
|
2,800
|
|
|
|
4,000
|
|
Promissory note dated October 21, 2019, issued to accredited investors, which matures April 21, 2021 and bears interest at a rate of 7.5% per annum. The conversion price is the lower of $4.50 or 87% of the average of the two (2) lowest VWAPs in the thirteen (13) trading days prior to the conversion date.
|
|
|
725
|
|
|
|
1,500
|
|
Secured promissory note dated December 30, 2019, issued to Matthew Lee Morgan Trust (a related party), which matures January 30, 2021, and bears interest at a rate of 10% per annum.
|
|
|
500
|
|
|
|
500
|
|
Secured promissory note dated January 10, 2020, issued to an unaffiliated third party. The note matures on July 10, 2021 and incurs an interest rate of 15.0% per annum.
|
|
|
1,000
|
|
|
|
-
|
|
Promissory note dated May 4, 2020, issued to Harvest Small Business Finance, LLC, an unaffiliated third party. Loan is part of the Paycheck Protection Program ("PPP Loan") offered by the U.S. Small Business Administration. The interest rate on the note is 1%. The note requires interest and principle payments seven months from July 2020. The note matures in two years.
|
|
|
562
|
|
|
|
-
|
|
Promissory note dated July 29, 2020, issued to an unaffiliated third party. The note incurs an interest rate of 8% per annum and matures on April 28, 2021.
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Notes payable - promissory notes
|
|
$
|
14,687
|
|
|
$
|
18,600
|
|
Vehicle loans
|
|
|
29
|
|
|
|
46
|
|
Less: Short term debt
|
|
|
(8,033
|
)
|
|
|
(11,021
|
)
|
Less: Debt discount
|
|
|
(51
|
)
|
|
|
(1,055
|
)
|
Net Long Term Debt
|
|
$
|
6,632
|
|
|
$
|
6,570
|
|
Scheduled Maturities of Debt
Scheduled maturities of debt are as follows:
|
|
(in thousands)
|
|
|
|
|
|
|
Year Ending
December 31,
|
|
|
|
|
|
|
2021
|
|
|
2022
|
|
|
Total
|
|
Total Debt
|
|
$
|
8,033
|
|
|
$
|
6,683
|
|
|
$
|
14,716
|
|
Promissory Notes
On November 22, 2017, the Company entered into a $4.50 million promissory note for the purchase of land and a building in California with a third-party creditor. The promissory note is collateralized by the land and building purchased and matures in December 1, 2020. The interest rate for the first year is 12.0% and increases 0.5% per year through 2020. Payments of interest only are due monthly. The full principle balance and accrued interest were paid upon sale of the real estate during 2020.
On January 18, 2018, the Company entered into a $6.50 million promissory note for the purchase of land and a building in California with a third-party creditor. As part of the closing of the purchase of land, the Company issued warrants with a value of approximately $0.16 million and paid a cash fee of $0.20 million. The warrants and cash fee were recorded as a debt discount. The unamortized balance of such discount as of December 31, 2020 and December 31, 2019 was zero and $0.14 million, respectively. The interest rate for the first year is 12.0% and increases 0.5% per year, up to 13.0%, through 2021. Payments of interest only are due monthly. The full principle balance and accrued interest are due at maturity.
On October 5, 2018, the Company entered into a $1.60 million promissory note for the purchase of a building in Nevada with a third-party creditor. The promissory note is collateralized by the building purchased and matures in October 5, 2021. The interest rate for the first year is 12.0% and increases 0.5% per year through 2020. Payments of interest only are due monthly. The full principle balance and accrued interest are due at maturity.
2018 Master Securities Purchase Agreement and Convertible Promissory Notes
In March 2018, the Company entered into the 2018 Master Securities Purchase Agreement with an accredited investor pursuant to which the Company sells to the accredited investor 7.5% Senior Convertible Promissory Notes in eight tranches averaging $5.00 million, for a total of $40.00 million. The Company converted $1.98 million of convertible notes into the Company’s common stock during the year ended December 31, 2020. As of December 31, 2020, $3.53 million of principle remains outstanding.
For each note issued under the 2018 Master Securities Purchase Agreement, the principal and interest due and owed under the note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) the original conversion price as defined in each note issuance or (ii) 87% of the average of the two lowest daily volume weighted average price of the Common Stock in the thirteen (13) trading days prior to the conversion date (“Conversion Price”). The Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect.
In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $10.50 or more and (ii) the average daily trading value of the Common Stock is greater than $2.50 million for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) days’ notice, that the holder convert the notes at the Conversion Price.
The Company may prepay in cash any portion of the outstanding principal amount of the notes and any accrued and unpaid interest by, upon ten (10) days’ written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of the notes plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the notes; (ii) 115% of the sum of the then-outstanding principal amount plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the notes; or (iii) 125% of the sum of the then-outstanding principal amount of the notes plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the notes.
During the years ended December 31, 2020 and 2019, the Company converted debt and accrued interest into 31,086,209 and 29,380,222 shares of the Company’s common stock, respectively.
Additional Financing Arrangements
On December 30, 2019, the Company issued a promissory note to Matthew Lee Morgan Trust (a related party), which matures on January 30, 2021. The note accrues interest at a rate of 10% per annum. The note was converted into the Company’s common stock in January of 2021.
On January 10, 2020, the Company issued a promissory note to an unaffiliated third party, in the amount of $1.00 million dollars. The note accrues interest at a rate of 15.00% per annum and matures on January 10, 2021. The note is secured by the Company’s real estate located at 620 E. Dyer Rd., Santa Ana, CA.
On May 4, 2020, OneQor Technologies, Inc entered into a Promissory Note dated May 4, 2020 (the “PPP Note”) with Harvest Small Business Finance, LLC (the “Lender”), pursuant to which the Lender agreed to make a loan to the Company under the Paycheck Protection Program (the “PPP Loan”) offered by the U.S. Small Business Administration (the “SBA”) in a principal amount of $0.56 million pursuant to Title 1 of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan proceeds are available to be used to pay for payroll costs, including salaries, commissions, and similar compensation, group health care benefits, and paid leaves; rent; utilities; and interest on certain other outstanding debt. The amount that will be forgiven will be calculated in part with reference to OneQor’s full time headcount during the eight week period following the funding of the PPP loan. The interest rate on the PPP Note is a fixed rate of 1% per annum. To the extent that the amounts owed under the PPP Loan, or a portion of them, are not forgiven, OneQor will be required to make principal and interest payments in monthly installments beginning seven months from April 2020. The PPP Note matures in two years. The PPP Note includes events of default. Upon the occurrence of an event of default, the lender will have the right to exercise remedies against OneQor, including the right to require immediate payment of all amounts due under the PPP Note.
On July 29, 2020, the Company issued a promissory note to an unaffiliated third party, in the amount of $1.00 million. The note incurs interest at a rate of 8.00% per annum and matures on April 28, 2021.
NOTE 11 – LEASES
A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Operating lease right-of-use assets (“ROU assets”) are included in other assets while lease liabilities are a line-item on the Company’s Consolidated Balance Sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing market conditions. The terms used to calculate the ROU assets for certain properties include the renewal options that the Company is reasonably certain to exercise.
The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, the Company utilizes its secured borrowing rate. ROU assets include any lease payments required to be made prior to commencement and exclude lease incentives. Both ROU assets and lease liabilities exclude variable payments not based on an index or rate, which are treated as period costs. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants.
The Company occupies office facilities under lease agreements that expire at various dates. In addition, office, production and transportation equipment is leased under agreements that expire at various dates. The Company does not have any significant finance leases. Total operating lease costs for the years ended December 31, 2020 and December 31, 2019 were $0.86 million and $0.81 million, respectively. Short-term lease costs during the 2020 and 2019 fiscal years were not material.
As of December 31, 2020 and December 31, 2019, short term lease liabilities of $0.81 million and $1.06 million are included in “Accounts Payable and Accrued Expenses” on the consolidated balance sheets, respectively. The table below presents total operating lease ROU assets and lease liabilities as of December 31, 2020:
|
|
(in thousands)
|
|
Operating lease ROU assets
|
|
$
|
8,137
|
|
Operating lease liabilities
|
|
|
8,895
|
|
The table below presents the maturities of operating lease liabilities as of December 31, 2020:
|
|
(in thousands)
|
|
|
|
Operating
|
|
|
|
Leases
|
|
2021
|
|
$
|
1,667
|
|
2022
|
|
|
2,506
|
|
2023
|
|
|
1,801
|
|
2024
|
|
|
1,561
|
|
2025
|
|
|
1,471
|
|
Thereafter
|
|
|
5,015
|
|
Total lease payments
|
|
|
14,021
|
|
Less: discount
|
|
|
(5,126
|
)
|
Total operating lease liabilities
|
|
$
|
8,895
|
|
The table below presents the weighted average remaining lease term for operating leases and weighted average discount rate used in calculating operating lease right-of-use assets:
|
|
December 31,
|
|
|
|
2020
|
|
Weighted average remaining lease term (years)
|
|
|
8.4
|
|
Weighted average discount rate
|
|
|
11.7
|
%
|
NOTE 12 – TAX EXPENSE
The components of deferred income tax assets and (liabilities) are as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
Options expense
|
|
$
|
2,871
|
|
|
$
|
2,314
|
|
Depreciation
|
|
|
194
|
|
|
|
203
|
|
Allowance for Doubtful Accounts
|
|
|
291
|
|
|
|
663
|
|
Net operating Losses
|
|
|
19,676
|
|
|
|
14,921
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
23,032
|
|
|
|
18,101
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
(8,658
|
)
|
|
|
-
|
|
Total
|
|
|
14,374
|
|
|
|
18,101
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(14,374
|
)
|
|
|
(18,101
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
The company did not incur income tax expense or benefit for the years ended December 31, 2020 or 2019 from continuing or discontinued operations. The reconciliation between the Company’s effective tax rate and the statutory tax rate is as follows:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Expected Income Tax Benefit at Statutory Tax Rate, Net
|
|
$
|
(6,151
|
)
|
|
$
|
(9,705
|
)
|
Amortization
|
|
|
713
|
|
|
|
641
|
|
IRC 280E adjustment
|
|
|
2,683
|
|
|
|
3,785
|
|
State taxes
|
|
|
(2,045
|
)
|
|
|
|
|
Impairment of assets
|
|
|
-
|
|
|
|
73
|
|
Impairment of intangibles
|
|
|
5,572
|
|
|
|
1,680
|
|
Other
|
|
|
613
|
|
|
|
29
|
|
Uncertain tax position
|
|
|
2,342
|
|
|
|
-
|
|
Change In valuation allowance
|
|
|
(3,727
|
)
|
|
|
3,496
|
|
|
|
|
|
|
|
|
|
|
Reported income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
For the years ended December 31, 2020 and 2019, the Company had subsidiaries that produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of Internal Revenue Code (“IRC”) Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. The State of California does not conform to IRC Section 280E and, accordingly the Company is allowed to deduct all operating expenses on its California income tax returns. As the Company files consolidated federal income tax returns, the taxable income generated from its subsidiaries subject to IRC Section 280E has been offset by losses generated by operations not subject to IRC Section 280E.
As of December 31, 2020, and 2019, the Company had net operating loss carryforwards of approximately $44.58 million and $47.48 million, respectively, which, if unused, will expire beginning in the year 2034. These tax attributes are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under IRC Section 382, which will limit their utilization. The Company assessed the effect of these limitations and did not believe the losses through December 31, 2020 to be substantially limited.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred through the period ended December 31, 2020. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 31, 2020, a valuation allowance of has been recorded against all net deferred tax assets as these assets are more likely than not to be unrealized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years are subject to examination.
Under ASC 740-10, Income Taxes, we periodically review the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. We use a “more likely than not” criterion for recognizing an asset for unrecognized income tax benefits or a liability for uncertain tax positions. We have determined we have unrecognized assets related to uncertain tax positions for IRC Section 280E as of December 31, 2020. We do not anticipate any significant changes in such uncertainties and judgments during the next twelve months. To the extent we are required to recognize interest and penalties related to unrecognized tax liabilities, this amount will be recorded as an accrued liability. As of December 31, 2020, we had $11.15 million of unrecognized tax benefits, all of which would affect the effective tax rate if recognized. Of the $11.15 million in unrecognized tax benefits, $2.06 million relate to 2020 and $9.09 million relate to prior years.
NOTE 13 – EQUITY
Preferred Stock
The Company authorized 50.00 million shares of preferred stock with $0.001 par value per share. The Company designated 100 shares of preferred stock as “Series A Preferred Stock,” of which there were 8 shares of Series A Preferred Stock outstanding as of December 31, 2020 and 2019. Series A Preferred Stock is convertible on a one-for-one basis into common stock and has all of the voting rights of the Company’s common stock. On January 22, 2021, the Company agreed to purchase the 8 outstanding shares of Series A Preferred Stock for cash and common stock. On February 3, 2021, the Company filed with the proper regulatory authorities and eliminated the Series A and Series B preferred stock.
Common Stock
The Company authorized 990.00 million shares of common stock with $0.001 par value per share. As of December 31, 2020 and 2019, 194.20 million and 118.00 million shares of common stock were issued and outstanding, respectively.
Treasury Stock
During 2019, the Company acquired 2.31 million shares of common stock and 4 shares of Series A Preferred stock as part of a litigation settlement. The shares were recorded at fair market value as of the date the agreement was executed.
NOTE 14 – STOCK-BASED COMPENSATION
Equity Incentive Plans
In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. In the fourth quarter of 2018, the Company adopted the 2018 Equity Incentive Plan. The following table contains information about both plans as of December 31, 2020:
|
|
Awards
Reserved
for Issuance
|
|
|
Awards
Outstanding
|
|
|
Awards
Available
for Grant
|
|
|
|
|
|
|
|
|
|
|
|
2016 Equity Incentive Plan
|
|
|
2,000,000
|
|
|
|
544,937
|
|
|
|
1,455,063
|
|
2018 Equity Incentive Plan
|
|
|
43,976,425
|
|
|
|
16,600,535
|
|
|
|
27,375,890
|
|
Stock Options
The following table summarizes the Company’s stock option activity and related information for the year ended December 31, 2020 and 2019:
|
|
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Weighted-
Average
Remaining Contractual
Life
|
|
Aggregate
Intrinsic
Value of In-
the-Money
Options
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding as of December 31, 2018
|
|
|
8,400,629
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
4,174,428
|
|
|
$
|
0.62
|
|
|
|
|
|
|
Options Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Options Forfeited
|
|
|
(209,762
|
)
|
|
$
|
1.39
|
|
|
|
|
|
|
Options Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Options Outstanding as of December 31, 2019
|
|
|
12,365,295
|
|
|
$
|
1.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Granted
|
|
|
12,803,918
|
|
|
$
|
0.08
|
|
|
|
|
|
|
Options Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
Options Forfeited
|
|
|
(7,203,334
|
)
|
|
$
|
1.19
|
|
|
|
|
|
|
Options Expired
|
|
|
(473,049
|
)
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding as of December 31, 2020
|
|
|
17,492,830
|
|
|
$
|
0.41
|
|
|
8.6 years
|
|
$
|
830,942
|
|
Options Exercisable as of December 31, 2020
|
|
|
6,593,146
|
|
|
$
|
0.77
|
|
|
8.3 years
|
|
$
|
229,434
|
|
The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $0.15 on December 31, 2020 and the exercise price of options, multiplied by the number of options. As of December 31, 2020, there was $1.24 million total unrecognized stock-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 2.75 years. The weighted average fair value of awards granted was $0.08 and $0.53 during 2020 and 2019, respectively.
The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following weighted-average assumptions were used to calculate stock-based compensation:
|
|
Year Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Expected term
|
|
6 Years
|
|
|
6 Years
|
|
Volatility
|
|
|
104.6
|
%
|
|
|
115.6
|
%
|
Risk-Free Interest Rate
|
|
|
0.4
|
%
|
|
|
1.9
|
%
|
Dividend Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin 107 to estimate the expected term of share option grants.
The expected stock price volatility assumption was determined by examining the historical volatilities for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available.
The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options.
The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company stock-based compensation.
Stock-Based Compensation Expense
The following table sets forth the total stock-based compensation expense resulting from stock options and restricted grants of common stock to employees, directors and non-employee consultants in the consolidated statement of operations which are included in selling, general and administrative expenses:
|
|
(in thousands, except for number of shares or options)
|
|
|
|
For the Year Ended
|
|
|
|
December 31, 2020
|
|
|
December 31, 2019
|
|
Type of Award
|
|
Number of
Shares or
Options
Granted
|
|
|
Stock-Based Compensation
Expense
|
|
|
Number of
Shares or
Options
Granted
|
|
|
Stock-
Based
Compensation
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
12,803,918
|
|
|
$
|
1,868
|
|
|
|
4,174,428
|
|
|
$
|
4,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Grants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employees (Common Stock)
|
|
|
|
|
|
|
142
|
|
|
|
740,580
|
|
|
|
473
|
|
Directors (Common Stock)
|
|
|
|
|
|
|
105
|
|
|
|
173,610
|
|
|
|
102
|
|
Non–Employee Consultants (Common Stock)
|
|
|
|
|
|
|
60
|
|
|
|
715,065
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stock–Based Compensation Expense
|
|
|
|
|
|
$
|
2,175
|
|
|
|
|
|
|
$
|
5,287
|
|
NOTE 15 – WARRANTS
The following table summarizes warrant activity for the years ended December 31, 2020 and 2019:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Warrants Outstanding as of January 1, 2019
|
|
|
1,053,252
|
|
|
$
|
4.28
|
|
Warrants Granted
|
|
|
454,237
|
|
|
$
|
0.69
|
|
Warrants Expired
|
|
|
(194,029
|
)
|
|
$
|
2.08
|
|
Warrants Outstanding as of December 31, 2019
|
|
|
1,313,459
|
|
|
$
|
2.67
|
|
Warrants Expired
|
|
|
(236,904
|
)
|
|
$
|
5.73
|
|
Warrants Outstanding as of December 31, 2020
|
|
|
1,076,555
|
|
|
$
|
1.99
|
|
The weighted-average exercise price and weighted-average fair value of the warrants granted by the Company in 2019 were as follows (note- no warrants granted in 2020):
|
|
For the Year Ended
|
|
|
|
December 31, 2019
|
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average Fair
Value
|
|
|
|
|
|
|
|
|
Warrants Granted Whose Exercise Price Exceeded Fair Value at the Date of Grant
|
|
$
|
0.69
|
|
|
$
|
0.41
|
|
Warrants Granted Whose Exercise Price Was Equal or Lower Than Fair Value at the Date of Grant
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company estimated the fair value of the warrants issued in 2019 utilizing the Black-Scholes option-pricing model with the following weighted-average inputs (note- no warrants granted in 2020):
|
|
Year Ended
December 31,
|
|
|
|
2019
|
|
Stock Price on Date of Grant
|
|
$
|
0.69
|
|
Exercise Price
|
|
$
|
0.72
|
|
Volatility
|
|
|
96.9
|
%
|
Term
|
|
|
5Years
|
|
Risk-Free Interest Rate
|
|
|
2.0
|
%
|
Expected Dividend Rate
|
|
|
0.0
|
%
|
For the years ended December 31, 2020 and 2019, zero and $0.18 million of warrants were issued in connection with debt and recorded as a debt discount.
NOTE 16 – FAIR VALUE MEASUREMENTS
As of December 31, 2020, the Company owned 593,261 common shares of Hydrofarm, a public company trading on the Nasdaq Global Select Market under the ticker symbol “HYFM.” The Company’s investment in Hydrofarm is stated at fair value and is presented in the “Short term investments” line within the consolidated balance sheet. As the Hydrofarm shares held by the Company are restricted from sale for a period of 180 days from the date of Hydrofarm’s initial public offering, the fair value of the Company’s investment is estimated utilizing the market price of the common shares at the end of each reporting period (a level one input), less a discount for lack of marketability (a level two input). The discount for marketability was estimated upon consideration of volatility and the length of the lock-up period On December 31, 2020, the HYFM stock price was $52.58 and the investment value was $23.85 million. Changes in the fair value of the Company’s investment are reported in current period earnings.
As of December 31, 2020, the Company held 296,630 warrants to purchase one share of Hydrofarm’s common stock, with an exercise price of $16.86 per share. As the underlying shares are restricted from sale for a period of 180 days from the date of Hydrofarm’s initial public offering, the fair value of the warrants are estimated using the black-scholes merten option pricing model that uses several inputs, including market price of Hydrofarm’s common shares at the end of each reporting period (a level one input), less a discount for lack of marketability (a level three input). The discount for lack of marketability was estimated upon consideration of volatility and the length of the lock-up period. The warrants are valued at $10.20 million as of December 31, 2020. Changes in the fair value of the Company’s investments in the warrants are reported in current period earnings.
On March 30, 2020, Edible Garden Corp. (“Edible Garden”), a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with Edible Garden Incorporated (the “Purchaser”), pursuant to which Edible Garden sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). The consideration paid for the Business included two option agreements to purchase up to a 20% interest in the Purchaser for a nominal fee. The first option gives the Company the right to purchase a 10% interest in the Purchaser for one dollar at any time between the one and five-year anniversary of the transaction, or at any time should a change in control event or public offering occur. The second option gives the Company the right to purchase an additional 10% interest in the Purchaser for one dollar at any point prior to the five-year anniversary of the transaction. The second option is automatically terminated upon payment in full of the $3.00 million secured promissory note.
Management estimated the fair value of the options using the Black-Scholes model, utilizing level 3 inputs that included the stock price, annual volatility, and the probability the second option will be terminated due to repayment of the secured promissory note. The estimated fair value of the options was $0.33 million as of December 31, 2020. The options are included in the “Investments” line within the consolidated balance sheet.
NOTE 17 – BUSINESS COMBINATIONS
On February 14, 2020, the Company acquired all of the assets of OneQor Technologies, Inc. (“OneQor”). The acquisition of OneQor was accounted for in accordance with ASC 805-10, “Business Combinations.” The total consideration transferred included 58,154,027 shares of the Company’s common stock, with a fair value of $9.31 million. The preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions of the assets acquired and liabilities assumed were subject to change within the measurement period pending the finalization of a third-party valuation. The multi-period excess earnings method, an income approach, was utilized to estimate the fair value of OneQor’s customer relationships. The relief-from-royalty method, an income approach, was utilized to estimate the fair value of OneQor’s trade name. The following table summarizes the preliminary allocation of the purchase price:
|
|
(in thousands)
|
|
Assets acquired
|
|
|
|
Accounts receivable
|
|
$
|
51
|
|
Inventory
|
|
|
81
|
|
Prepaid expenses
|
|
|
241
|
|
Property, plant and equipment
|
|
|
80
|
|
Customer relationships
|
|
|
3,070
|
|
Trade name
|
|
|
690
|
|
Goodwill
|
|
|
6,763
|
|
Other long-term assets
|
|
|
260
|
|
Total Assets acquired
|
|
$
|
11,237
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,481
|
|
Deferred income
|
|
|
300
|
|
Short-term debt
|
|
|
100
|
|
Long-term lease liabilities
|
|
|
108
|
|
Total liabilities assumed
|
|
$
|
1,990
|
|
During the year ended December 31, 2020, the Company recognized $1.21 million of revenue and a net loss of $12.29 million from OneQor. In the view of management, goodwill reflected the future cash flow expectations for OneQor’s market position in the growing CBD industry, synergies and the assembled workforce, at the time of the acquisition. Goodwill recorded for the OneQor transaction is non-deductible for tax purposes.
Supplemental Pro-Forma Information (Unaudited)
Supplemental information on an unaudited pro-forma basis is reflected as if each of the OneQor acquisition had occurred at the beginning of 2019, after giving effect to certain pro forma adjustments primarily related to interest expense, amortization of acquired intangible assets and the elimination of expense associated with convertible debt securities that were accounted for as derivative instruments.
The pro-forma supplemental information is based on estimates and assumptions that the Company believes are reasonable. The supplemental pro-forma financial information is presented for comparative purposes only and is not necessarily indicative of what the Company’s financial position or results of operations actually would have been had the Company completed the acquisitions at the dates indicated, nor is it intended to project the future financial position or operating results of the Company as a result of the OneQor acquisition. As of December 31, 2020, OneQor’s results are included in discontinued operations, however the tables below assume OneQor was included in continuing operations.
|
|
For the Year Ended
|
|
|
|
12/31/2020
|
|
|
12/31/2019
|
|
|
|
|
|
|
|
|
Pro-forma revenues
|
|
$
|
15,492
|
|
|
$
|
17,984
|
|
Pro-forma net loss from continuing operations
|
|
|
(26,088
|
)
|
|
|
(50,382
|
)
|
NOTE 18 – COMMITMENTS AND CONTINGENCIES
California Operating Licenses
Terra Tech entities have operated compliantly and have been eligible for applicable licenses and renewals of our licenses. Currently, we have received annual as well as provisional licenses from California’s cannabis licensing agencies. We are actively working with the State to provide all required information and have confidence that the provisional licenses that we have received will become annual licenses in the future.
NOTE 19 – DISCONTINUED OPERATIONS
On May 8, 2019, MediFarm LLC, a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Picksy, LLC (the “Purchaser”) pursuant to which the Company agreed to sell and the Purchaser agreed to purchase substantially all of the assets of the Company related to the Company’s dispensary located at 1130 East Desert Inn Road, Las Vegas, NV 89109 (the “Business”). The aggregate consideration to be paid for the Business is $10.00 million, of which $7.20 million is cash (the “Purchase Price”). A portion of the Purchase Price is payable by the Purchaser pursuant to a 12 month Secured Promissory Note with a principal amount of $2.80 million (the “Note”). The Note is secured by all the assets sold pursuant to the Purchase Agreement. In conjunction with the Note, Purchaser and the Company entered into a Security Agreement granting the Company a security interest in all the assets sold pursuant to the Purchase Agreement. The transaction has been approved by the Nevada Department of Taxation and is awaiting local government approval which is being impacted by COVID-19. It is expected to close promptly following receipt of such approval.
On August 19, 2019, MediFarm I LLC, a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Picksy Reno, LLC (the “Purchaser”) pursuant to which the Company agreed to sell and the Purchaser agreed to purchase substantially all of the assets of the Company related to the Company’s dispensary located at 1085 S Virginia St Suite A, Reno, NV 89502 (the “Business”). The aggregate consideration to be paid for the Business is $13.50 million, of which $9.30 million is cash (the “Purchase Price”). A portion of the Purchase Price is payable by the Purchaser pursuant to a 12 month Secured Promissory Note with a principal amount of $4.20 million (the “Note”). The Note is secured by all the assets sold pursuant to the Purchase Agreement. In conjunction with the Note, Purchaser and the Company entered into a Security Agreement granting the Company a security interest in all the assets sold pursuant to the Purchase Agreement. The transaction has been approved by the Nevada Department of Taxation and is awaiting local government approval which is being impacted by COVID-19.It is expected to close promptly following receipt of such approval.
On April 15, 2020, MediFarm LLC, a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Natural Medicine, LLC, a non-affiliated third party (the “Purchaser”) pursuant to which the Company agreed to sell and the Purchaser agreed to purchase substantially all of the assets of the Company related to the Company’s dispensary located at 3650 S. Decatur Blvd., Las Vegas, NV. The aggregate consideration to be paid for the Business is $5.25 million, of which $2.50 million is cash and $2.75 million is payable by the Purchaser pursuant to a 12-month Secured Promissory Note bearing 8% interest per annum, which is secured by all of the assets sold pursuant to the Purchase Agreement. The transaction has been approved by the Nevada Department of Taxation and is awaiting local government approval which is being impacted by COVID-19. It is expected to close promptly following receipt of such approval.
The company will recognize a gain upon completion of the sale of the assets, equal to the difference between the consideration paid and the book value of the assets as of the disposition date, less direct costs to sell, and reflect such loss in discontinued operations.
As of December 31, 2020, Management classified a real estate asset held in California and a real estate asset held in Nevada as available-for-sale, as they met the criteria of ASC 360-10-45-9. Assets divested, as disclosed in Note 7, “Property, Equipment and Leasehold Improvements,” are included in discontinued operations.
The pending sales of our Nevada dispensaries, expected sales of real estate assets, and assets divested during 2020 represent a strategic shift that will have a major effect on the Company’s operations and financial results. As a result, Management determined the results of these components qualified for discontinued operations presentation in accordance with ASC 205, “Reporting Discontinued Operations and Disclosure of Disposals of Components of an Entity.”
During 2020, Management suspended the operations of OneQor Technologies due to (i) a lack of proper growth in customer acquisition and revenue for this CBD operation during the COVID-19 pandemic and (ii) the overall financial health of the Company as a result of COVID-19 and social unrest. The Company plans to focus its attention and resources on growing its THC business.
Operating results for discontinued operations were comprised of the following:
|
|
(in thousands)
|
|
|
|
Year ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Total revenues
|
|
$
|
3,613
|
|
|
$
|
22,068
|
|
Cost of goods sold
|
|
|
2,915
|
|
|
|
12,531
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
698
|
|
|
|
9,537
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
5,425
|
|
|
|
12,451
|
|
Impairment of assets
|
|
|
10,359
|
|
|
|
34
|
|
Loss on sale of assets
|
|
|
1,997
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from operations
|
|
$
|
(17,083
|
)
|
|
$
|
(3,001
|
)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(560
|
)
|
|
|
(855
|
)
|
Other income (loss)
|
|
|
12
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations
|
|
$
|
(17,631
|
)
|
|
$
|
(3,704
|
)
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations per common share attributable to Terra Tech Corp common stockholders - basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
The carrying amounts of the major classes of assets and liabilities for the discontinued operations are as follows:
|
|
(in thousands)
|
|
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
Accounts receivable, net
|
|
$
|
-
|
|
|
|
1,096
|
|
Inventory
|
|
|
-
|
|
|
|
1,073
|
|
Prepaid expenses and other assets
|
|
|
2
|
|
|
|
271
|
|
Property, equipment and leasehold improvements, net
|
|
|
2,766
|
|
|
|
15,069
|
|
Intangible assets, net
|
|
|
-
|
|
|
|
399
|
|
Goodwill
|
|
|
-
|
|
|
|
6,251
|
|
Other assets
|
|
|
186
|
|
|
|
1,079
|
|
Assets of discontinued operations
|
|
$
|
2,954
|
|
|
$
|
25,238
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
985
|
|
|
$
|
3,284
|
|
Deferred gain on sale of assets
|
|
|
8,783
|
|
|
|
3,750
|
|
Long-term lease liabilities
|
|
|
28
|
|
|
|
869
|
|
Liabilities of discontinued operations
|
|
$
|
9,796
|
|
|
$
|
7,903
|
|
NOTE 20 – SEGMENT INFORMATION
During 2018, the Company acquired additional real property and determined that a previously insignificant operating segment “Real Estate and Construction” was significant and was a reportable segment requiring disclosure in accordance with ASC 280. As of September 30, 2020, the majority of our real property is included in discontinued operations. The largest entity within the Real Estate and Construction segment is Dyer. Throughout 2020, our Dyer entity has been included in the Cannabis segment for internal reporting as it was planned to be an operational Cannabis Dispensary by late 2020.As of September 30, 2020, the “Real Estate and Construction” has been merged with our “Cannabis Dispensary, Cultivation, and Production” reportable segment. Thus the Company has only one reportable segment.
During the quarter ended June 30, 2020, the “Herbs and Produce Products” segment was discontinued and is included in discontinued operations. Prior period information below has been revised to conform to current period presentation.
NOTE 21 – LITIGATION AND CLAIMS
The Company is the subject of lawsuits and claims arising in the ordinary course of business from time to time. The Company reviews any such legal proceedings and claims on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued if such disclosure is necessary for the Company’s financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, the Company determined that there were no material matters that required an accrual as of December 31, 2020.
On January 6, 2021, a putative, nationwide class action for violations of the Telephone Consumer Protection Act (the “TCPA”), captioned as Stanley, et al. v Terra Tech Corp., et al., Civil Action No. 8:21-cv00022, was filed against Terra Tech and MediFarm LLC (the “Defendants”) in the United States District Court for the Central District of California (the “TCPA Action”). In the TCPA Action, Plaintiffs allege that Defendants violated the TCPA by sending text messages to them and other persons without consent. Plaintiffs seek, on behalf of themselves and other purportedly similarly situated-persons, an unspecified amount of actual and statutory damages for each alleged violation, declaratory and injunctive relief, and attorneys’ fees and costs.
NOTE 22 – RELATED PARTY TRANSACTIONS
On March 30, 2020, Edible Garden Corp. (“Edible Garden”), a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with Edible Garden Incorporated (the “Purchaser”), pursuant to which Edible Garden sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). Michael James, the Company’s former Chief Financial Officer, is a principal of the Purchaser. There is no material relationship between the Company or its affiliates and the Purchaser other than as set forth in the previous sentence. The Purchase Agreement contains customary conditions, representations, warranties, indemnities and covenants by, among, and for the benefit of the parties.
On December 30, 2019, the Company entered into a secured promissory note agreement with the Matthew Lee Morgan Trust, which is affiliated with Matthew Morgan, formerly the Chief Executive Officer of OneQor. The note matures on January 30, 2021, and bears interest at a rate of 10% per annum. The note was converted into the Company’s common stock at maturity.
During the fiscal year ended December 31, 2019, the Company issued promissory notes totaling $1.80 million to OneQor Technologies, Inc (“OneQor”). Derek Peterson and Mike Nahass, formerly the Chief Executive Officer and Chief Operating Officer, respectively, had minority ownership interests in OneQor. At the end of the fiscal year, management made the decision to fully-reserve for these loans due to their confidence in the completion of the merger with OneQor, which would result in the cancellation of these loans.
All related party transactions are monitored quarterly by the Company and approved by the Audit Committee of the Board of Directors.
NOTE 23 – SUBSEQUENT EVENTS
On January 7, 2021, 620 Dyer LLC (“620 Dyer”), a subsidiary of the Company, entered into Amendment No. 1 (the “Loan Agreement Amendment”) to the Loan Agreement between 620 Dyer and Elizon DB Transfer Agent LLC (“Elizon”), dated as of January 18, 2018 (the “Loan Agreement”). The Loan Agreement Amendment, among other things, amends the maturity date of the Loan Agreement from January 18, 2021 to January 18, 2022. In connection with the extension, 620 Dyer is required to pay Elizon an extension fee equal to 1% of the outstanding principal balance of the Loan Agreement by the earlier of (1) the maturity date of the Loan Agreement, (2) July 18, 2021 or (3) the closing of the sale of any real property or securities of Hydrofarm Holdings Group Inc. by the Company or 620 Dyer. There is no material relationship between the Company or its affiliates and Elizon other than in respect of the transactions contemplated by the Loan Agreement Amendment and the Loan Agreement.
On January 8, 2021, the Company entered into an amendment to the Secured Promissory Note issued by Terra Tech Corp. (the “Borrower”) to Arthur Chan (the “Lender”) on January 10, 2020. The Loan Agreement Amendment, among other things, amends the maturity date of the Loan Agreement from January 10, 2021 to July 10, 2021.
On January 11, 2021, Terra Tech Corp. (the “Company”) entered into Amendment No. 2 (the “Note Amendment”) to the 7.5% Senior Convertible Promissory Note issued by the Company on June 11, 2019 (the “Note”) with the accredited investor which holds the Note (the “Lender”). The Note Amendment, among other things, amends the maturity date of the Note from January 11, 2021 to January 26, 2021. Except as modified by the Note Amendment, the terms of the Note are unchanged. There is no material relationship between the Company or its affiliates and the Lender other than in respect of the transactions contemplated by the Note Amendment and the Note.
On January 11, 2021 the Company entered into a Separation Agreement (the “Separation Agreement”) with Alan Gladstone, formerly a director of the Company. Pursuant to the Separation Agreement, among other things, the Company issued to Mr. Gladstone 500,000 freely-trading shares of the Company’s common stock (the “Common Stock”), and all vested options to acquire Common Stock held by Mr. Gladstone remain exercisable pursuant to their terms. Mr. Gladstone also agreed not to sell, dispose of or transfer more than 500,000 shares of Common Stock in any calendar month. In addition, the Independent Director Agreement between the Company and Mr. Gladstone, dated as of July 1, 2019, was terminated. The Separation Agreement also contains mutual releases and other customary terms and conditions as more fully set forth therein. There is no material relationship between the Company or its affiliates and Mr. Gladstone other than in respect of the transactions contemplated by the Separation Agreement.
On January 22, 2021, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers $3,500,000 in aggregate principal amount of the Company’s senior convertible promissory notes (the “Notes”) and warrants to purchase shares of the Company’s common stock (the “Warrants”), exercisable at any time before the close of business on June 25, 2026. The Warrants are comprised of 15,000,000 “A Warrants” with an exercise price of $0.01 per share and 15,000,000 “B Warrants” with an exercise price of $0.2284 per share. The closing of the purchase and sale of the Notes and Warrants is expected to occur on or about January 25, 2021.
On January 25, 2021, Terra Tech Corp. (the “Company”) entered into Amendment No. 3 (the “June 2019 Note Amendment”) to the 7.5% Senior Convertible Promissory Note issued by the Company on June 11, 2019 (the “June 2019 Note”) and Amendment No. 1 (the “October 2019 Note Amendment”; together with the June 2019 Note Amendment, the “Note Amendments”) to the 7.5% Senior Convertible Promissory Note issued by the Company on October 21, 2019 (the “October 2019 Note”; together with the June 2019 Note, the “Old Notes”) with the accredited investor that holds the Old Notes (the “Lender”). The Note Amendments, among other things, (1) extends the maturity date of the June 2019 Note from January 26, 2021 to December 31, 2021 and (2) extends the maturity date of the October 2019 Note from April 21, 2021 to December 31, 2021. Except as modified by the Note Amendments, the terms of the Old Notes are unchanged. There is no material relationship between the Company or its affiliates and the Lender other than in respect of the transactions contemplated by the Note Amendments and the Old Notes. In connection with the Note Amendments, the Company issued to the Lender warrants to purchase 5,000,000 shares of the Company’s common stock (the “Old Note Warrants”) at an exercise price of $0.01 per share. The Old Note Warrants will be exercisable at any time before the close of business on June 25, 2026. The Old Note Warrants will contain cashless exercise provisions and, to the extent not previously exercised, will be automatically exercised via cashless exercise on June 25, 2026.
On February 1, 2021, Terra Tech Corp. (the “Company”) entered into an Amended and Restated Independent Director Agreement with Nicholas Kovacevich, the Chairman of the Company’s Board of Directors (the “Kovacevich Agreement”). Pursuant to the Kovacevich Agreement, (1) the Company issued to Mr. Kovacevich 500,000 restricted shares of the Company’s common stock (the “Common Stock”), which vest in twelve equal installments on the first day of each month beginning on March 1, 2021 (provided Mr. Kovacevich is a director of the Company on the applicable vesting date) and (2) the Company agreed to pay Mr. Kovacevich cash compensation of $5,000 per month, payable on the first day of each month beginning March 1, 2021 for the term of the Kovacevich Agreement. There is no material relationship between the Company or its affiliates and Mr. Kovacevich, other than in respect of the transactions contemplated by the Kovacevich Agreement.
On February 1, 2021, the Company entered into an Amended and Restated Independent Director Agreement with Ira Ritter, a member of the Company’s Board of Directors (the “Ritter Agreement”). Pursuant to the Ritter Agreement, (1) the Company issued to Mr. Ritter an option to purchase 500,000 shares of Common Stock at the closing price of the Common Stock on the date of the Ritter Agreement, which vest in twelve equal installments on the first day of each month beginning on March 1, 2021 (provided Mr. Ritter is a director of the Company on the applicable vesting date) and (2) the Company agreed to pay Mr. Ritter cash compensation of $5,000 per month, payable on the first day of each month beginning March 1, 2021 for the term of the Ritter Agreement. There is no material relationship between the Company or its affiliates and Mr. Ritter, other than in respect of the transactions contemplated by the Ritter Agreement.
On February 3, 2021, the Company filed (1) a Certificate of Withdrawal of Certificate of Designation of the Company’s Series A Preferred Stock with the Secretary of State of the State of Nevada, which withdraws the Certificate of Designation establishing the Company’s Series A Preferred Stock and eliminates the Company’s Series A Preferred Stock from the Company’s Articles of Incorporation (the “Series A Certificate”), and (2) a Certificate of Withdrawal of Certificate of Designation of the Company’s Series B Preferred Stock with the Secretary of State of the State of Nevada, which withdraws the Certificate of Designation establishing the Company’s Series B Preferred Stock and eliminates the Company’s Series B Preferred Stock from the Company’s Articles of Incorporation (the “Series B Certificate”).
On March 2, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with UMBRLA, Inc., a Nevada corporation (“UMBRLA”), a diversified cannabis company with distribution, manufacturing and dispensary operations, Phoenix Merger Sub Corp., a Nevada corporation and wholly owned subsidiary of the Company (“Merger Sub”), and Dallas Imbimbo, as the stockholder representative for the UMBRLA stockholders. Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and into UMBRLA (the “Merger”), with UMBRLA surviving the Merger as a wholly owned subsidiary of the Company. The Merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes. There is ownership in UMBRLA stock by members of the Company’s Board of Directors as well as certain Terra Tech Corp Note Holders who also hold UMBRLA stock and warrants. As such, the Merger may be considered a related party transaction.
Subsequent to December 31, 2020, Senior Convertible Promissory Notes and accrued interest in the amount of $3.53 million and $0.07 million, respectively, were converted into 18,963,203 shares of common stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
TERRA TECH CORP.
|
|
|
|
|
|
Date: March 30, 2021
|
By:
|
/s/ Francis Knuettel II
|
|
|
|
Francis Knuettel II
|
|
|
|
Chief Executive Officer and Director
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Francis Knuettel II and Jeffrey Batliner, and each of them, as his true and lawful attorney-in-fact and agents with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K of Terra Tech Corp. for the fiscal year ended December 31, 2020, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, grant unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agents, or his substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Power of Attorney has been signed by the following persons in the capacities and on the dates stated.
Date: March 30, 2021
|
By:
|
/s/ Nicholas Kovacevich
|
|
|
|
Nicholas Kovacevich
|
|
|
|
Chairman of the Board
|
|
|
|
|
|
Date: March 30, 2021
|
By:
|
/s/ Francis Knuettel II
|
|
|
|
Francis Knuettel II
Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
|
|
Date: March 30, 2021
|
By:
|
/s/ Steven J. Ross
|
|
|
|
Steven J. Ross
|
|
|
|
Director
|
|
|
|
|
|
Date: March 30, 2021
|
By:
|
/s/ Ira Ritter
|
|
|
|
Ira Ritter
|
|
|
|
Director
|
|
|
|
|
|
Date: March 30, 2021
|
By:
|
/s/ Jeffrey Batliner
|
|
|
|
Jeffrey Batliner
|
|
|
|
Chief Financial Officer
|
|