UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended fiscal year ended December 31, 20182020
orOR
¨ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to ____________
Commission File Number file number: 000-54258
TERRA TECH CORP. |
(Exact |
NEVADA | 26-3062661 | |
(State or incorporation or | (I.R.S. Employer Identification No.) |
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2040 Main Street, Suite 225
Irvine, California 92614
(Address of principal executive offices) (Zip Code)
888-909-5564
(Registrant’s Telephone Number, Including Area Code) (855) 447-6967telephone number, including area code)
Securities Registered Pursuantregistered pursuant to Section 12(b) of the Act:
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| OTCQX |
Securities Registered Pursuantregistered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of Class) None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ ☐ No x☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ ☐ No x☒
Indicate by check mark whether the registrant:registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x ☒ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”, “non-accelerated filer”, “emerging growthfiler,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act (Check One):Act.
Large Accelerated Filer |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 inof the Exchange Act). Yes ¨ ☐ No x☒
At June 30, 2018,2020, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s voting stock held by non-affiliates (based on the closing sale price of the registrant’s Common Stock on the OTC Market Group Inc.’s OTCQX tier, and for the purpose of this computation only, on the assumption that all of the Registrant’s directors and officers are affiliates,affiliates), was approximately $142,861,830.$59,993,444.
As of March 8, 2019,23, 2021, there were 94,035,688234,062,627 shares of common stock issued and 231,754,219 outstanding, 12 shares of Series A Preferred Stock, convertible at any time into 12 shares of common stock, 0 shares of Series B Preferred Stock, 948,18936,076,555 shares of common stock issuable upon the exercise of all of our outstanding warrants and 659,7748,145,323 shares of common stock issuable upon the exercise of all vested options.
Documents Incorporated by Reference
None
TERRA TECH CORP.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2020
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Security Ownership of Certain Beneficial Owners and Management |
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Certain Relationships and Related Transactions, and Director Independence |
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Certifications |
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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provides a “safe harbor” for forward-looking statements made by us. All statements, other than statements of historical facts, including statements concerning our plans, objectives, goals, beliefs, business strategies, future events, business conditions, results of operations, financial position, business outlook, business trends, and other information, may be forward-looking statements. Words such as “might,” “will,” “may,” “should,” “estimates,” “expects,” “continues,” “contemplates,” “anticipates,” “projects,” “plans,” “potential,” “predicts,” “intends,” “believes,” “forecasts,” “future,” and variations of such words or similar expressions are intended to identify forward-looking statements. The forward-looking statements are not historical facts, and are based upon our current expectations, beliefs, estimates and projections, and various assumptions, many of which, by their nature, are inherently uncertain and beyond our control. Our expectations, beliefs, estimates, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates, and projections will occur or can be can achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors, many of which are beyond our control, that could cause actual results to differ materially from the forward-looking statements contained in this Annual Report on Form 10-K. Such risks, uncertainties, and other important factors that could cause actual results to differ include, among others, the risk, uncertainties and factors set forth under “Item 1A. Risk Factors” in this Annual Report on Form 10-K and in other filings we make from time to time with the U.S. Securities and Exchange Commission (“SEC”).
We caution you that the risks, uncertainties, and other factors set forth in our periodic filings with the SEC may not contain all of the risks, uncertainties, and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. There can be no assurance that: (i) we have correctly measured or identified all of the factors affecting our business or the extent of these factors’ likely impact, (ii) the available information with respect to these factors on which such analysis is based is complete or accurate, (iii) such analysis is correct, or (iv) our strategy, which is based in part on this analysis, will be successful. All forward-looking statements in this report apply only as of the date of the report or as of the date they were made and, except as required by applicable law, we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments, or otherwise.
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.
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Unless the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,” or “Terra Tech” refer to Terra Tech Corp., a Nevada corporation, individually, or as the context requires, collectively with its consolidated subsidiaries.
Company Overview
Terra Tech is a holding company with the following subsidiaries:
· | 620 Dyer LLC, a California corporation | |
· | 1815 Carnegie LLC, a California limited liability company | |
· | Black Oak Gallery, a California corporation | |
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| GrowOp Technology Ltd., a Nevada corporation | |
· | IVXX, Inc., a California corporation | |
· | IVXX, LLC, a Nevada limited liability company | |
· | MediFarm, LLC, a Nevada limited liability company | |
· | MediFarm I, LLC, a Nevada limited liability company | |
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| MediFarm II, LLC, a Nevada limited liability company | |
· | MediFarm So Cal, Inc., a California corporation | |
· | 121 North Fourth Street, LLC, a Nevada limited liability company ("121 North Fourth") | |
· | OneQor Technologies, Inc., a Delaware corporation ("OneQor") |
Our corporate headquarters is located at 2040 Main Street, Suite 225, Irvine, California 92614 and our telephone number is (855) 447-6967.(888) 909-5564. Our website addresses are as follows: www.terratechcorp.com, www.letsblum.com, www.ivxx.com, and www.ediblegarden.com.www.ivxx.com. No information available on or through our websites shall be deemed to be incorporated into this Annual Report on Form 10-K. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc.’s OTCQX tier under the symbol “TRTC.” Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) may be accessed through the SEC’s Interactive Data Electronic Applications system at https://www.sec.gov.
Recent Developments
Currently, weIn mid-December Terra Tech experienced a significant change that began with the addition of three new Directors to the Company’s Board. This was the first step in a process that saw the addition of a new CEO and COO, the recapitalization of the company, the exiting of the founders of the company after ten years at the helm, and the retirement of our Preferred Stock. In December, Nicholas Kovacevich, Francis Knuettel II, and Ira Ritter joined the Board of Directors. Shortly thereafter Francis Knuettel II and Uri Kenig joined the Company as our Interim CEO and COO, respectively. The recapitalization provided the Company with working capital and a runway to expected cash inflows from asset sales and other investments, which are exploring strategic alternatives for certain operationalanticipated to make a significant impact on our balance sheet.
Pending Asset Sales
Wholly-owned subsidiaries of Terra Tech Corp entered into asset purchase agreements with non-affiliated third parties to sell the assets related to the Company’s Nevada dispensaries. These three transactions are pending, due to the fact that they are subject to approval by the Nevada Department of Taxation as well as local approval. After a year and non-operational assets in both Nevada and California.a half delay, the transactions have been approved by the State of Nevada. We are confident we can get a better return on our invested capitalnow awaiting local government approval which has been impacted by redeploying assets. We’re working with financial advisorsCOVID-19.The transactions are expected to identify locations or permits that can generate non-dilutive capital that can be reinvested in strategic locations to produce greater returns. We have identified multiple opportunities that appear to be a more accretive useclose promptly following receipt of capital. There are numeroussuch approval.
· | May 8, 2019 agreement – 1130 East Desert Inn Road, Las Vegas, NV dispensary – to Picksy LLC |
· | August 19, 2019 agreement – 1085 S. Virginia St Suite A, Reno, NV dispensary – to Picksy LLC |
· | April 15, 2020 agreement – 3650 S. Decatur Blvd, Las Vegas, NV dispensary – to Natural Medicine, LLC. |
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The risks and uncertainties associatedregarding the future of our business due to the impact of COVID-19 and regulatory uncertainty, combined with our explorationhistorical lack of strategic alternativesprofitability, have in the past raised substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. Our management feels that proceeds due from its Hydrofarm investment, proceeds due 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 can beis no assurance that these efforts will be successful.material uncertainty as to the Company’s ability to continue as a going concern.
On March 12, 2018, we implemented a 1-for-15 reverse stock split of our common stock (the “Reverse Stock Split”). The Reverse Stock Split became effective in the stock market upon commencement of trading on March 13, 2018. As a result of the Reverse Stock Split, every fifteen shares of our Pre-Reverse Stock Split common stock were combined and reclassified into one share of our common stock. No fractional shares were issued in connection with the Reverse Stock Split, and any fractional shares were rounded up to the nearest whole share. The number of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor of fifteen as of March 13, 2018. All historical share and per share amounts reflected throughout this report have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the Reverse Stock Split.
Our Business
We are a retail, production and cultivation company, with an emphasis on providing the highest quality of medical and adult use cannabis products. We grow organic antioxidant rich Superleaf lettuce and living herbs using classic Dutch hydroponic farming methods. We have licensed an exclusive patent on the Superleaf lettuce.
We have a presence in threetwo states (California Nevada and New Jersey) and currently have a concentrated cannabis interest in California and Nevada.Nevada) . All of our cannabis dispensaries operate under the name Blüm. Our cannabis dispensaries in California operate as MediFarm SoCal in Santa Ana, Black Oak GalleryBlüm Oakland in Oakland and BlumBlüm San Leandro in San Leandro and offer a broad selection of medical and adult-use cannabis products including flowers, concentrates and edibles.
In Nevada,Business Update Regarding COVID-19
The COVID-19 outbreak has presented a substantial public health and economic challenge around the world and is affecting employers, employees, communities and business operations, as well as the world’s economy and financial markets. The full extent to which the COVID-19 outbreak will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.
To date, we have three dispensaries, two under MediFarmbeen able to continue our operations and do not anticipate any material interruptions in Las Vegasthe foreseeable future. However, we are continuing to assess the potential impact of the COVID-19 pandemic and one under MediFarm I in Reno, which sell quality medicalits impact on our industry and adult use cannabis products. We jointly own real property in Reno under MediFarm I RE, on which MediFarm I operates its dispensary. our company.
Founded on the importance of providing consumers with healthy and natural products, Edible Garden is a wholesale seller of organic and locally grown hydroponic produce and herb products. EG Transportation supports the distribution of Edible Garden products to major grocery stores such as ShopRite, Walmart, Ahold, Aldi, Meijer, Kroger, and others throughout New Jersey, New York, Delaware, Maine, Maryland, Connecticut, Pennsylvania and the Midwest.
We have a “rollup” growth strategy, which includes the following components:
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Our business also represents our operating segments. See our Part I, Item 1. Business, “Company Overview” and “Note 20 – Segment Information” to our consolidated financial statements for further discussion of our operating segments.
Marijuana Industry Overview
Marijuana cultivation refers to the planting, tending, improving and harvesting of the flowering plant Cannabis, primarily for the production and consumption of cannabis flowers, often referred to as “buds.” The cultivation techniques for marijuana cultivation differ for other purposes such as hemp production and generally references to marijuana cultivation and production do not include hemp.
Cannabis belongs to the genus Cannabis in the family Cannabaceae and for the purposes of production and consumption, includes three species, C. sativa (“Sativa”), C. indica (“Indica”), and C. ruderalis (“Ruderalis”). Sativa and Indica generally grow tall with some varieties reaching approximately four meters. The females produce flowers rich in tetrahydrocannabinol (“THC”). Ruderalis is a short plant and produces trace amounts of THC but is very rich in cannabidiol (“CBD”) and which is an antagonist (inhibits the physiological action) to THC.
As of December 2018,2020, there are a total of 3337 states, plus the District of Columbia, withthat have passed legislation passed as it relates to medicinal cannabis. Of these states, 1015 have decriminalized adult use cannabis legislation. These state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) (“CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as having a high potential for abuse, has no currently-accepted use for medical treatment in the U.S., and lacks acceptable safety for use under medical supervision.
These 3337 states, and the District of Columbia, have adopted laws that exempt patients who use medicinal cannabis under a physician’s supervision from state criminal penalties. These are collectively referred to as the states that have de-criminalized medicinal cannabis, although there is a subtle difference between de-criminalization and legalization, and each state’s laws are different.
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The states that have legalized medicinal cannabis are as follows (in alphabetical order):
1. | Alaska | 13. | Maryland | 25. | North Dakota | |
2. | Arizona | 14. | Massachusetts | 26. | Ohio | |
3. | Arkansas | 15. | Michigan | 27. | Oklahoma | |
4. | California | 16. | Minnesota | 28. | Oregon | |
5. | Colorado | 17. | Mississippi | 29. | Pennsylvania | |
6. | Connecticut | 18. | Missouri | 30. | Rhode Island | |
7. | Delaware | 19. | Montana | 31. | South Dakota | |
8. | Florida | 20. | Nevada | 32. | Texas | |
9. | Hawaii | 21. | New Hampshire | 33. | Utah | |
10. | Illinois | 22. | New Jersey | 34. | Vermont | |
11. | Louisiana | 23. | New Mexico | 35. | Virginia | |
12. | Maine | 24. | New York | 36. | Washington | |
37. | West Virginia |
1 . Alaska 12 . Maine 23 . New York 2 . Arizona 13 . Maryland 24 . North Dakota 3 . Arkansas 14 . Massachusetts 25 . Ohio 4 . California 15 . Michigan 26 . Oklahoma 5 . Colorado 16 . Minnesota 27 . Oregon 6 . Connecticut 17 . Missouri 28 . Pennsylvania 7 . Delaware 18 . Montana 29 . Rhode Island 8 . Florida 19 . Nevada 30 . Utah 9 . Hawaii 20 . New Hampshire 31 . Vermont 10 . Illinois 21 . New Jersey 32 . Washington 11 . Louisiana 22 . New Mexico 33 . West Virginia
Medical cannabis decriminalization is generally referred to as the removal of all criminal penalties for the private possession and use of cannabis by adults, including cultivation for personal use and casual, nonprofit transfers of small amounts. Legalization is generally referred to as the development of a legally controlled market for cannabis, where consumers purchase from a safe, legal, and regulated source.
The dichotomy between federal and state laws has limited the access to banking and other financial services by marijuana businesses. The U.S. Department of Justice and the U.S. Department of Treasury have issued guidance for banks considering conducting business with marijuana dispensaries in states where those businesses are legal, pursuant to which banks must file a Marijuana Limited Suspicious Activity Report that states the marijuana business is following the government’s guidelines with regard to revenue that is generated exclusively from legal sales. However, as banks can still face prosecution if they provide financial services to marijuana businesses, there is widespread refusal of the banking industry to offer banking services to marijuana businesses operating within state and local laws.
In November 2016, California and Nevada voters both approved marijuana use for adults over the age of 21 without a physician’s prescription or recommendation, and permitted the cultivation and sale of marijuana, in each case subject to certain limitations. We have obtained the necessary permits and licenses to expand our existing business to cultivate and distribute marijuana in compliance with the laws in the State of Nevada and California. Despite the changes in state laws, marijuana remains illegal under federal law.
In November 2016, California voters approved Proposition 64, which is also known as the Adult Use of Marijuana Act (“the AUMA”), in a ballot initiative. Among other things, the AUMA makes it legal for adults over the age of 21 to use marijuana and to possess up to 28.5 grams of marijuana flowers and 8 grams of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, the AUMA establishes a licensing system for businesses to, among other things, cultivate, process and distribute marijuana products under certain conditions. On January 1, 2018, the California Bureau of Marijuana Control enacted regulations to implement the AUMA.
Nevada voters approved Question 2 in a ballot initiative in November 2016. Among other things, Question 2 makes it legal for adults over the age of 21 to use marijuana and to possess up to one ounce of marijuana flowers and one-eighth of an ounce of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, Question 2 authorizes businesses to cultivate, process and distribute marijuana products under certain conditions. On June 30, 2017, the State of Nevada Department of Taxation approved our Dual-Use Marijuana business licenses. This approval allowed all four of our Blüm cannabis dispensaries in Nevada to commence sales of cannabis for adult-use beginning on July 1, 2017.
The U.S. Department of Justice (the “DOJ”) has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits.
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We are monitoring the Trump administration’s, the DOJ’s and Congress’ positions on federal marijuana law and policy. Since the start of the new Congress, in January 2019, there have been positive discussions about the Federal Government’s approach to cannabis. The DOJnew Biden administration has not signaled a more pro-cannabis approach than the previous administration, however we’ve yet to see any change in their enforcement efforts. Based on public statements and reports, we understand that certain aspects of those laws and policies are currently under review, but no official changes have been announced.definitive changes. It is possible that certain changes to existing laws or policies could have a negative effect on our business and results of operations.
Although the possession, cultivation and distribution of marijuana for medical and adult use is permitted in California and Nevada, provided compliance with applicable state and local laws, rules, and regulations, marijuana is illegal under federal law. We believe we operate our business in compliance with applicable Nevada and California laws and regulations. Any changes in federal, state or local law enforcement regarding marijuana may affect our ability to operate our business. Strict enforcement of federal law regarding marijuana would likely result in the inability to proceed with our business plans, could expose us to potential criminal liability and could subject our properties to civil forfeiture. Any changes in banking, insurance or other business services may also affect our ability to operate our business.
Our Medical Marijuana Dispensaries, Cultivation and Manufacturing
Black Oak Gallery / Blüm Oakland / Hegenberger
On April 1, 2016, we acquired Black Oak, which operates a medical and adult use marijuana dispensary in Oakland, California under the name Blüm. Black Oak opened its retail storefront in Oakland, California in November 2012.
Black Oak sells a combination of our own cultivated products as well as high quality name-brand products from outside suppliers. In addition to multiple grades of medical and adult use marijuana, Black Oak sells “edibles”, which include cannabis-infused baked goods, chocolates, and candies; cannabis-infused topical products, such as lotions, massage oils and balms; clones of marijuana plants; and numerous kinds of cannabis concentrates, such as hash, shatter and wax.
Black Oak’s target markets are those individuals located in the areas surrounding its dispensary. Black Oak services approximately 500250 consumers per day. Collectively known as the Blüm Campus, Black Oak’s location consists of a retail dispensary storefront, indoor cultivation area, a distribution area and a 20-car capacity parking lot.
During January 2017, we executed a lease for 13,000 square feet of industrial space on over 30,000 square feet of land in Oakland’s industrial corridor with the intention of building a cultivation facility.facility, which we refer to as “the Hegenberger facility”. The Hegenberger facility is expected to be completed in the 23ndrd Quarter of 20192021 and we will begin cultivating marijuana once all required operating permits are approved.
Blüm San Leandro
We incorporated Blüm San Leandro on October 14, 2016. Blüm San Leandro has received the necessary governmental approvals and permitting to operate a medical and adult use marijuana dispensary and productiondistribution facility in San Leandro, California. We have executed a lease for 13,300 square feet of industrial space in San Leandro’s industrial corridor and are in the final planning and design stages of the production facility. The San Leandro dispensary opened on January 11, 2019. The productiondistribution facility is expected to be completed in late 2019.mid-2021.
MediFarm SoCal
We incorporated MediFarm SoCal on August 17, 2017 to acquire all the assets of Tech Center Drive Management LLC. As a result of the acquisition, MediFarm SoCal now operates a medical and adult use marijuana dispensary under the name Blüm. MediFarm SoCal has the necessary governmental approvals and permitting to operate a medical and adult use marijuana dispensary in Santa Ana, California.
MediFarm, MediFarm I, and MediFarm II
We formed three subsidiaries for the purposes of cultivation or production of medical and adult use marijuana and/or operation of dispensary facilities in various locations in Nevada. MediFarm, MediFarm I, and MediFarm II received four final dispensary licenses, two provisional cultivation licenses and two provisional production licenses from the State of Nevada, and we have received approval from local authorities with respect to all eight of such licenses. The provisional cultivation and production licenses related to MediFarm were finalized August 31, 2018. The provisional cultivation and production licenses associated with MediFarm II were relinquished in June 2018. The receipt of both the provisional licenses from the State of Nevada and approval from local authorities were necessary to commence the final permitting process for the cultivation and production licenses. The receipt of final permits and licenses was necessary to commence the cultivation and production businesses of MediFarm, MediFarm I, and MediFarm II. Effectuation of the businesses of each of (i) MediFarm, (ii) MediFarm I, and (iii) MediFarm II is also dependent upon the continued legislative authorization of medical and adult use marijuana at the state level.
We formed MediFarm on March 19, 2014. Prior to August 2017, we owned 60.0% of the membership interests in MediFarm. The remaining membership interests were owned by Camden Goorjian (20.0%) and by Richard Vonfeldt (20.0%), two otherwise unaffiliated individuals. In August 2017, we acquired an additional 38% ownership in MediFarm for no additional consideration due to changes in the planned level of involvement of the two individuals in the operations of MediFarm. In December 2018, we issued 200,000 shares of common stock with a fair value of $0.20 million to acquire the remaining 2.0% interest in MediFarm. MediFarm has received the necessary governmental approvals and permitting to operate medical marijuana and adult use cultivation, production, and/or dispensary facilities in Clark County, Nevada and a medical and adult use marijuana dispensary facility in the City of Las Vegas. As of December 31, 2018, MediFarm has two fully operational retail medical and adult use marijuana dispensaries in the greater Las Vegas region.
We formed MediFarm I on July 18, 2014. We own 50.0% of the membership interests in MediFarm I. The remaining membership interests are owned by Forever Green NV, LLC (50.0%), an otherwise unaffiliated entity that also owns certain membership interests in MediFarm II. MediFarm I has the necessary governmental approvals and permitting to operate a medical and adult use marijuana dispensary in Reno, Nevada. As of December 31, 2018, MediFarm I has one fully operational retail medical and adult use marijuana dispensary in Reno, Nevada. On February 26, 2019, we agreed to purchase Forever Green’s 50% membership interest in MediFarm I as part of a larger deal that involved ownership interest in MediFarm I, MediFarm II, and Medifarm I Real Estate for an aggregate consideration of $6.25 million.
We formed MediFarm II on July 30, 2014. We own 55.0% of the membership interests in MediFarm II. The remaining membership interests are owned by Nevada MF, LLC (30.0%) and by Forever Green NV, LLC (15.0%), two otherwise unaffiliated entities. Forever Green NV, LLC also owns certain membership interests in MediFarm I. On February 26, 2019, we agreed to purchase Forever Green’s 15% membership interest in MediFarm II as part of a larger deal that involved ownership interest in MediFarm I, MediFarm II, and Medifarm I Real Estate.
MediFarm, MediFarm I, and MediFarm II may face substantial competition in the operation of cultivation, production, and dispensary facilities in Nevada. Numerous other companies were also granted licenses, and, therefore, we anticipate that we will face competition with these other companies if such companies operate cultivation, production, and dispensary facilities in and around the locations at which we operate our facilities. Our management has extensive experience in successfully developing, implementing, and operating all facets of equivalent businesses in other markets. We believe this experience will provide MediFarm, MediFarm I, and MediFarm II with a competitive advantage over these other companies.
MediFarm, MediFarm I, and MediFarm II rely on a combination of trademark laws, trade secrets, confidentiality provisions, and other contractual provisions to protect their proprietary rights. MediFarm, MediFarm I, and MediFarm II do not own any patents.
IVXX and IVXX Branded Products
On September 16, 2014, Terra Tech formed IVXX for the purposes of producing a line of IVXX branded cannabis flowers as well as a complete line of IVXX branded pure cannabis concentrates including: oils, waxes, shatters, and clears.
The science of cannabis concentrate extraction functions on the solubility of the cannabinoids and other active ingredients in the cannabis plant. Cannabinoids are not water soluble, so to extract them properly, the cannabinoids must be dissolved in a solvent. IVXX utilizes multiple proprietary extraction methods to produce its concentrates. The Company’s extractors process raw cannabis plants and separate the chemical cannabinoids from the cannabis plant material, producing a concentrate. IVXX also sells clothing, apparel, and other various branded products.
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IVXX produces, markets and sells their line of IVXX branded cannabis products both to adult use and recreational cannabis markets in California and Nevada pursuant to Proposition 64 and Question 2, respectively, which made marijuana consumption legal (January 1, 2018 for California and July 1, 2017 for Nevada), with certain restrictions and rules, for adults over the age of 21.
On October 26, 2017, the Company entered into joint venture agreements with NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC (collectively “NuLeaf”) to build and operate cultivation and production facilities for our IVXX brand of cannabis products in Nevada. The agreements were subject to approval by the State of Nevada, the City of Sparks and the City of Reno in Nevada. Under the terms of the agreements, the Company remitted to NuLeaf an upfront investment of $4.50 million in the form of convertible loans bearing an interest rate of 6.0% per annum. The Company received all required permits and licenses from the State of Nevada and local authorities in 2018. As a result, the notes receivable balance was converted into a 50.0% ownership interest in Nuleaf. See Note 4— “Variable Interest Entity Arrangements”.
MediFarm I RE
On October 14, 2015, we formed MediFarm I RE. We own 50.0% of the membership interests in MediFarm I RE. The remaining membership interests are owned by Forever Young Investments, LLC (50.0%), an otherwise unaffiliated entity. MediFarm I RE is a real estate holding company that owns the real property and a building that is situated on such real property, at which our MediFarm I marijuana dispensary facility is located and operates. On February 26, 2019, we agreed to purchase Forever Young’s 50% membership interest in MediFarm I as part of a larger deal that involved ownership interest in MediFarm I, MediFarm II, and MediFarm I RE.
Carnegie
On October 31, 2017, we formed Carnegie, a wholly owned subsidiary. Carnegie is a real estate holding company that owns the real property and a building located in Santa Ana, California. The Carnegie real estate was listed for sale in the fourth quarter of 2018. On July 30, 2020, we completed sold the real property and building located at 1815 Carnegie Avenue in Santa Ana, California to an unrelated third party. See Note 19 – “Discontinued Operations”.
Dyer
On October 31, 2017, we formed Dyer, a wholly owned subsidiary. Dyer is a real estate holding company for the purpose of acquiring real property and a building located in Santa Ana, California, where the Company plans to open an additional cannabis operation in Santa Ana, California.
Herbs and Produce Products
Edible Garden
Edible Garden was incorporated on April 9, 2013. Edible Garden is a retail seller of locally grown hydroponic produce and herb products that are distributed throughout the Northeast, Midwest and Western United States. Currently, Edible Garden’s products are sold at approximately 1,800 retailers throughout these markets. Most of the produce and herbs grown by Edible Garden are certified organic. Our target customers are those individuals seeking organic and fresh produce locally grown using environmentally sustainable methods.
There are numerous growers that are available to us, and therefore, we are not limited in the number of growers available nor are we dependent on any one grower. We completed construction of a greenhouse structure in 2014, which can be used to grow plants to satisfy selling demands; however, we may incur additional freight costs to distribute these plants until growers are replaced.
Edible Garden’s main competitors are Shenandoah Growers and Sun Aqua Farms. To a lesser extent, Edible Garden competes with Green Giant, Del Monte, Rock Hedge Herbs, and Infinite Herbs. Edible Garden is an up and coming brand that has increased its retailers to approximately 1,800 retail sellers since we acquired Edible Garden in April 2013. Edible Garden believes the following three factors set it apart from its competitors: (1) its branding and marketing displays, which are predominately placed in high traffic areas on its proprietary racks; (2) it uses proprietary strands and seeds for its produce and its methodology for growing such produce; and (3) all of its produce is hydroponically grown and sold “alive” (i.e., the produce is sold “rooted”).
Edible Garden relies on a combination of trademark laws, trade secrets, confidentiality provisions, and other contractual provisions to protect its proprietary rights, which are primarily its brand names, marks, and proprietary pods and seeds. Edible Garden owns trademarks but does not own any patents. Edible Garden signed an exclusive license agreement with Nutrasorb LLC, a spin-off from Rutgers University, to grow and commercialize nutritionally-enhanced lettuce varieties. Under the terms of the agreement, Edible Garden has the right to grow and sell Green and Red Superleaf Lettuce across the North American and European continents as well as Australia. With five times more antioxidants than ordinary lettuce, the produce is high in vitamins A and C, magnesium, iron and potassium contents. It also has high levels of fiber and chlorogenic acid for superior digestion. These nutritionally-enhanced, proprietary Green and Red Superleaf Lettuces were developed by scientists at Rutgers University following years of intensive research. Edible Garden pays a license fee to Nutrasorb, LLC for each unit sold.
Edible Garden’s produce is Global Food Safety Initiative certified. Edible Garden also obtained certain organic certifications for its products. No other governmental regulations or approvals are needed or affect its business.
Our Operations
We are organized into threeone reportable segments:segment:
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Cannabis Dispensary, Cultivation and Production– Includes cannabis-focused retail, cultivation and production operations; and | ||
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Our segment net revenue and contributions to consolidated net revenue for each of the last three fiscal years were as follows:
Total Revenue % of Total Revenue Year Ended December 31, Year Ended December 31, 2018 2017 2018 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Real Estate % Other and Eliminations Total $ 5,585,447 $ 5,701,233 17.8 % 15.9 % 25,978,118 30,031,046 82.9 % 83.9 % 62,574 - 0.2 % - (292,521 ) 68,565 (0.9 )% 0.2 % $ 31,333,618 $ 35,800,844 100.0 % 100.0 %
See “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements for financial information about our segments. See also “Item 1A. Risk Factors” below for a discussion of certain risks associated with our operations.
Herbs and Produce Products
Either independently or in conjunction with third parties, we are a retail seller of locally grown hydroponic herbs and produce, which are distributed through major grocery stores throughout the East, West and Midwest regions of the U.S.
Cannabis Dispensary, Cultivation and Production
Either independently or in conjunction with third parties, we operate medical marijuana retail and adult use dispensaries, cultivation and production facilities in California and Nevada. All of our retail dispensaries in California and Nevada offer a broad selection of medical and adult use cannabis products including flowers, concentrates and edibles. WeIn Nevada, we also produce and sell a line of medical and adult use cannabis flowers, as well as a line of medical and adult use cannabis-extracted products, which include concentrates, cartridges, vape pens and wax products.
Real Estate and Construction Operations
We own real property in Nevada on which we plan to build a medical and adult use marijuana dispensary. Additionally, we own properties in California that are in various stages of construction for medical marijuana and adult use cultivation and production facilities and dispensaries. We have executed a lease for 13,300 square feet of industrial space in San Leandro’s industrial corridor and were in the final stage of completing construction of leasehold improvements for the San Leandro medical marijuana dispensary during December 2018.
EmployeesHuman Capital
As of December 31, 2020, we had 52 employees. Our employees are the dateheart of our Company. In a rapidly evolving industry, it is imperative that we attract, develop and retain top talent on an ongoing basis. To do this, Annual Report on Form 10-K, we have approximately 222 employees.seek to make Terra Tech an inclusive, diverse and safe workplace, with meaningful compensation and opportunities for career growth.
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Investing in our common stock involves a high degree of risk. Before deciding to purchase, hold, or sell our common stock, you should carefully consider the risks described below in addition to the cautionary statements and risks described elsewhere and the other information contained in this Report and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these known or unknown risks or uncertainties actually occur, our business, financial condition, results of operations and/or liquidity could be seriously harmed, which could cause our actual results to vary materially from recent results or from our anticipated future results. In addition, the trading price of our common stock could decline due to any of these known or unknown risks or uncertainties, and you could lose all or part of your investment. An investment in our securities is speculative and involves a high degree of risk. You should not invest in our securities if you cannot bear the economic risk of your investment for an indefinite period of time and cannot afford to lose your entire investment. See also “Cautionary Note Concerning Forward-Looking Statements.”
Our business is subject to numerous risks and uncertainties, discussed in more detail in the following section. These risks include, among others, the following key risks:
Risks Relating to Our Business, Financial Position and Industry
• | Our business may be adversely affected by the ongoing coronavirus pandemic. | |
• | We have had significant changes to our operations, which may make it difficult for investors to predict future performance based on current operations. | |
• | We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flow. | |
• | We will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not be able to obtain on acceptable terms, or at all. If we fail to raise additional capital, as needed, our ability to implement our business model and strategy could be compromised. | |
• | We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively. | |
• | If we fail to protect our intellectual property, our business could be adversely affected. | |
• | Although we believe that our products and processes do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business. | |
• | Our trade secrets may be difficult to protect. | |
• | Our business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global economic conditions. | |
• | Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel. | |
• | We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations. | |
• | If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected. | |
• | We are dependent on the popularity of consumer acceptance of our product lines, including IVXX. | |
• | A drop in the retail price of medical and adult use marijuana products may negatively impact our business. | |
• | Federal regulation and enforcement may adversely affect the implementation of cannabis laws and regulations may negatively impact our revenues and profits. | |
• | We could be found to be violating laws related to cannabis. | |
• | Variations in state and local regulation, and enforcement in states that have legalized cannabis, may restrict cannabis-related activities, which may negatively impact our revenues and prospective profits. | |
• | Prospective customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana. | |
• | Marijuana remains illegal under federal law. | |
• | We are not able to deduct some of our business expenses. | |
• | We may not be able to attract or retain a majority of independent directors. | |
• | We may not be able to successfully execute on our merger and acquisition strategy. |
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• | Laws and regulations affecting the medical and adult use marijuana industry are constantly changing, which could detrimentally affect our cultivation, production and dispensary operations, and the business of IVXX. | |
• | We may not obtain the necessary permits and authorizations to operate the medical and adult use marijuana business. | |
• | If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer. | |
• | We may have difficulty accessing the service of banks, which may make it difficult for us to operate. | |
• | Litigation may adversely affect our business, financial condition, and results of operations. | |
• | Our insurance coverage may be inadequate to cover all significant risk exposures. | |
• | We may become subject to legal proceedings and liability if our products are contaminated. | |
• | Some of our lines of business rely on our third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation. | |
• | Disruptions to cultivation, manufacturing and distribution of cannabis in California and Nevada may negatively affect our access to products for sale at our dispensaries. | |
• | High tax rates on cannabis and compliance costs in California and Nevada may limit our customer base. | |
• | Federal income tax reform could have unforeseen effects on our financial condition and results of operations. | |
• | Inadequate funding for the Department of Justice (DOJ) and other government agencies could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business. | |
• | California’s Phase-In of Laboratory Testing Requirements could impact the availability of the products sold in our dispensary. | |
• | There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens could have a material adverse impact on our business development efforts and our operations. | |
• | The scientific community has not yet extensively studied the long-term health effects of the use of vaporizer products. | |
• | If product liability lawsuits are brought against us, we will incur substantial liabilities. | |
• | We may not be able to realize gains from our investment in Hydrofarm. | |
• | Unionization of employees could have a material adverse impact on our business. | |
• | Inadequate funding for state and local regulatory agencies and the effects of COVID-19 could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business. | |
• | Competition from Synthetic Production and Technological Advances | |
• | Risks inherent in an Agricultural Business. | |
• | Unfavorable Publicity or Consumer Perception. |
Risks Related to an Investment in Our Securities
• | We expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments. | |
• | Our Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock due to suitability requirements. | |
• | Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock. | |
• | The elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees. | |
• | We may issue additional shares of Common Stock or Preferred Stock in the future, which could cause significant dilution to all stockholders. | |
• | Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us. | |
• | Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them. | |
• | Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact profitability. |
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Risks Relating to Our Business, Financial Position and Industry
Our business may be adversely affected by the ongoing coronavirus pandemic.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. This virus continues to spread globally and efforts to contain the spread of COVID-19 have intensified. The outbreak and any preventative or protective actions that governments or we may take in respect of COVID-19 may result in a period of business disruption and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect our business, financial condition and results of operations. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. There may be interruptions to our supply chain due to the inability of manufacturers to continue normal business operations and to ship products. In addition, a significant outbreak of COVID-19 or other infectious diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could impact our business, financial condition and results of operations. We are currently working to enhance our business continuity plans to include measures to protect our employees in the event of infection in our corporate offices, or in response to potential mandatory quarantines.
We have a limited operating history,had significant changes to our operations, which may make it difficult for investors to predict future performance based on current operations.
We have a limited operating historyhad significant changes to our operations which changes the relevance of our historical performance upon which investors may base an evaluation of our potential future performance. In particular, we have not proven that we can sell produce and herb products, or cannabis products in a manner that enables us to be profitable and meet customer requirements, enhance our produce and herb products, obtain the necessary permits and/or achieve certain milestones to develop our dispensary businesses, enhance our line of cannabis products, including IVXX, develop and maintain relationships with key manufacturers and strategic partners to extract value from our intellectual property, raise sufficient capital in the public and/or private markets, or respond effectively to competitive pressures. As a result, there can be no assurance that we will be able to develop or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash flow.
Any forecasts we make about our operations may prove to be inaccurate. We must, among other things, determine appropriate risks, rewards, and level of investment in our product lines, respond to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain, and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business, results of operations, and financial condition. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in the early stage of development. As a result of these risks, challenges, and uncertainties, the value of your investment could be significantly reduced or completely lost.
We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flow.
We have incurred significant losses in prior periods. For the year ended December 31, 2018,2020, we incurred a net loss of $39.75$30.12 million and, as of that date, we had an accumulated deficit of $142.75$219.80 million. For the year ended December 31, 2017,2019, we incurred a net loss of $32.68$46.93 million and, as of that date, we had an accumulated deficit of $105.55$189.67 million. Any losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and on our cash flow.
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We will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not be able to obtain on acceptable terms, or at all. If we fail to raise additional capital, as needed, our ability to implement our business model and strategy could be compromised.
We have limited capital resources and operations. To date, our operations have been funded primarily from the proceeds of debt and equity financings. We expect to require substantial capital in the near future to commence operations at additional cultivation and production facilities, expand our product lines, develop our intellectual property base, and establish our targeted levels of commercial production. We may not be able to obtain additional financing on terms acceptable to us, or at all. In particular, because marijuana is illegal under federal law, we may have difficulty attracting investors.
Even if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot assure youprovide assurance that we will be able to obtain capital in the future to meet our needs.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may contain rights, preferences, or privileges that are senior to those of our Common Stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of Common Stock could limit our ability to obtain equity financing.
We cannot give youprovide any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.
The industries in which we operate in general are subject to intense and increasing competition. Some of our competitors may have greater capital resources, facilities, and diversity of product lines, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products that will directly compete with our product lines. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.
If we fail to protect our intellectual property, our business could be adversely affected.
Our viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our intellectual property to distinguish our products from our competitors’ products. We rely on copyrights, trademarks, trade secrets, and confidentiality provisions to establish and protect our intellectual property. We may not be able to enforce some of our intellectual property rights because cannabis is illegal under federal law.
Any infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs and require a significant amount of our time. In addition, our ability to enforce and protect our intellectual property rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those developed or licensed by us.
Competitors may also harm our sales by designing products that mirror our products or processes without infringingthat do not infringe on our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
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We may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute and there can be no assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent other parties from developing similar products or processes or designing around our intellectual property.
Although we believe that our products and processes do not and will not infringe upon the patents or violate the proprietaryintellectual property rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.
We are not aware of any infringement by us of any person’s or entity’s intellectual property rights. In the event that products we sell or processes we employ are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify our products or processes or obtain a license for the manufacture and/or sale of such products or processes or cease selling such products or employing such processes. In such event, there can be no assurance that we wouldmay not be able to do somodify our products or secure a license in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business.
There can be no assurance that we willWe may not have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or processes are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on our business and our financial condition.
Our trade secrets may be difficult to protect.
Our success depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. Because we operate in several highly competitive industries, we rely in part on trade secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties, confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.
These confidentiality, inventions, and assignment agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets could also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive, and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.
Our business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global economic conditions.
Future disruptions and volatility in global financial markets and declining consumer and business confidence could lead to decreased levels of consumer spending. These macroeconomic developments could negatively impact our business, which depends on the general economic environment and levels of consumer spending. As a result, we may not be able to maintain our existing customers or attract new customers, or we may be forced to reduce the price of our products. We are unable to predict the likelihood of the occurrence, duration, or severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations, and cash flow.
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Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our future success largely depends upon the continued services of our executive officers and management team. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive officers joins a competitor or forms a competing company, we may lose some or all of our customers. Finally, we do not maintain “key person” life insurance on any of our executive officers. Because of these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment in our stock.
Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition for skilled personnel in our industries. In particular, if the marijuana industry continues to grow, demand for personnel may become more competitive. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your investment could be significantly reduced or completely lost.
We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.
In the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, finances, management, and other resources. The factors that may place strain on our resources include, but are not limited to, the following:
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| The need for continued development of our financial and information management systems; |
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| The need to manage strategic relationships and agreements with manufacturers, customers, and partners; and |
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| Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business. |
Additionally, our strategy envisions a period of rapid growth that may impose a significant burden on our administrative and operational resources. Our ability to effectively manage growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that we will be successful in recruiting and retaining new employees or retaining existing employees.
We cannot provide assurances that ourOur management willmay not be able to manage this growth effectively. Our failure to successfully manage growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting our business, financial condition, or results of operations.
If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
In the area of innovation, we must be able to develop new technologies and products that appeal to our customers. This depends, in part, on the technological and creative skills of our personnel and on our ability to protect our intellectual property rights. We may not be successful in the development, introduction, marketing, and sourcing of new technologies or innovations, that satisfy customer needs, achieve market acceptance, or generate satisfactory financial returns.
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We are dependentdepend on the popularity of consumer acceptance of our product lines, including IVXX.
Our ability to generate revenue and be successful in the implementation of our business plan is dependent on consumer acceptance and demand of our product lines, including IVXX. Acceptance of our products will depend on several factors, including availability, cost, ease of use, familiarity of use, convenience, effectiveness, safety, and reliability. If customers do not accept our products, or if we fail to meet customers’ needs and expectations adequately, our ability to continue generating revenues could be reduced.
A drop in the retail price of medical and adult use marijuana products may negatively impact our business.
The demand for our products depends in part on the price of commercially grown marijuana. Fluctuations in economic and market conditions that impact the prices of commercially grown marijuana, such as increases in the supply of such marijuana and the decrease in the price of products using commercially grown marijuana, could cause the demand for medical marijuana products to decline, which would have a negative impact on our business.
Federal regulation and enforcement may adversely affect the implementation of cannabis laws and regulations may negatively impact our revenues and profits.
Currently, there are 3337 states plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate medical and adult uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely, under the CSA, the policies and regulations of the federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited. Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such potential amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law, and we may be deemed to be producing, cultivating, or dispensing marijuana in violation of federal law. Active enforcement of the current federal regulatory position on cannabis may thustherefore indirectly and adversely affect our revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.
In February 2017, the Trump administration announced that there may be “greater enforcement” of federal laws regarding marijuana. Any such enforcement actions could have a negative effect on our business and results of operations.
Since the start of the new congress, there have been “positive” discussions about the Federal Government’s approach to cannabis. The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. With the change of the Attorney General, the DOJ has not signaled any change in their enforcement efforts. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana. This prohibition is currently in place until September 30, 2019.
We could be found to be violating laws related to cannabis.
Currently, there are 3337 states plus the District of Columbia that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely, under the CSA, the policies and regulations of the federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited. Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. Because we cultivate, produce, sell and distribute medical marijuana, we have risk that we will be deemed to facilitate the selling or distribution of medical marijuana in violation of federal law. Finally, we could be found in violation of the CSA in connection with the sale of IVXX’s products. This would cause a direct and adverse effect on our subsidiaries’ businesses, or intended businesses, and on our revenue and prospective profits.
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Variations in state and local regulation, and enforcement in states that have legalized cannabis, may restrict cannabis-related activities, which may negatively impact our revenues and prospective profits.
Individual state and local laws do not always conform to the federal standard or to other states'states’ laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization and medical laws. As of December 2018, ten2020, 15 states and the District of Columbia have legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized, or created medical marijuana exemptions. For example, certain states have limits on the number of marijuana plants that can be homegrown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of medical marijuana needing care or that person’s caregiver. Active enforcement of state laws that prohibit personal cultivation of marijuana may indirectly and adversely affect our business and our revenue and profits.
In November 2016, California voters approved Proposition 64, also known as the Adult Use of Marijuana Act (“AUMA”), in a ballot initiative. Among other things, the AUMA makes it legal for adults over the age of 21 to use marijuana and to possess up to 28.5 grams of marijuana flowers and 8 grams of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, the AUMA establishes a licensing system for businesses to, among other things, cultivate, process and distribute marijuana products under certain conditions. On January 1, 2018 and the California Bureau of MarijuanaCannabis Control enacted regulations to implement the AUMA.
Also, in November 2016, Nevada voters approved Question 2 in a ballot initiative. Among other things, Question 2 makes it legal for adults over the age of 21 to use marijuana and to possess up to one ounce of marijuana flowers and one-eighth of an ounce of marijuana concentrates. Individuals are also permitted to grow up to six marijuana plants for personal use. In addition, Question 2 authorizes businesses to cultivate, process and distribute marijuana products under certain conditions. The Nevada Department of Taxation enacted regulations to implement Question 2 in the summer of 2017.
If we are unable to obtain and maintain the permits and licenses required to operate our business in compliance with state and local regulations in California, we may experience negative effects on our business and results of operations.
California has only issued temporary cannabis licenses and there is no guarantee we will receive permanent licenses.
Effective January 1, 2018, the State of California allowed for adult-use cannabis sales. California’s cannabis licensing system is being implemented in two phases. First, beginning on January 1, 2018, the State of California began issuing temporary licenses. Temporary licenses were initially issued for 90 days, but have since been extended three times by the State of California. Our current temporary licenses expire in July 2019. The extensions were initially provided because in April 2018 the Company had submitted all the necessary documentation for an annual license to be issued. Prior to the State of California completing its review of any annual licenses, the licensing authority determined they would eliminate the need to have multiple licenses issued to each entity for both medical and adult use. The Company has since applied for single category licenses that allow our vertically integrated activities to conduct sales in both the medical and adult-use categories. The Company’s prior licenses obtained from the local jurisdictions in which it operated have been continued by such jurisdictions and are necessary to obtain state licensing. The Company has received a temporary license for each local jurisdiction in which it has active operations. The temporary licenses may be extended for an additional period of time. The Company submitted its applications for the annual licenses in April 2018. Although the Company believes it will receive the necessary licenses from the State of California to conduct its business in a timely fashion, there is no guarantee the Company will be able to do so and any failure to do so may have a negative effect on its business and results of operations.
Prospective customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana.
Our website is visible in jurisdictions where medicinal and adult use of marijuana is not permitted and, as a result, we may be found to be violating the laws of those jurisdictions.
Marijuana remains illegal under federal law.
Marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan, especially in respect of our marijuana cultivation, production and dispensaries. In addition, our assets, including real property, cash, equipment and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.
We are not able to deduct some of our business expenses.
Section 280E of the Internal Revenue Code prohibits marijuana businesses from deducting their ordinary and necessary business expenses, forcing us to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a marijuana business depends on how large its ratio of nondeductible expenses is to its total revenues. Therefore, our marijuana business may be less profitable than it could otherwise be.
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We may not be able to attract or retain a majority of independent directors.
Our board of directors is currently comprised of a majority of independent directors. However, through much of our history our board was not currently comprised of a majority of independent directors. We may in the future desire to list our common stock on The New York Stock Exchange (“NYSE”) or The NASDAQ Stock Market (“NASDAQ”), both of which require that a majority of our board be comprised of independent directors. We may have difficulty attracting and retaining independent directors because, among other things, we operate in the marijuana industry, and as a result we may be delayed or prevented from listing our common stock on the NYSE or NASDAQ.
We may not be able to successfully execute on our merger and acquisition strategystrategy.
Our business plan depends in part on merging with or acquiring other businesses in the marijuana industry. The success of any acquisition will depend upon, among other things, our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain and motivate key personnel of acquired businesses, and to retain their customers. Any acquisition may result in diversion of management’s attention from other business concerns, and such acquisition may be dilutive to our financial results and/or result in impairment charges and write-offs. We might also spend time and money investigating and negotiating with potential acquisition or investment targets, but not complete the transaction.
Although we expect to realize strategic, operational and financial benefits as a result of our acquisitions, we cannot predict whether and to what extent such benefits will be achieved. There are significant challenges to integrating an acquired operation into our business.
Any future acquisition could involve other risks, including the assumption of unidentified liabilities for which we, as a successor owner, may be responsible. These transactions typically involve a number of risks and present financial and other challenges, including the existence of unknown disputes, liabilities, or contingencies and changes in the industry, location, or regulatory or political environment in which these investments are located, that our due diligence review may not adequately uncover and that may arise after entering into such arrangements.
Laws and regulations affecting the medical and adult use marijuana industry are constantly changing, which could detrimentally affect our cultivation, production and dispensary operations, and the business of IVXX.
Local, state, and federal medical and adult use marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of our business plan and result in a material adverse effect on certain aspects of our planned operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our cultivation, production and dispensary businesses, and our business of selling cannabis products through IVXX. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
We may not obtain the necessary permits and authorizations to operate the medical and adult use marijuana business.
We may not be able to obtain or maintain the necessary licenses, permits, authorizations, or accreditations for our cultivation, production and dispensary businesses, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the medical and adult use marijuana industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations, or accreditations could result in restrictions on our ability to operate the medical and adult use marijuana business, which could have a material adverse effect on our business.
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If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
Our participation in the medical and adult use marijuana industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against us. Litigation, complaints, and enforcement actions could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability, and growth prospects. We have not been, and are not currently, subject to any material litigation, complaint, or enforcement action regarding marijuana (or otherwise) brought by any federal, state, or local governmental authority. IVXX is presently engaged in the distribution of marijuana; however, we have not been, and are not currently, subject to any material litigation, complaint or enforcement action regarding marijuana (or otherwise) brought by any federal, state, or local governmental authority with respect to IVXX’s business.
We may have difficulty accessing the service of banks, which may make it difficult for us to operate.
Since the use of marijuana is illegal under federal law, many banks will not accept for deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain bank accounts may make it difficult for us to operate our medical and adult use marijuana businesses. If any of our bank accounts are closed, we may have difficulty processing transactions in the ordinary course of business, including paying suppliers, employees and landlords, which could have a significant negative effect on our operations.
We are dependent on the popularity of consumer acceptance of produce and herbs.
Our ability to generate revenue and be successful in the continued implementation of Edible Garden’s business plan is dependent on consumer acceptance and demand of produce and herbs, and in particular for organic products. Acceptance of Edible Garden’s products will depend on several factors, including availability, cost, and convenience. If these customers do not accept Edible Garden’s products, or if we fail to meet Edible Garden’s customers’ needs and expectations adequately, our ability to continue generating revenues could be reduced.
A drop in the retail price of commercially grown produce may negatively impact our business.
The demand for Edible Garden’s produce depends in part on the price of commercially grown produce. Fluctuations in economic and market conditions that impact the prices of commercially grown produce, such as increases in the supply of such produce and the decrease in the price of commercially grown produce, could cause the demand for produce to decline, which would have a negative impact on our business.
Litigation may adversely affect our business, financial condition, and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.
Our management concluded that our internal control over financial reporting was not effective as of December 31, 2017 and our auditors expressed an adverse opinion, which could result in material weaknesses in our financial reporting, such as errors in our financial statements and in the accompanying footnote disclosures, that could require restatements.
As of December 31, 2017, management assessed the effectiveness of our internal controls over financial reporting and concluded that our internal controls and procedures were not effective to detect the inappropriate application of U.S. generally accepted accounting principles (“GAAP”). Our internal controls were adversely affected by deficiencies in the design or operation of our internal controls, which management considered to be material weaknesses. These material weaknesses include the following:
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The failure to implement and maintain proper and effective internal controls and disclosure controls could result in material weaknesses in our financial reporting, such as errors in our financial statements and in the accompanying footnote disclosures that could require restatements. Investors may lose confidence in our reported financial information and disclosure, which could negatively impact our stock price.
We do not expect that our internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our insurance coverage may be inadequate tonot cover all significant risk exposures.
We will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. In particular, we may have had difficulty obtaining insurance because we operate in the marijuana industry. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, and results of operations. We do not have any business interruption insurance. Any business disruption or natural disaster could result in substantial costs and diversion of resources.
IfWe may become subject to legal proceedings and liability if our products are contaminated, we may have litigation and products liability exposure.contaminated.
We source some of our products from third-party suppliers. Although we testverify that the products we receive from third-party suppliers are adequately tested, we may not identify all contamination in those products. Possible contaminates include pesticides, molds and fungus. If any of our products harm a customer, suffers an injury from our products, they may sue us in addition to the supplier, and we may not have adequate insurance to cover any such claims, which could result in a negative effect on our results of operations.
Some of our lines of business rely on our third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation.
Some of our lines of business and services, including our dispensaries, rely on services hosted and controlled directly by third-party service providers. We do not have redundancy for all of our systems, many of our critical applications reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. If our business relationship with a third-party provider of hosting or software services is negatively affected, or if one of our service providers were to terminate its agreement with us, we might not be able to deliver access to our data, which could subject us to reputational harm and cause us to lose customers and future business, thereby reducing our revenue.
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We hold large amounts of customer data, some of which is hosted in third-party facilities. A security incident at those facilities or ours may compromise the confidentiality, integrity or availability of customer data. Unauthorized access to customer data stored on our computers or networks may be obtained through break-ins, breaches of our secure network by an unauthorized party, employee theft or misuse or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to gain access to customer data. If there were an inadvertent disclosure of customer information, or if a third party were to gain unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation could be damaged and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm our business.
Because of the large amount of data we collect and manage using our hosted solutions, it is possible that hardware or software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption, cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant or cause us to fail to meet committed service levels. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the Internet, the failure of our network or software systems or security breaches. In addition, computer viruses or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports in near real time because of a number of factors, including failures of our network or software. If we supply inaccurate information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed and we could lose customers, or we could be found liable for damages or incur other losses.
In January 2017, one of our software providers reported that its system was hacked, and we were unable to access some of our data. We currently have access to the data again. However, another lossLoss of access to our data could have a negative impact on our business and results of operations. In particular, the states in which we operate require that we maintain certain information about our customers and transactions. If we fail to maintain such information, we could be in violation of state laws.
Disruptions to cultivation, manufacturing and distribution of cannabis in California and Nevada may negatively affect our access to products for sale at our dispensaries.
California and Nevada laws and regulations require us to purchase products only from licensed vendors and through licensed distributors. To date, a relatively small number of licenses have been issued in California to cultivate, manufacture and distribute cannabis products. We have obtained a license to distribute products from our cultivation and manufacturing facilities to our dispensaries, however we currently do not cultivate and manufacture enough of our own products to satisfy customer demand. In addition, we carry products cultivated and manufactured by third parties. As a result, if an insufficient number of cultivators, manufacturers and distributors are able to obtain licenses our ability to purchase products and have them delivered to our dispensaries may be limited and may impact our sales.
High tax rates on cannabis and compliance costs in California and Nevada may limit our customer base.
The State of California imposes a 15.0% excise tax and state of Nevada imposes a 10% excise tax on products sold at licensed cannabis dispensaries. Local jurisdictions typically impose additional taxes on cannabis products. In addition, we incur significant costs complying with state and local laws and regulations. As a result, products sold at our dispensaries will likely cost more than similar products sold by unlicensed vendors and we may lose market share to those vendors.
Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
The Tax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017, and contains many changes to U.S. federal tax laws. The Tax Act requires complex computations that were not previously provided for under U.S. tax law and significantly revised the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings. At December 31, 2018,2020, the Company has completed its accounting for the tax effects of the 2017 Tax Act. However, additional guidance may be issued by the Internal Revenue Service or IRS,(the”IRS”), the Department of the Treasury, or other governing body that may significantly differ from our interpretation of the law, which may result in a material adverse effect on our business, cash flow, results of operations or financial conditions.
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Inadequate funding for the Department of Justice (DOJ)DOJ and other government agencies could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
In an effort to provide guidance to federal law enforcement, the DOJ has issued Guidance Regarding Marijuana Enforcement to all United States Attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provides that the DOJ is committed to the enforcement of the CSA but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. On January 4, 2018, Attorney General Jeff Sessions revoked the Ogden Memo and the Cole Memos.
The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana. This prohibition is currently in place until September 30, 2019. If a prolonged government shutdown occurs, it could enable the DOJ to enforce the CSA in states that have laws legalizing medical marijuana.
California’s Phase-In of Laboratory Testing Requirements could impact the availability of the products sold in our dispensarydispensary.
Beginning July 1, 2018, cannabis goods must meet all statutory and regulatory requirements. A licensee can only sell cannabis goods that have been tested by a licensed testing laboratory and have passed all statutory and regulatory testing requirements. In order to be sold, cannabis goods harvested or manufactured prior to January 1, 2018, must be tested by a licensed testing laboratory and must comply with all testing requirements in section 5715 of the Bureau of Cannabis Control (“BCC”) regulations. Cannabis goods that do not meet all statutory and regulatory requirements must be destroyed in accordance with the rules pertaining to destruction. See “Note 3 – Concentrations of Business and Credit Risk” for additional information on California laboratory testing requirements.
There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens could have a material adverse impact on our business development efforts and our operations.
There is uncertainty regarding whether and in what circumstances federal, state, or local regulatory authorities will seek to develop and enforce regulations relative to vaporizer hardware and accessories that can be used to vaporize cannabis and/or tobacco. Further, it remains to be seen whether current or future regulations relating to tobacco vaporization products would also apply to cannabis vaporization products and related consumption accessories.
There has been increasing activity on the federal, state, and local levels with respect to scrutiny of vaporizer products. Federal, state, and local governmental bodies across the United States have indicated that vaporization products and certain other consumption accessories may become subject to new laws and regulations at the state and local levels. For example, in September 2019, the Trump Administration announced a plan to ban the sale of most flavored e-cigarettes nationwide. At the state level, over 25 states have implemented statewide regulations that prohibit vaping in public places. In January 2015, the California Department of Health declared electronic cigarettes and certain other vaporizer products a health threat that should be strictly regulated like tobacco products, and in September 2019, California’s governor issued an executive order on vaping, focused on enforcement and disclosure. Many states, provinces, and some cities have passed laws restricting the sale of electronic cigarettes and certain other tobacco vaporizer products. Some cities have also implemented more restrictive measures than their state counterparts, such as San Francisco, which in June 2018, approved a new ban on the sale of flavored tobacco products, including vaping liquids and menthol cigarettes. In August 2020, California prohibited the sale of most flavored tobacco products, including menthol cigarettes.
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The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating cannabis vaporization products or consumption accessories could limit our ability to sell such products, result in additional compliance expenses, and require us to change our labeling and methods of distribution, any of which could have a material adverse effect on our business, results of operations and financial condition.
The scientific community has not yet extensively studied the long-term health effects of the use of vaporizer products.
Cannabis vaporizers and related products were recently developed and therefore the scientific community has not had a sufficient period of time to study the long-term health effects of their use. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation. Loss of demand for our product, product liability claims, and increased regulation stemming from unfavorable scientific studies on these products could have a material adverse effect on our business, results of operations, and financial condition.
If product liability lawsuits are brought against us, we will incur substantial liabilities.
We face an inherent risk of product liability. For example, we could be sued if any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts.
Furthermore, vaporizer products and other similar consumption product manufacturers, suppliers, distributors, and sellers have recently become subject to litigation. While we have not been a party to any product liability litigation and do not ourselves manufacture any products, several lawsuits have been brought against other manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. We may be subject to similar claims in the future relating to vaporizer products that we sell. We may also be named as a defendant in product liability litigation against one of our suppliers by association, including in class action lawsuits. In addition, we may see increasing litigation over our vaporizer products or the regulation of our products as the regulatory regimes surrounding these products develop. If such lawsuits are filed against us in the future, we could incur substantial costs, including costs to defend the cases and possible damages awards.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit sales of our products. Even a successful defense of these hypothetical future cases would require significant financial and management resources. If we are unable to successfully defend these hypothetical future cases, we could face at least the following potential consequences:
• | decreased demand for our products; | |
• | injury to our reputation; | |
• | costs to defend the related litigation; | |
• | a diversion of management’s time and our resources; | |
• | substantial monetary awards to users of our products; | |
• | product recalls or withdrawals; | |
• | loss of revenue; and | |
• | a decline in our stock price. |
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In addition, while we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us.
We may not be able to realize gains from our investment in Hydrofarm.
The Company owns 593,261 shares of common stock of Hydrofarm, a public company trading on the Nasdaq Global Select Market under the ticker symbol “HYFM”, and warrants to acquire an additional 296,630 shares of Hydrofarm common stock at an exercise price of $16.86, both of which are subject to a lock-up until early June 2021. The shares of Hydrofarm common stock and the shares of Hydrofarm common stock underlying the warrants may not appreciate or may decline in value. In addition, there may not be enough liquidity in the market for Hydrofarm common stock for us to sell the number of share we desire to sell when the lock-up expires. As a result, we may not be able to realize gains from our investment in Hydrofarm.
Unionization of employees could have a material adverse impact on our business.
Employees in our Blum Oakland and Blum San Leandro facilities are unionized. We could face an increased risk of work stoppages and higher labor costs wherever labor is organized. If additional employees at our dispensaries, production or cultivation facilities were to unionize, our relationship with our employees could be adversely affected. Accordingly, unionization of our employees could have a material adverse impact on our operating costs and financial condition and could force us to raise prices on our products or curtail operations.
Inadequate funding for state and local regulatory agencies and the effects of COVID-19 could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
We operate in a highly regulated industry and rely on state and local regulatory agencies to issue licenses to operate our business and, in some cases, approve transfers of ownership interests in the event we intend to dispose of assets. Since the onset of the COVID-19 pandemic, many state and local regulatory agencies have been operating at reduced capacity which has resulted in delayed approvals of transfers of ownership interests. As a result, receiving necessary regulatory approvals for the pending transfers of our three Nevada dispensaries has taken longer than anticipated and any future transfers may also be delayed. To the extent we rely on the proceeds from those transfers to fund our operations, continued delays may negatively impact our business.
Competition from Synthetic Production and Technological Advances could adversely impact our profitability.
The pharmaceutical industry may attempt to dominate the cannabis industry, and in particular, legal cannabis, through the development and distribution of synthetic products which emulate the effects and treatment of organic cannabis. If they are successful, the widespread popularity of such synthetic products could change the demand, volume and profitability of the cannabis industry. This could materially adversely affect the ability of the Company to secure long-term profitability and success through the sustainable and profitable operation of its business.
There are Risks Inherent in an Agricultural Business.
Medical and adult-use cannabis is an agricultural product. There are risks inherent in the cultivation business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors or in green houses under climate-controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on the production of the products and, consequentially, on the business, financial condition and operating results of the Company.
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We may suffer from Unfavorable Publicity or Consumer Perception.
The legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and is expected to continue to be, a controlled substance. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity, reports or other media attention regarding cannabis in general, or associating the consumption of cannabis with negative effects or events, could have such a material adverse effect.
Risks Related to an Investment in Our Securities
We expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments.
The trading price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely affect your ability to sell your shares of Common Stock or, if you are able to sell your shares, to sell your shares at a price that you determine to be fair or favorable.
The relative lack of public company experience of our management team could adversely impact our ability to comply with the reporting requirements of U.S. securities laws.
Our senior management may not be able to implement programs and policies in an effective and timely manner that adequately respond to increased legal, regulatory compliance, and reporting requirements, including the establishing and maintaining of internal controls over financial reporting. Any such deficiencies, weaknesses, or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended, which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy, we could be subject to the imposition of fines and penalties, and our management would have to divert resources from attending to our business plan.
Our Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock due to suitability requirements.
Our Common Stock is categorized as “penny stock.” The Securities and Exchange Commission has adopted Rule 15g-9, which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The price of our Common Stock is significantly less than $5.00 per share and is therefore considered “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks. These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our Common Stock, either directly or on behalf of their clients, may discourage potential stockholders from purchasing our Common Stock, or may adversely affect the ability of stockholders to sell their shares.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our shares of Common Stock, have an adverse effect on the market for our shares of Common Stock, and thereby depress our price per share of Common Stock.
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The elimination of monetary liability against our directors, officers, and employees under Nevada law and the existence of indemnification rights for our obligations to our directors, officers, and employees may result in substantial expenditures by us and may discourage lawsuits against our directors, officers, and employees.
Our Articles of Incorporation contain a provision permitting us to eliminate the personal liability of our directors to us and our stockholders for damages for the breach of a fiduciary duty as a director or officer to the extent provided by Nevada law. We may also have contractual indemnification obligations under any future employment agreements with our officers or agreements entered into with our directors. The foregoing indemnification obligations could result in us incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and the resulting costs may also discourage us from bringing a lawsuit against directors and officers for breaches of their fiduciary duties; and may similarly discourage the filing of derivative litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit us and our stockholders.
We may issue additional shares of Common Stock or Preferred Stock in the future, which could cause significant dilution to all stockholders.
Our Articles of Incorporation authorize the issuance of up to 990,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, with a par value of $0.001 per share. As of March 8, 2019,23, 2020, we had 94,035,688231,754,219 shares of Common Stock, 12 shares of Series A Preferred Stock and zero shares of Series B Preferred Stock outstanding; however, we may issue additional shares of Common Stock or preferred stock in the future in connection with a financing or an acquisition. Such issuances may not require the approval of our stockholders. In addition, certain of our outstanding rights to purchase additional shares of Common Stock or securities convertible into our Common Stock are subject to full-ratchet anti-dilution protection, which could result in the right to purchase significantly more shares of Common Stock being issued or a reduction in the purchase price for any such shares or both. Any issuance of additional shares of our Common Stock, or equity securities convertible into our Common Stock, including but not limited to, preferred stock, warrants, and options, will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our Common Stock, and may negatively impact the market price of our Common Stock.
Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.
Nevada has a business combination law that prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after an “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.
The effect of Nevada’s business combination law is potentially to discourage parties interested in taking control of us from doing so if they cannot obtain the approval of our Board. Both of these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.
Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined by our Board, based upon earnings, financial condition, capital resources, capital requirements, restrictions in our Articles of Incorporation, contractual restrictions, and such other factors as our Board deems relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
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Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact profitability.
As of December 31, 2018,2020, we have goodwill of $35.17$6.17 million and other intangible assets of $20.05$7.71 million, which represents 45.4%13.3% of our total assets. As of December 31, 2017,2019, we had goodwill of $28.92$21.47 million and other intangible assets of $27.77$14.87 million, which represented 57.7%30.5% of our total assets. We evaluate goodwill for impairment on an annual basis or more frequently if impairment indicators are present based upon the fair value of each reporting unit. We assess the impairment of other intangible assets on an annual basis, or more frequently if impairment indicators are present, based upon the expected future cash flows of the respective assets. These valuations include management’s estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to our business, inability to achieve sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value of our reporting units changes in future periods, we may be required to record an impairment charge related to goodwill or other intangible assets, which would reduce earnings in such period.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
A summary of the offices and properties we lease or own are presented in the table below. Each of our facilities is considered to be in good condition, adequate for its purpose and suitably utilized according to the individual nature and requirements of the relevant operations.
Purpose |
| Location |
| Own or Lease |
| Base Monthly Rent |
|
| Lease Begin Date |
| Lease End Date | ||
|
|
|
|
|
|
|
|
|
|
|
| ||
Corporate Headquarters |
| Irvine, CA |
| Lease |
| $ | 19,806 |
|
| 5/1/2019 |
| 4/30/2024 | |
Cultivation Facility (1) |
| Oakland, CA |
| Lease |
| $ | 26,225 |
|
| 1/1/2017 |
| 12/31/2024 | |
Cultivation Facility (1)(2) |
| Spanish Springs, NV |
| Own |
|
|
|
|
|
|
|
| |
Dispensary (Bl m Oakland)/Cultivation Facility |
| Oakland, CA |
| Lease |
| $ | 31,486 |
|
| 5/1/2016 |
| 3/31/2022 | |
Dispensary (Bl m San Leandro) |
| San Leandro, CA |
| Lease |
| $ | 26,225 |
|
| 1/1/2017 |
| 12/31/2024 | |
Building (Dyer) (1) |
| Santa Ana, CA |
| Own |
|
|
|
|
|
|
|
| |
Building (4th Street) (1)(2) |
| Las Vegas, NV |
| Own |
|
|
|
|
|
|
|
|
________
(1) Not open yet. |
Purpose Location Own or Lease Base Monthly Rent Lease Begin Date Lease End Date Corporate Headquarters Irvine, CA Lease 01/03/2017 30/04/2022 Office (Terra Tech) Oakland, CA Lease 01/04/2017 M to M Office (Edible Garden) Jesery City, NJ Lease 01/12/2017 31/12/2020 Land for Greenhouse (Edible Garden) Belvidere, NJ Lease 01/01/2015 31/12/2029 Cultivation Facility (Gary) Las Vegas, NV Lease 01/05/2014 30/04/2024 Cultivation Facility (1) Oakland, CA Lease 01/01/2017 31/12/2024 Cultivation Facility (1) Spanish Springs, NV Own Dispensary (Blüm Oakland)/Cultivation Facility Oakland, CA Lease 01/05/2016 31/03/2022 Dispensary (Blüm Desert Inn) Las Vegas, NV Lease 15/04/2014 31/05/2019 Dispensary (Blüm Decatur) Las Vegas, NV Lease 01/05/2014 30/04/2019 Dispensary (Blüm San Leandro) San Leandro, CA Lease 01/01/2017 31/12/2024 Dispensary (Blüm Reno) Reno, NV Own Dispensary (MediFarm So Cal) Santa Ana, CA Lease 01/10/2017 M to M Building (Carnegie) Santa Ana, CA Own Building (Dyer) Santa Ana, CA Own Dispensary (Blüm 4th Street) (1) Las Vegas, NV Own _________ (1) Not open yet. $ 7,327 $ 1,726 $ 4,967 $ 14,640 $ 5,624 $ 24,720 – – – $ 28,840 $ 9,422 $ 5,245 $ 24,720 – – – $ 15,000 – – – – – – – – –
See Note 21-21 – “Litigation and Claims”of the “NotesNotes to Consolidated Financial Statements”Statements in Part II Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, which is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Market Information
Our Common Stock is quoted on the OTC Markets Group, Inc.’s OTCQX tier under the symbol “TRTC.” On March 8, 2018,23, 2021, the closing bid price on the OTC Markets Group, Inc.’s OTCQX tier for our Common Stock was $1.15.$0.39.
Holders
As of March 8, 2019,23, 2021, there were 94,035,688234,062,627 shares of Common Stock issued and 231,754,219 shares of Common Stock outstanding (excluding shares of Common Stock issuable upon conversion or conversion into shares of Common Stock of all of our currently outstanding Series A Preferred Stock and Series B Preferred Stock and exercise of our warrants and options) held by approximately 181209 stockholders of record. We believe that we have more than 114,000296,500 beneficial holders of our Common Stock. As of March 8, 2018, there were no shares issued and outstanding of our Series B Preferred Stock, Series G Preferred Stock, Series N Preferred Stock and Series Z Preferred Stock.
Dividends
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. There are no restrictions in our Articles of Incorporation or Bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
|
| we would not be able to pay our debts as they become due in the usual course of business; or |
|
| our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution, unless otherwise permitted under our Articles of Incorporation. |
Securities Authorized for Issuance Under Equity Compensation Plans
On January 8,12, 2016, we adopted the 2016 Equity Incentive Plan (the “Plan”). Our, and our stockholders approved the Plan at our Annual Meetingannual meeting of Stockholdersstockholders that was held on September 26, 2016. Pursuant to the terms of the Plan, the maximum number of shares of Common Stock available for the grant of awards under the Plan shall not exceed 2,000,000.2.0 million. During the years ended December 31, 2016, 2017, and 2018, and 2017, wethe Company granted ten-year options to certain of our directors, executive officers, and employees, ten-yearpursuant to which such individuals are entitled to exercise options to acquire 733,333purchase an aggregate of up to 0.13 million, 0.21 million, and 731,0650.20 million shares of Common Stock, respectively, atrespectively. The options have exercise prices ranging from $1.00 to $5.10of $2.54 - $4.68 per share, which represented the closing prices reported on the OTC Market Group, Inc.’s OTCQX tier on the grant date. Generally, one-twelfth of each option vestsand generally vest quarterly for the next twelve quarters. As of December 31, 2018 and December 31, 2017, there were 840,317 and 491,035 vested options, respectively. No options were exercised during the years ended December 31, 2018 and 2017. During the years ended December 31, 2018 and 2017, 436,668 and zero options were forfeited, respectively. As of March 8, 2019, there were 938,928 vested options.over a three-year period.
On December 11, 2018, we adoptedthe Company’s Board of Directors approved the 2018 Equity Incentive Plan. OurPlan (the “Plan”). On June 20, 2019, the Company adopted the Amended and Restated 2018 Equity Incentive Plan (the “2018 Plan”), and our stockholders will vote to approve this planapproved the Plan at our next Annual Meetingannual meeting of Stockholders to bestockholders that was held sometime in the fall ofSeptember 23, 2019. Pursuant to the terms of the 2018 Plan, the maximum number of shares of Common Stock available for the grant of awards under the 2018 Plan shall not exceed 6,600,000. 13.00 million. On February 14, 2020, the Board approved an amendment (the “Plan Amendment”) to the Company’s Amended and Restated 2018 Equity Incentive Plan (the “Plan”) to increase the number of shares available for issuance thereunder by 28.98 million shares of Terra Tech common stock for a total of 43.98 million shares of Terra Tech common stock, plus the number of shares, not to exceed 2.00 million shares, that may become available under the Company’s 2016 Equity Incentive Plan after termination of awards thereunder, subject to adjustment in accordance with the terms of the Plan. During the years ended December 31, 2020, 2019, and 2018, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 12.11 million, 1.89 million, and 2.60 million shares of Common Stock, respectively. The options have exercise prices of $0.07 - $1.00 per share, and generally vest quarterly over a three-year period.
During the year ended December 31, 2018, wethe Company granted ten-year options to certain of our directors, executive officers, and employees, ten-yearpursuant to which such individuals are entitled to exercise options to acquire 5,100,000purchase an aggregate of up to 0.35 million shares of Common Stock respectively, atthat were not subject to the 2016 Equity Plan or the 2018 Equity Plan. The options have exercise priceprices of $1.00$2.02 per share, which represented the closing prices reported on the OTC Market Group, Inc.’s OTCQX tier on the grant date. Generally, one-twelfth of each option vestsand generally vest quarterly for the next twelve quarters. As of December 31, 2018, there were 425,000 vested options. No options were exercised during the year ended December 31, 2018. During the years ended December 31, 2018, zero options were forfeited. As of March 8, 2019, there were 850,000 vested options.over a three-year period.
During 2018 there were Options granted not as part of either the 2016 or 2018 Equity Plans. Details on what the terms for the associated plan are yet to be determined. During the year ended December 31, 2018, we granted to certain of our directors, executive officers, and employees ten-year options to acquire 1,011,667shares of Common Stock at an exercise prices ranging from $2.02 to $3.75 per share, which represented the closing prices reported on the OTC Market Group, Inc.’s OTCQX tier on the grant date. Generally, one-twelfth of each option grants each quarterly for twelve quarters. As of December 31, 2018, there were 179,722 vested options. No options were exercised and zero options were forfeited during the year ended December 31, 2018. As of March 8, 2019, there were 264,028 options vested.
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|
| Equity Compensation Plan Information |
| ||||||||
Plan Category |
| Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights |
|
|
| Range of Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights |
| Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) |
| ||
|
| (a) |
|
|
| (b) |
| (c) |
| ||
|
|
|
|
|
|
|
|
|
| ||
Equity Compensation Plans Approved By Security Holders |
|
| 17,144,932 |
|
| $ | 0.072-5.035 |
|
| 28,831,493 |
|
Equity Compensation Plans Not Approved By Security Holders |
|
| 347,898 |
|
|
| 2.02-3.75 |
|
| - |
|
Total |
|
| 17,492,830 |
|
| $ | 0.072-5.035 |
|
| 28,831,493 |
|
Equity Compensation Plan Information Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights Range of Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) Equity Compensation Plans Approved By Security Holders 1.35 - 5.10 Equity Compensation Plans Not Approved By Security Holders 1.00 - 3.75 Total 1.35 - 5.10 1,541,064 $ 458,936 6,111,667 1,500,000 7,652,731 $ 1,958,936
Penny Stock Regulations
The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock, when and if a trading market develops, may fall within the definition of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1.00 million (excluding primary residence), or annual incomes exceeding $0.20 million individually, or $0.30 million, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.
Equity Financing Facility
On November 28, 2016, Terra Tech Corp. entered into an Investment Agreement (the “Investment Agreement”) with an accredited investor (the “Purchaser”) pursuant to which, upon the terms and subject to the conditions set forth therein, the Investor is committed to purchase up to $20.00 million of shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) over the 30-month term of the Investment Agreement. From time to time over the term of the Investment Agreement, at the Company’s sole discretion, the Company may present the Purchaser with a put notice to purchase Common Stock. The maximum amount of any put shall be equal to the lesser of (i) $1.50 million and (ii) 200.0% of the average of the daily trading volume of the Common Stock in the ten (10) trading days prior to the delivery of a put notice. The Company may not deliver more than one put notice during any five (5) trading day period. The purchase price of the Common Stock shall be 95.0% of the average of the three (3) lowest daily volume weighted average prices of the Common Stock in the five (5) trading days prior to the delivery of a put notice (the “Purchase Price”). In the event the average of the three (3) lowest daily volume weighted average prices of the Common Stock in the five (5) trading days following the delivery of a put notice is less than the Purchase Price, the Company shall deliver to the Purchaser additional shares of Common Stock such that the effective price per share of Common Stock paid by the Purchaser is equal to the Purchase Price. Upon execution of the Investment Agreement, the Company issued the Purchaser 13,333 shares of Common Stock as a commitment fee (the “Commitment Shares”).
Pursuant to the Investment Agreement, the Company agreed to sell the Common Stock, including the Commitment Shares, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-210673), declared effective by the Securities and Exchange Commission on August 12, 2016, and a related prospectus supplement thereto.
On September 7, 2018, Company filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”).Commission. The shelf registration was declared effective by the SEC, on October 11, 2018. The registration statement will allow the Company to issue, from time to time at prices and on terms to be determined at or prior to the time of the offering, shares of our common stock, par value $0.001 per share (our “Common Stock”), shares of our preferred stock, par value $0.001 per share (our “Preferred Stock”), debt securities, warrants, rights, or purchase contracts, either individually or in units, with a total value of up to $100.00 million.
ITEM 6. SELECTED FINANCIAL DATA
No longer requiredNot applicable as we are a Small Reporting Company.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K beginning on page F-1. The following discussion contains forward-looking statements that involve risks and uncertainties. Investors should not place undue reliance on these forward-looking statements. These forward-looking statements are based on current expectations and actual results could differ materially from those discussed herein. Factors that could cause or contribute to the differences are discussed in Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from those predicted in these forward-looking statements, and the events anticipated in the forward-looking statements may not actually occur. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or to reflect the occurrence of unanticipated events, unless required by applicable laws or regulations.
Results of Operations
Year Ended December 31, 20182020 Compared to the Year Ended December 31, 20172019
Revenues– For the year ended December 31, 2018,2020, we generated revenues from continuing operations of approximately $31.33$14.29 million, compared to approximately $35.80$16.49 million for the year ended December 31, 2017,2019, a decrease of approximately $4.47$2.20 million. The year-over-year decrease was primarily due to the significant level of taxes that the State of California placed on cannabis sales which depressed the overall legal cannabis market and a decrease in revenue generated by Edible Garden from the sales of its produce and herb products. At this stage in our development, revenues are not yet sufficient to cover ongoing operating expenses.
Cost of Goods Sold – For the year ended December 31, 2018, cost of goods sold was approximately $18.90 million, compared to approximately $24.88 million for the year ended December 31, 2017, a decrease of approximately $5.98 million. Of the total decline, $3.11 million of the decrease was attributable to the decrease in Cannabis revenue in 2018. A decrease of $0.89 million was driven by operational improvements in the Herba dispensary revenue decline of $5.98 million which was partially offset by cultivation and Produce segment. Approximately $1.98 millionmanufacturing revenue increases of the decrease relateswhich totaled $3.78 million. The dispensary revenue was hit by a customer traffic decline from COVID-19 and six combined months of store closures for our two Bay area dispensaries due to operational improvements in the Cannabis segment.civil unrest.
Gross Profit and Gross Margin– Our gross profit for the year ended December 31, 20182020 was approximately $12.43$3.60 million, compared to a gross profit of approximately, $10.92$10.35 million for the year ended December 31, 2017, an increase2019, a decrease of approximately $1.51$6.75 million. Our gross margin for the year ended December 31, 20182020 was approximately 39.68%25.2%, compared to approximately 30.51%62.8% for the year ended December 31, 2017.2019. Most of the gross profit decrease came about because of less year-over-year dispensary revenue as well as higher cost of sales in our cultivation and production operations.
Selling, General and Administrative Expenses– Selling, general and administrative expenses for the year ended December 31, 20182020 were approximately $43.30$24.60 million, compared to approximately $30.80$36.68 million for the year ended December 31, 2017, an increase2019, a decrease of approximately $12.50$12.08 million. In general the decrease was due to costs driven out of the company as we narrowed our focus onto a few key assets. The increase was primarily due to: following areas were examples of this:(i) an increase of $2.57a $3.162 million decrease in employee stocksalaries / payroll taxes, (ii) a $2.47 million decrease in option expense; (ii) an increase of $1.34expense, (iii) a $1.57 million decrease in allowance for doubtful accounts, (iv) a $1.49 million decrease in advertising & promotion expense, (v) a $0.53 million decrease in insurance expense, (vi) a $0.49 million decrease in legal fees, (vii) a $0.47 million decrease in amortization expense; (iii) an increase of $1.07expense, (viii) a $0.45 million decrease in legal expense; (iv) an increaseaccounting fees, and (ix) a $0.44 million decrease in rent expense of $0.66 million; (v) an increase of $0.46 million for insurance expense; (vi) an increase of $0.43 million for security expense;consulting and (vii) an increase of $0.42 million for local business and city taxes.other professional fees.
Other Income (Expense)Operating Gain/Expense – Other operating expenses for the year ended December 31, 20182020 were approximately $8.60$19.88 million, compared to Other expenses of $8.58 million in the year ended December 31, 2019, an increase in $11.30 million.The 2020 activity was driven by goodwill impairment charges of $19.91 million.
Other Income / (Expense) – Other income for the year ended December 31, 2020 was approximately $13.65$27.08 million, compared to other expense of $9.24 million for the year ended December 31, 2017, a decrease2019, an increase of approximately $5.05$36.32 million. The decreaseyear-over-year improvement was primarily due to (i) a $5.23 million gain recorded for2020 income driven by the salemark-to-market of the assets at our dispensary located at 1921 Western Ave., Las Vegas,company’s investment in 2018; (ii) zero loss on extinguishment of debt and loss on fair market valuation of derivatives recorded in 2018, due to adoption of ASU 2017-11, versus $10.64Hydrofarm Holdings, a $29.04 million of expenses recorded in 2017; (iii) a decrease of $0.82 million of impairment charges for property, plant, equipment and intangible assets; and (iv) a decrease of $4.43 million of expense related to adjustments to the fair value of contingent consideration recorded in 2017. The decrease in other expenses was offset by: (i) an increase in interest expense of $10.41 million in 2018 due to adoption of ASU 2017-11, which impacted the accounting for conversion features associated with our convertible notes payable; (ii) a reduction in other income of $5.0 million related to theunrealized gain, on the settlement of contingent consideration recorded in 2017; and (ii) a $0.66$6.36 million increasereduction in expenses in 2018 for the Company’s share of the loss in the Nuleaf joint venture.
Management will continue its efforts to lower operating expenses and increase revenue. We will continue to invest in further expanding our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and our products. Given that most of the operating expenses are fixed or have a quasi-fixed character, management expects that, as revenue increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can be no assurance that we will be able to increase our revenues in succeeding quarters.
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Management will continue its efforts to lower operating expenses and increase revenue. We will continue to invest in further expanding our operations and a comprehensive marketing campaign with the goal of accelerating the education of potential clients and promoting our name and our products. Given that most of the operating expenses are fixed or have a quasi-fixed character, management expects that, as revenue increases, those expenses, as a percentage of revenue, will significantly decrease. Nevertheless, there can be no assurance that we will be able to increase our revenues in succeeding quarters.
Liquidity and Capital ResourcesGoing Concern
We have never reported net income. We incurred netsignificant losses forin prior periods. For the yearsyear ended December 31, 20182020, we incurred a net loss of $30.12 million and, 2017 and haveas of that date, we had an accumulated deficit of approximately $142.75$219.80 million. For the year ended December 31, 2019, we incurred a net loss of $46.93 million and, $105.55 million at December 31, 2018 and 2017, respectively. We had working capital of approximately $12.06 million and $3.47 million as of December 31, 2018that date, we had an accumulated deficit of $189.69 million. We expect to experience further significant net losses in 2021 and 2017, respectively.the foreseeable future. At December 31, 2018,2020, we had a cash balance of approximately $7.19$0.89 million, compared to a cash balance of approximately $5.45$1.23 million at December 31, 2017.2019. We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of preferred stock, common stock, and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. Management feels that our past and current efforts to trim cost and our recent marketing and promotional efforts to boost sales will lead to cash sustainability. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.
We will be requiredanticipate receiving approximately $18 million over the next fifteen months as compensation for asset sales. In addition, we own shares of Hydrofarm stock that come off lock-up on June 9, 2021, the current value of which is $60.75 million. We anticipate these cash in-flows and acquisitions of complementary businesses to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are ableallow for our operations to raise revenuesgrow to a pointcash sustainability.
Given the risks and uncertainties regarding the future of positive cash flow. We believe our existingbusiness due to COVID-19 and available capital resources will be sufficient to satisfy our funding requirements through the fourth quarter of 2020. We are evaluating various options to further reduce our cash requirements to operate at a reduced rate,regulatory uncertainty, as well as optionsour historical lack of profitability, there is doubt as to raiseour ability to continue as a going concern for twelve months from the issuance of these financial statements. However, management’s planned operational and investment remedies have mitigated the doubt. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. For additional funds, including obtaining loans and selling common stock. During 2018, we entered into a $40.00 million Security Purchase Agreement with an accredited investor. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to usinformation, see Item 1A – “Risk Factors”in Part I of this Annual Report on acceptable terms, on an acceptable schedule, or at all.Form 10-K.
The issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance that we will be able to obtain further funds required for our continued operations or that additional financing will be available for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.
Sources and Uses of Cash
Cash Used in Operating Activities
Cash used in operating activities for the year ended December 31, 20182020 was approximately $19.88$10.09 million, compared to approximately $15.87$12.51 million for the year ended December 31, 2017.2019. The increase$2.42 million decrease in cash used in operating activities was almost entirely due to an increase in net loss ofmanagement’s efforts to conserve cash. Similar to 2019 when the company was waiting for the year ended December 31, 2018, comparedstate of Nevada to approve our pending asset transfers, in 2020 management made every effort to conserve cash to persevere through the prior year.impact of COVID-19 and civil unrest.
Cash Used in Investing Activities
Cash used inprovided by investing activities for the year ended December 31, 20182020 was approximately $16.52$11.80 million, compared to cash used in investing activities of approximately $15.27$0.63 million for the prior year. comprisedyear ended 2019, an increase of expenditures related to: (i) the construction$11.17 million. This increase was driven by proceeds from sales of the San Leandroassets and Oakland facilities; (ii) capital expenditures at Edible Garden in Belvidere, N.J.; (iii) payment for acquisition of land in Santa Ana, California and (iv) $5.00 million equity investment in Hydrofarm Holdings Group, Inc. and approximately $2.00 million advances to NuLeaf (see “Note 6 – Investments in Unconsolidated Affiliates”). During fiscal 2017, cash used in investing activities was primarily comprised of expenditures related to the purchase of property, construction of MediFarm’s dispensaries in addition to the furniture and equipment and the issuance of notecollections on notes receivables.
Cash Provided by Financing Activities
Cash provided by financing activities for the year ended December 31, 20182020 was approximately $38.16$2.70 million, compared to $26.83$8.14 million for the prior year. This is a decrease of $5.44 million year-over-year. The cash provided by financing activities in 2020 was predominantly from issuance of notes payable. The cash provided by financing activities in fiscal 20182019 was primarily due to $33.65$13.00 million proceeds from the issuance of notes payable and $5.60$4.50 million from the sale of Common Stock and warrants. The Company also had a cash outflow related to the purchase of $6.25 million related to the purchase of an unaffiliated third parties interest in MediFarm I, MediFarm II, and MediFarm I RE
The cash provided by financing activities in fiscal 2017 was primarily due to: (i) $20.00 million proceeds from the issuance of notes payable; (ii) $9.45 million from the sale of Common Stock and warrants; and (iii) offset by the payment of contingent consideration of $2.09 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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Critical Accounting Policies
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures. Management considers an accounting estimate to be critical if: (1) it requires assumptions to be made that are uncertain at the time the estimate is made; and (2) changes in the estimate, or different estimates that could have been selected, could have a material effect on our results of operations or financial condition.
While we believe that our estimates, assumptions, and judgments are reasonable, they are based on information presently available. Actual results may differ significantly. Additionally, changes in our assumptions, estimates or assessments as a result of unforeseen events or otherwise could have a material impact on our consolidated financial position or results of operations. We believe that the following critical policies affect our more significant judgments and estimates used in preparation of our consolidated financial statements.
We disclose those accounting policies that we consider to be significant in determining the amounts to be utilized for communicating our consolidated financial position, results of operations and cash flows in Note 2 – Summary“Summary of Significant Accounting PoliciesPolicies”to our consolidated financial statements included elsewhere herein. Our discussion and analysis of our financial condition, results of operations, and cash flows are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect our financial position or results of operations.
See FootnoteNote 2 “Summary–“Summary of Significant Accounting Policies,”to our Financial Statements for further information on accounting policies that we believe to be critical, including our policies on:
Business Combinations
Revenue Recognition
Stock-Based Compensation
Notes Receivable
Goodwill
Long-Lived and Intangible Assets
Valuation of Inventory
Deferred Income Taxes
Fair Value Estimates
Recently Adopted and Issued Accounting Standards
See Footnote No.Note 2 “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”, – “Summary of Significant Accounting Policies”to our Financial Statements for information regarding accounting standards adopted in 20182019 and other new accounting standards that were issued but not effective as of December 31, 2018.2020.
Recently IssuedCritical Accounting StandardsEstimates
See Footnote No. 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”,The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make judgments, assumptions and estimates that have a significant impact on the results that we report in our Financial Statements forfinancial statements. A critical accounting estimate is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective, or complex judgments that could have a material effect on our financial condition and results of operations.
Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information regardingis obtained and as our operating environment changes. Based on a critical assessment of our accounting standards adoptedpolicies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in 2018accordance with accounting principles generally accepted in the United States and present a meaningful presentation of our financial condition and results of operations.
Our critical accounting estimates include:
· | Assumption as a going concern | |
· | Valuation of long-lived assets, including intangible assets and goodwill | |
· | Valuation of investments, including equity instruments | |
· | Valuation allowance for deferred tax assets |
Below, we discuss this policy further, as well as the estimates and judgments involved. Actual results could differ from these estimates.
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Going Concern
Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
Valuation of Long-Lived Assets, Including Intangible Assets and Goodwill
We carry a variety of long-lived assets on our balance sheet including property, plant and equipment, goodwill, and other new accounting standardsintangibles. Impairment is the condition that were issued butexists when the carrying amount of a long-lived asset exceeds its fair value, and any impairment charge that we record reduces our operating income. Goodwill is the excess of the cost of an acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. We conduct impairment tests on goodwill annually as of September 30, or more frequently whenever events or changes in circumstances indicate an impairment may exist. We conduct impairment tests on long-lived assets, other than goodwill, whenever events or changes in circumstances indicate that the carrying value may not effectivebe recoverable.
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, management estimates the fair value of the asset and compares it 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. Management determines the asset’s fair value utilizing estimates such as management’s short-term and long-term forecast of operating performance, the remaining useful life and service potential of the asset.
We perform our annual trade name impairment assessment by comparing the estimated fair value of the trade name to the carrying value. We utilize the Relief from Royalty method, which utilizes estimates and assumptions that include management’s revenue forecast, royalty rates avoided, and a discount rate based on the Company’s estimated cost of equity. In selecting appropriate royalty and discount rates, comparable public companies and royalty transactions are examined. Selection of appropriate comparable companies and royalty transactions involves a significant amount of judgement.
We perform our annual goodwill impairment assessment for the Black Oak Gallery reporting unit by comparing the estimated fair value of the reporting unit to the carrying value. We utilized the Guideline Public Company valuation method, which evaluates the prices paid for publicly traded company equities as the basis to determine the fair value of the subject company. The analysis involves significant assumptions regarding the selection of comparable public companies, revenue multiple, and control premium. When performing tests for impairment in between annual tests, management may at times use alternative approaches to estimating the fair value of the Black Oak Gallery reporting unit. These approaches consider trends in the Company’s overall market capitalization and operating results.
Valuation of Equity Instruments
As of December 31, 2018.2020, 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, less a discount for lack of marketability. The discount for marketability was estimated upon consideration of volatility and the length of the lock-up period.
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 option pricing model less a discount for lack of marketability. The discount for lack of marketability is estimated upon consideration of the volatility of the stock price and the remaining length of the lock-up period.
Valuation Allowance for Deferred Tax Assets
Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on the Company’s historical losses and the general economic conditions impacting our industry.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKRISK.
No longer requiredNot applicable because we are a Small Reporting Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARYSUPPLEMENTAL DATA
No longer requiredSee Pages F-1 through F-38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Engagement of New AccountantsNone.
In 2016, we engaged Macias Gini & O’Connell LLP (“MGO”) as our registered public accounting firm. The decision to appoint MGO as the new registered public accounting firm was approved by the Audit Committee of our Board of Directors.
On August 14, 2018, Terra Tech Corp. (the “Company”) and Macias Gini & O’Connell LLP (“MGO”) mutually agreed to terminate the engagement of MGO as the Company’s independent registered public accounting firm. The decision to change registered public accounting firms was approved by the Audit Committee of the Company’s Board of Directors.
The audit reports by MGO on the financial statements of the Company as of and for the year ended December 31, 2017 did not contain an adverse opinion or disclaimer of opinion, and was not modified or qualified as to uncertainty, audit scope or accounting principles. During the fiscal year ended December 31, 2017 and through the subsequent interim period through August 14, 2018, there were no (1) disagreements (as described in Item 304(a)(1)(iv) of Regulation S-K) between the Company and MGO on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MGO, would have caused MGO to make reference to the subject matter of the disagreements in connection with their reports on the consolidated financial statements for such fiscal years, or (2) reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K, except that MGO advised the Company of material weaknesses involving internal controls and procedures related to (i) Risk Assessment; (ii) Control Environment; (iii) Control Activities, (iv) Information and Communications and (v) Monitoring
The Company has engaged Marcum LLP (“Marcum”) as its registered public accounting firm, effective August 14, 2018. The decision to appoint Marcum as the new registered public accounting firm was approved by the Audit Committee of the Company’s Board of Directors.
During the Company’s two most recent fiscal years and through March 8, 2019, neither the Company nor anyone on its behalf consulted with Marcum with respect to any of (i) the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or an event of the type described in Item 304(a)(1)(v) of Regulation S-K.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
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Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2018.2020. Based on this evaluation, our management concluded that as of December 31, 20182020 these disclosure controls and procedures were effective at the reasonable assurance level. As discussed below, our internal control over financial reporting is an integral part of our disclosure controls and procedures.
Scope of Management’s Report on Internal Control Over Financial Reporting
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting has been applied to the entire organization for 2018.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
| 1. | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
| 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of inherent limitations, no matter how well designed and operated, internal control over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance of achieving the desired control objectives. In addition, the design of internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Remediation of Material Weakness
A material weakness is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.
We previously reported a material weakness that was identified as of December 31, 2017 relating to the design and operating effectiveness of our internal control over financial reporting. The material weakness resulted from a lack of sufficient number of qualified personnel within the accounting function that possessed an appropriate level of expertise to effectively perform the following functions:
Risk Assessment – We did not have an effective risk assessment process. From a governance perspective, our formal process to identify, update and assess risks, including changes in our business practices that significantly impact our consolidated financial statements as well as the system of internal control over financial reporting was incomplete.
Control Environment – We did not maintain an effective control environment as evidenced by:
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Control Activities – We did not have control activities that were designed and operating effectively to identify and address all likely sources of material misstatements, including non-standard transactions. In addition, management review controls were not sufficient or in place to identify all potential accounting errors.
Information and Communications – We had not implemented appropriate information technology controls related to access rights for certain financial spreadsheets that are relevant to the preparation of the consolidated financial statements and our system of internal control over financial reporting. In addition, we did not implement the appropriate information technology disaster recovery controls in place to ensure the completeness of financial information surrounding the Company’s revenues and inventory.
Monitoring – We did not maintain effective monitoring of controls related to the financial close and reporting process. In addition, we did not maintain the appropriate level of review and remediation of internal control over financial reporting deficiencies throughout interim and annual financial periods.
Management implemented a number of controls and processes during 2018, in an effort to remediate the material weakness identified. A summary of the Company’s remediation activities follows:
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Our Chief Executive Officer and Chief Financial Officer have performed an evaluation of our internal control over financial reporting under the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective at December 31, 2018.2020.
Based on the results of its assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 20182020 based on such criteria.
Our independent registered public accounting firm, Marcum LLP, has audited our consolidated financial statements and has issued an attestation report on our internal control over financial reporting as of December 31, 2018, which report is included herein.
We believe that the consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 20182020 fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
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Changes in Internal Control over Financial Reporting
As described aboveThere were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under “Material Weakness Discussion and Remediation,” wethe Exchange Act) during the fiscal quarter ended December 31, 2020, that have undertaken a broad range of remedial proceduresmaterially affected, or are likely to address the material weaknesses inmaterially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Name |
| Director or Officer Since |
| Age |
|
| Positions | ||
Nicholas Kovacevich |
| 2020 |
|
| 35 |
|
| Chairman of the Board | |
Francis Knuettel II |
| 2020 |
|
| 54 |
|
| Chief Executive Officer and Director | |
Steven J. Ross |
| 2012 |
|
| 64 |
|
| Director | |
Ira E. Ritter |
| 2020 |
|
| 71 |
|
| Director | |
Jeffrey Batliner |
| 2020 |
|
| 55 |
|
| Chief Financial Officer | |
Uri Kenig |
| 2020 |
|
| 43 |
|
| Interim Chief Operating Officer |
The following table sets forthNicholas Kovacevich
Chairman of the names and ages of our current directors and executive officers, the principal offices and positions held by each person, and the year such director or officer commenced serving in such capacity: Board
Name | Director or Officer Since | Age | Positions | |||
Derek Peterson |
| 2012 |
| 45 |
| Chief Executive Officer and Chairman of the Board |
Alan Gladstone |
| 2017 |
| 71 |
| Director |
Michael James |
| 2012 |
| 60 |
| Chief Financial Officer |
Michael A. Nahass |
| 2012 |
| 53 |
| President, Chief Operating Officer, Secretary, Treasurer, and Director |
Steven J. Ross |
| 2012 |
| 61 |
| Director |
Mr. Kovacevich is the CEO of KushCo Holdings, Inc., a leading provider of ancillary products and services to businesses in the legal cannabis industry. Mr. Kovacevich graduated Summa Cum Laude from Southwest Baptist University with a Bachelor of Science in Sports Management. After college, Mr. Kovacevich began his entrepreneurial career by building and exiting Pack My Dorm. He continued on to found several other successful businesses including BigRentz, Inc., a leading online equipment rental company, and Alpha West Holdings, a diversified holding company whose portfolio businesses’ generate a combined $100M+ in annual sales. Recently, Kovacevich was appointed to California’s 32nd DAA Orange County Fair Board by California Governor Newsom.
Derek PetersonFrancis Knuettel II
Chief Executive Officer and Chairman of the BoardDirector
Mr. PetersonKnuettel has served as our Presidentdecades of experience in working with and advising public and private companies on financial management and controls, M&A, capital markets transactions and operating and financial restructurings. Mr. Knuettel was formerly Director of Capital and Advisory at Viridian Capital Advisors. He joined Veridian from One Cannabis Group ("OCG"), a leading cannabis dispensary franchisor, with over thirty cannabis dispensaries sold across seven states. At OCG, Mr. Knuettel was the Chief ExecutiveFinancial Officer and Chairman of the Board, since February 9, 2012. Mr. Peterson served as President until November 6, 2017. Mr. Peterson began his career in finance with Crowell, Weedon & Co. (now, D.A. Davidson & Co.), the then-largest independent broker-dealer on the West Coast. In his 6 years there, Mr. Peterson became a partner and Branch supervisor where he was responsible for sales of over $10 million.all finance and accounting management. Prior to OCG, Mr. PetersonKnuettel was offered an opportunity to buildCFO at MJardin, a southern Orange County presence for Wachovia Securities, where he became the first Vice President and Branch Manager for their Mission Viejo location. He was instrumental in growing that office from the ground up into the $15 million office it is today. After his term at Wachovia Securities (now, Wells Fargo Advisors), Mr. Peterson accepted an opportunity for a Senior Vice President position with Morgan Stanley Smith Barney, where he and his team oversaw combined assets of close to $100 million. In addition, he has also been involved in several public and private equity financings, where he has personally funded several projects from angel to mezzanine levels. Mr. Peterson is a CFPÒ Professional and holds his Series 7 (General Securities Representative), Series 9 and 10 (General Securities Sales Supervisor), Series 3 (National Commodity Futures), Series 65 (Investment Advisor Representative), and California Insurance License. Mr. Peterson holds a Bachelor’s degree in Business Management from Pepperdine University. Mr. Peterson also owned a 12% interest in Black Oak until we acquired Black Oak on April 1, 2016. As a co-owner of Black Oak, Mr. Peterson worked with governmental agencies and tax authorities in Oakland, including working with the city to establish medicalDenver-based cannabis ordinances, competed for a permit to operate, and responded to a city request for proposal. Mr. Peterson’s experiences gained through these matters will assist us in launching and operating the medical marijuana and adult use cultivation production and dispensary businesses of MediFarm, MediFarm I, and MediFarm II, as well as IVXX’s launch of its line of cannabis flowers, cigarettes, and pure concentrates. Mr. Peterson’s background in investment banking led to our conclusion that he should serve as a director in light of our business and structure.
Alan Gladstone
Director
Mr. Gladstone has served as a Director since November 15, 2017. Mr. Gladstone was Founder, Chairman, President and CEO of Anna's Linens, a specialty retailer of home textiles and home decoration items, from 1987 - 2014. During his tenure at Anna's Linens, he grew the business to 305 stores in 23 states with over $400 million in annual revenues. He managed a team of 12 executives and over 3,500 employees and oversaw the company's M&A strategy. Anna's Linens was ranked the 13th largest seller of home textiles nationally in 2013. On June 14, 2015, Anna's Linens filed a petition in the United States Bankruptcy Court for the Central District of California seeking relief under Chapter II of the United States Bankruptcy Code. Prior to his time at Anna's Linens, he was a self-employed retail business consultant where he counted Vons, TG&Y and Cook United in his client base. He was also President of Home Front, a division of U.S. Shoe, from 1983 - 1986management company, where he led the company's IPO on the Canadian Securities Exchange. Following the IPO, Mr. Knuettel managed the merger with GrowForce, a teamToronto-based cannabis cultivator, after which he moved over to the Chief Strategy Role. In his role as CSO, he managed the acquisition of 800 employees. In this role, he ledseveral private companies before recommending and executing the profitable growthconsolidation of management and other operations to Toronto and the closure of the businessexecutive office in Denver. Prior to MJardin, Mr. Knuettel held numerous CFO and CEO positions at early-stage companies where he had significant experience both building and restructuring businesses. Mr. Knuettel graduated cum laude from 21 stores to 105 stores and grew sales from $40 million to $400 million. Mr. Gladstone hasTufts University with a BSB.A. degree in Economics and from The Wharton School at the University of California, Irvine. Mr. Gladstone’s entrepreneurial experiencePennsylvania with an M.B.A. in Finance and success in retail led to our conclusion that he should serve as a Director and Chairman of the Compensation Committee in light of our business and structure.Entrepreneurial Management.
Michael James
Chief Financial Officer
Mr. James has served as our Chief Financial Officer since February 9, 2012. In addition to this role, Mr. James has served as the Chief Executive Officer and Chief Financial Officer of Inergetics, Inc. from June 11, 2012 until January 2016. Previously, Mr. James served as Chief Executive Officer of Nestor, Inc. (“Nestor”), where he successfully completed a financial restructuring of Nestor prior to its sale in September 2009 from the Receiver’s Estate in Superior Court of the State of Rhode Island. He also served on Nestor’s Board of Directors from 2006 to 2009. Mr. James was the Managing Partner of Kuekenhof Capital Management, LLC, a private investment management company, from 1999 to 2015. Mr. James is also the Chairman of the Board of Guided Therapeutics, Inc., where he serves as Chairman of the Audit Committee and as a member of the Compensation Committee. During his career, Mr. James has served as a Partner at Moore Capital Management, Inc., a premiere private investment management company; Chief Financial and Administrative Officer at Buffalo Partners, L.P., a private investment management company; and Treasurer and Chief Financial Officer of National Discount Brokers. Mr. James began his career in 1980 as a staff accountant with Eisner, LLP. Mr. James is a retired CPA.
Michael A. Nahass
President, Chief Operating Officer, Secretary, Treasurer, and Director
Mr. Nahass has served as a Director since January 26, 2012, and as our Secretary and Treasurer since July 20, 2015, and as our President and Chief Operating Officer since November 6, 2017. Previously, Mr. Nahass served as our President, Secretary and Treasurer from January 26, 2012 until February 9, 2012. Since August 2011, Mr. Nahass has served as Managing Director of Arque Capital, Ltd., of Irvine, California. From September 2009 until August 2011, Mr. Nahass was a Partner, and served as Managing Director/Chief Operating Office of NMS Capital Asset Management, Inc. (“NMS Capital”). Additionally, while at NMS Capital, Mr. Nahass served as Chief Portfolio Manager of the NMS Platinum Funds, LLC. From February 1995 until April 2007, Mr. Nahass was employed in various positions at Morgan Stanley, where his last position was Senior Vice President and Complex Manager, where he directly managed over 200 financial advisors with approximately $20 billion in assets under management. With over 20 years of financial services experience, Mr. Nahass has been and is responsible for private client services, business development, regulatory compliance and strategic development. Mr. Nahass holds a B.S. in Business Administration (1988) from Fairleigh Dickenson University. In addition, he also holds NASD Series 3 (National Commodity Futures), Series 7 (General Securities Representative), Series 8 (Supervisory), Series 31 (Managed Futures) and Series 65 (Investment Advisor Representative) licenses. Mr. Nahass’ background in investment banking led to our conclusion that he should serve as director in light of our business and structure.
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Steven J. Ross
Director
Mr. Ross has served as a Director since July 23, 2012, and has over 30 years of senior management experience, ranging from high growth private companies to multi-billion dollar divisions of public enterprises. His experience also includes service on numerous public and private Boards. He is known as a problem solver who has demonstrated leadership and consistent results in challenging business situations across multiple industries. Mr. Ross has beenserved as CEO of Ecolane sincefrom June 2013.2013 to November of 2020. Ecolane is a Helsinki, Finland-based software company providing disruptive, specialized software and support services for transportation scheduling, dispatching and tracking. US operations are headquartered in Wayne, PA, where the company supports statewide contracts in PA, NE, NC and OH and numerous state and local transportation agencies throughout the country. Ecolane was acquired by National Express PLC, a British publicly-traded leading international transportation company in June 2016, generating greater than 500% returns for Ecolane’s investors.
Prior to leading Ecolane, Mr. Ross was a Managing Director at MTN Capital Partners, a New York-based Private Equity firm, and Managing Partner of Belcourt Associates. Previously, Mr. Ross was CEO of National Investment Managers from 2006 until its sale to a Private Equity firm in 2011. Under Mr. Ross’ leadership, the company became the largest independent retirement services company in the country with over $11 billion in assets under administration and operations in 17 cities in the United States. Between 2001 and 2006, Mr. Ross served as Chairman and CEO of DynTek. During his tenure he successfully transitioned the company from a $5 million software development company to a leading provider of information technology services with annual revenues of over $100 million. From 1998 to 2001, Mr. Ross was Vice President and General Manager of the Computer Systems Division of Toshiba America with overall responsibility for Toshiba’s $3 billion computer business in the US and South America. Prior to joining Toshiba, from 1996 to 1998, Mr. Ross served as President & General Manager – Computer Reseller Division and President of Corporate Marketing at Inacom, a $7 billion Fortune 500 provider of computer products and services. Prior to his employment at Inacom, Mr. Ross served as Senior Vice President, Sales & Business Development, for Intelligent Electronics. Mr. Ross has also held senior management positions at Dell Computer Corporation and PTXI/Bull HN Information Systems. Mr. Ross has served as Vice-Chairman of the Board of the Computing Technology Industry Association (COMPTIA) and on the board of the US Internet Industry Association (USIIA). He also served on the Board of the national Cristina Foundation, and as a member of the Harvard Club of Orange County and the Harvard Business School Association of Orange County.
He is an active alumnus of Harvard University and a graduate of the Advanced Management Program at Harvard Business School. Steve has appeared as an industry and corporate spokesperson in numerous business and trade publications and events and was named #14 in Smart Reseller’s annual listing of top 50 computer industry executives.
Ira Ritter
Director
Mr. Ritter is a diversified entrepreneur who provides the Board of Directors with five decades of leadership and business experience. He co-founded Ritter Pharmaceuticals, Inc. and served as Executive Chairman from its 2004 inception through its merger with Qualigen Therapeutics in 2020. Mr. Ritter has provided corporate management, strategic planning and financial consulting for a wide range of market segments including: health and beauty products for Quality King Distributors; private label manufacturing & sales for General Nutrition Centers, K-Mart and Flemings; television broadcast, programming and subscription television for ON-TV/Oak Media, division of Oak Industries and as publisher of national consumer magazines and bestseller books.
He assisted taking Ritter Pharmaceuticals public on Nasdaq and Martin Lawrence Galleries public on the New York Stock Exchange. Presently, Mr. Ritter is a managing partner of Stonehenge Partners and serves on the Board of Directors for Qualigen Therapeutics, Inc. and the Advisory Board for Pepperdine’s Graziadio Business School of Social Entrepreneurship and Change. Previously, he has served as Board of Director for Vitavis Laboratories (sold to Nestle S.A.), SCWorx, The Bob Chandler Foundation and Environmental Quality Associates.
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Mr. Ritter has a long history of public service including appointments by three California Governors to several State Commissions including eight years as Commissioner on the California Prison Industry Authority and a Presidential appointment to the White House Environmental Task Force. He has guest lectured at University of Southern California’s Marshall School of Business and University of California, Los Angeles’ Anderson School of Management.
Jeffrey Batliner
Chief Financial Officer
Mr. Batliner, Chief Financial Officer of Terra Tech Corp., joined the Company in December of 2018 when he was hired as the Director of Financial Reporting, where his responsibilities focused on SEC Reporting as well as Financial Planning and Analysis. During Mr. Batliner’s tenure in that role, he was instrumental in improving internal and external reporting processes as well as implementing more robust budgeting and planning processes. Mr. Batliner was promoted to his current role as Chief Financial Officer on October 6, 2020. Prior to Terra Tech, he served in various Financial Planning and Analysis roles spanning multiple industries. From 1996 to 2003, he led the FP&A team for Canon USA’s computer peripheral products division. Mr. Batliner was at Sage, a global business software provider, from 2003 to 2014. He built out the finance team supporting Sage’s shared services division and led several FP&A teams supporting multiple business units. From 2015 to 2018, he created the FP&A team at Iteris, Inc., a transportation management firm, as the company experienced significant growth. Mr. Batliner holds a Master’s in Business Administration from Pepperdine University and a Bachelor’s in Finance from California State Fullerton.
Uri Kenig
Chief Operating Officer
Mr. Kenig is an experienced senior executive who has held large roles in numerous leading food, beverage, and retail industries. Most recently, Mr. Kenig was a Managing Partner at Alpha West Holdings, a venture capital firm. Mr. Kenig was formerly SVP of Growth and Operations at Urbanspace, a New York and London based company, where he led their portfolio growth through a series of initiatives. Prior to that he was an operating partner at a New York based private equity firm, Garnett Station Partners, where he oversaw a substantial growth of the firms' Burger King franchises from 22 restaurants to over 250, culminating in a large exit. He also oversaw the formation and execution of a Maaco franchise roll out culminating with over 40 locations, as well as a Massage Envy franchise rollout before its successful sale. Mr. Kenig also served in several senior leadership positions at Burger King Corporation, where he oversaw the revitalization of the company's Canadian operations and was responsible for a portfolio of over 1,200 franchises across 13 states, where he ensured effective expansion, operational excellence, and revenue generation. Mr. Kenig holds a Bachelor of Science from UNLV, where he graduated Magna Cum Laude, and also holds a Certificate of Leading with Finance from Harvard Business School Online and is certified in Six-Sigma through McKinsey.
Director Qualifications
We believe that our directors should have the highest professional and personal ethics and values, consistent with our values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board also considers the candidate’s character, judgment, diversity, age and skills, including financial literacy and experience in the context of our needs and the needs of the Board.
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EmploymentIndependent Director Agreements
We currently do not have any employment agreements with any of our directors or executive officers.
Pursuant to an Independent Director Agreement dated July 31, 20181, 2019 with Steven J. Ross wethe Company agreed to pay Mr. Ross $8,333$12,500 per month for a period of three years beginning on July 1, 2019. The cash compensation includes $10,000 per month for service as a Director and $2,500 per month for service as the Chairperson of one year. Weor more board committees. The Company also issued to Mr. Ross an aggregate of 24,75086,805 restricted shares of the Company’s common stock (“Common Stock (such cash payment and the issuance of restricted shares, the “Compensation”Stock”), of which all of the shareswhich vested on the date of appointment. Weappointment, and Mr. Ross also entered into an Indemnification Agreement dated July 23, 2012, whereby we agreedoption to indemnify Mr. Ross, subjectpurchase an additional 86,805 shares of Common Stock with an exercise price of the closing price of the Common Stock on the date of the Director Agreements, which vest over a three-year period. In addition, a stock option and stock issuance of equivalent value are to certain exceptions, for claims against him that may arise in connection withbe issued at the performanceone year and two-year anniversary dates of his duties as one of our directors.the Director Agreement.
Pursuant to an Independent Director Agreement dated July 31, 2018 with Alan Gladstone,December 11, 2020 by and between us and Nicholas Kovacevich, we agreed to paygrant Mr. Gladstone $8,333 per month for a period of one year. We also issued to Mr. Gladstone an aggregate of 24,750Kovacevich 150,000 restricted shares of the Company’s stock, options (such cash payment and the issuance of stock options, the “Compensation”), of which all of the sharesto be fully vested on the date of appointment. On February 1, 2021, the Company and Mr. Kovacevich amended the Independent Director Agreement. Per this amended 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.
Involvement in Certain Legal Proceedings
Other than as disclosed below, to our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:
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| Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
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| Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
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| Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities; |
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| Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
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| Being subject of, or a party to, any Federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any Federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
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| Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
On February 22, 2012, Mr. Peterson filed a petition for bankruptcy in the United States Bankruptcy Court for the Central District of California, Case No. 8:12−bk−13957−ES. The discharge date was November 2, 2012.
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On May 13, 2009, Mr. Nahass filed a petition for bankruptcy in the United States Bankruptcy Court for the Central District of California, Case No. 8:09-bk 14465-TA. The discharge date was August 17, 2011.
Code of Ethics
On November 4, 2015, our Board approved and adopted a Code of Ethics (the “Code of Ethics”) that applies to all of our directors, officers, and employees, including our principal executive officer and principal financial officer. The Code of Ethics addresses such individuals’ conduct with respect to, among other things, conflicts of interests; compliance with applicable laws, rules, and regulations; full, fair, accurate, timely, and understandable disclosure by us; competition and fair dealing; corporate opportunities; confidentiality; insider trading; protection and proper use of our assets; fair treatment; and reporting suspected illegal or unethical behavior. The Code of Ethics is available on our website at http://ir.terratechcorp.com/governance-docs.
Term of Office
Our directors are appointed to hold office until the next annual general meeting of our stockholders or until removed from office in accordance with our Bylaws. Our officers are appointed by our Board and hold office until removed by the Board, absent an employment agreement.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our directors and executive officers and persons who beneficially own more than 10% of our Common Stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our Common Stock. To the best of our knowledge, all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to transactions during the period covered by this report. In making these statements, we have relied solely on our review of copies of the reports furnished to us, representations that no other reports were required and other knowledge relating to transactions involving Reporting Persons.
Audit Committee and Audit Committee Financial Expert
On November 4, 2015, the Board established the Audit Committee and approved and adopted a charter (the “Audit Committee Charter”) to govern the Audit Committee. Messrs.Mr. Ross and Krueger werewas appointed to serve on the Audit Committee with Mr. Rossand designated as chairman. OnSubsequently on November 6,15, 2017, Mr. KruegerGladstone was appointed to serve on the Audit Committee. On December 15, 2020, Mr. Kovacevich was appointed to serve on the Audit Committee. Mr. Gladstone resigned as a member of the Board. SubsequentlyBoard on November 15, 2017,January 11, 2021.On February 1, 2021, Mr. GladstoneRitter was appointed to serve on the Audit Committee. Each member of the Audit Committee meets the independence requirements of The NASDAQ Stock Market, LLC and the SEC. The Audit Committee met ninefive times during 2018.2020. In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of the Audit Committee is to assist the Board in its general oversight of our accounting and financial reporting processes, audits of our financial statements, and internal control and audit functions. The Audit Committee Charter can be found online at http://ir.terratechcorp.com/goverance-docs.
Compensation Committee
On November 4, 2015, the Board established the Compensation Committee and approved and adopted a charter (the “Compensation Committee Charter”). Messrs.Mr. Ross and Krueger werewas appointed to serve on the Compensation Committee, with Mr. Krueger designated as chairman. On November 6, 2017 Mr. Krueger resigned as a member of the Board.Committee. Subsequently on November 15, Mr. Gladstone was appointed to serve as the Chairman of the Compensation Committee. EachOn December 15, 2020, Mr. Ritter and Mr. Kovacevich were appointed to serve on the Compensation Committee, with Mr. Ritter designated as Chairman. Mr. Gladstone resigned as a member of the Board on January 11, 2021.Each member of the Compensation Committee meets the independence requirements of The NASDAQ Stock Market, LLC and the SEC, is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act and is an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The Compensation Committee held one meeting during 2018.2019. In addition to the enumerated responsibilities of the Compensation Committee in the Compensation Committee Charter, the primary function of the Compensation Committee is to oversee the compensation of our executives and advise the Board on the adoption of policies that govern our compensation programs. The Compensation Committee Charter may be found online at http://ir.terratechcorp.com/governance-docs.
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Governance and Nominating Committee
On November 4, 2015, the Board established the Nominating Committee and approved and adopted a charter (the “Nominating Committee Charter”). Messrs.Mr. Ross and Krueger werewas appointed to serve on the Nominating Committee with Mr. Ross designated as chairman. On November 6, 2017, Mr. Krueger resigned as a member of the Board. Subsequently on November 15, 2017, Mr. Gladstone was appointed to serve on the Governance and Nominating Committee. On December 15, 2020, Mr. Kovacevich and Mr. Ritter were appointed to serve on the Governance and Nominating Committee. On January 11, 2021, Mr. Gladstone resigned as a member of the Board. On February 1, 2021, Mr. Kovacevich was appointed as Chairman. Each member of the Nominating Committee meets the independence requirements of The NASDAQ Stock Market, LLC and the SEC. The Nominating Committee held one meeting during 2018.2019. In addition to the enumerated responsibilities of the Nominating Committee in the Nominating Committee Charter, the primary function of the Nominating Committee is to determine the slate of director nominees for election to the Board, to identify and recommend candidates to fill vacancies occurring between annual stockholder meetings, to review our policies and programs that relate to matters of corporate responsibility, including public issues of significance to us and our stockholders, and any other related matters required by federal securities laws. The charter of the Nominating and Corporate Governance Committee may be found online at http://ir.terratechcorp.com/governance-docs.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between our Board of Directors and the Board of Directors or Compensation Committee of any other company, nor has any interlocking relationship existed in the past.
ITEM 11. EXECUTIVE COMPENSATION
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| Stock |
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| All Other |
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Name and Principal |
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| Awards |
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| Compensation |
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Position |
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| (9) |
| Awards |
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Francis Knuettel II (1) |
| 2020 |
| $ | - |
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| $ | - |
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| $ | 62,150 |
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| $ | - |
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| $ | - |
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| $ | 62,150 |
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Chief Executive Officer, President, and Director |
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Jeffrey Batliner (2) |
| 2020 |
| $ | 194,073 |
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| $ | 20,000 |
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| $ | 50,956 |
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| $ | 7,440 |
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| $ | 1,500 |
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| $ | 273,969 |
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Chief Financial Officer |
| 2019 |
| $ | 133,016 |
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| $ | - |
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| $ | 10,394 |
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| $ | - |
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| $ | - |
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| $ | 143,410 |
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Uri Kenig (3) |
| 2020 |
| $ | 180,000 |
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| $ | 25,350 |
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| $ | - |
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| $ | - |
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| $ | 205,350 |
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Interim Chief Operating Officer |
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Derek Peterson (4) |
| 2020 |
| $ | 333,540 |
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| $ | - |
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| $ | - |
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| $ | 27,920 |
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| $ | 6,000 |
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| $ | 367,460 |
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Former Chief Executive Officer, Former Chief Strategy Officer |
| 2019 |
| $ | 309,000 |
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| $ | - |
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| $ | - |
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| $ | 1,100,882 |
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| $ | 6,000 |
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| $ | 1,415,882 |
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Michael Nahass (5) |
| 2020 |
| $ | 305,966 |
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| $ | - |
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| $ | - |
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| $ | 27,920 |
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| $ | 6,000 |
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| $ | 339,886 |
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Former Chief Executive Officer, Former Chief Operating Officer |
| 2019 |
| $ | 283,250 |
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| 0 |
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| $ | - |
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| $ | 1,100,882 |
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| $ | 6,000 |
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| $ | 1,390,132 |
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Matthew Morgan (6) |
| 2020 |
| $ | 51,000 |
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| $ | - |
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| $ | - |
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| $ | - |
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| $ | - |
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| $ | 51,000 |
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Former Chief Executive Officer |
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Michael James (7) |
| 2020 |
| $ | 84,056 |
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| $ | - |
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| $ | - |
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| $ | 685,466 |
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| $ | 4,000 |
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| $ | 773,522 |
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Former Chief Financial Officer |
| 2019 |
| $ | 257,500 |
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| $ | 75,000 |
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| $ | - |
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| $ | 706,906 |
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| $ | 12,000 |
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| $ | 1,051,406 |
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Megan Jimenez (8) |
| 2020 |
| $ | 213,379 |
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| $ | 20,000 |
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| $ | 61,147 |
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| $ | 8,376 |
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| $ | 3,000 |
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| $ | 305,901 |
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Former Chief Financial Officer |
| 2019 |
| $ | 176,658 |
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| $ | 16,658 |
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| $ | 8,292 |
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| $ | - |
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| $ | - |
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| $ | 201,608 |
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Summary Compensation Table
The following table provides information relating to compensation for the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and individuals serving as our principal executive officer or acting in a similar capacity (collectively, the “Named Executive Officers”) for the fiscal years ended December 31, 2018 and 2017.
Non-Equity Stock Incentive Nonqualified All Other Name and Principal Awards Option Plan Deferred Compensation Position Year Salary Bonus (5) Awards Compensation Compensation (6) Total Derek Peterson (1) 2018 $ 300,000 $ 100,000 $ 39,911 $ 648,649 $ $ $ 8,610 $ 1,097,170 Chief Executive Officer and Chairman of the Board 2017 $ 200,000 $ - $ 61,001 $ 91,166 $ - $ - $ 8,610 $ 360,777 Michael Nahass (2) 2018 $ 275,000 $ 100,000 $ 21,318 $ 642,967 $ $ $ 8,610 $ 1,047,895 President, Chief Operating Officer, Secretary,Treasurer and Director 2017 $ 200,000 $ - $ 45,824 $ 85,483 $ - $ - $ 8,610 $ 339,917 Kenneth Vande Vrede (3) 2018 $ 68,525 $ $ 21,318 $ 143,606 $ $ $ 2,000 $ 235,449 Chief Agricultural Officer and Director 2017 $ 200,000 $ - $ 45,824 $ 84,063 $ - $ - $ 6,000 $ 335,887 Michael James (4) 2018 $ 250,000 $ 90,000 $ 21,318 $ 421,616 $ $ $ 6,000 $ 788,934 Chief Financial Officer 2017 $ 200,000 $ - $ 1,081,230 $ 85,483 $ - $ - $ 6,000 $ 1,372,713
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(1) | Appointed Director on December 11, 2020. Appointed Interim Chief Executive Officer and President on December 15, 2020. Note: designated as Chief Executive Officer and President on March 2, 2021. |
(2) | Appointed Chief Financial Officer effective October 5, 2020. |
(3) | Appointed Interim Chief Operating Officer effective December 18, 2020. |
(4) | Appointed President, Chief Executive Officer and Chairman of the Board on February 9, 2012. Served as President until November 6, 2017. Served as CEO until February 14, 2020 when he moved into the Chief Strategy Officer position. Resigned as Chairman of the Board and Director, as well as Chief Strategy Officer, on January 22, 2021. |
| Appointed |
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(6) | Appointed CEO and Director on February |
| Appointed Chief Financial Officer on February 9, 2012. Resigned as Chief Financial Officer on March 30, 2020. |
(8) | Appointed Chief Financial Officer on March 31, 2020. Resigned as Chief Financial Officer on October 5, 2020. |
(9) | For valuation purposes, the dollar amount shown represents the aggregate award date fair value of awards made in each fiscal year computed in accordance with FASB ASC Topic 718, Stock Compensation . The fair value is calculated based on the closing price of the Common Stock on the grant dates. |
(10) | Amounts disclosed represent a car allowance of $500 per month per officer, except M.James, who received $1,000 per month. |
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Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Employment Contracts
On December 21, 2020, the Company entered into an Executive Employment Agreement (the “Kenig Employment Agreement”) with Uri Kenig, appointing Mr. Kenig as the Company’s Interim Chief Operating Officer. The Kenig Employment Agreement, is for a term of six months. Mr. Kenig’s compensation pursuant to the Kenig Employment Agreement is Ninety Thousand Dollars ($90,000) and he is eligible to receive a cash performance bonus at the discretion of the Board of Directors. Mr. Kenig was granted 150,000 fully-vested shares of the Company’s common stock and is entitled to an additional 150,000 fully-vested shares of Common Stock on the six-month anniversary of the Kenig Employment Agreement; provided it has not been terminated prior to that date. Mr. Kenig was also granted an option to purchase 300,000 shares of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to the date of the Kenig Employment Agreement pursuant to the terms of the Company’s 2018 Equity Incentive Plan, which will vest 50% on the three-month anniversary of the Kenig Employment Agreement and 50% on the six-month anniversary of the Kenig Employment Agreement; provided it has not been terminated prior to either such date. In addition, Mr. Kenig is eligible to receive a bonus of 200,000 fully-vested shares of Common Stock and $20,000 upon closing of (A) a merger or consolidation of the Company or a subsidiary of the Company with another entity, or (B) the disposition by the Company of all or substantially all of the Company’s assets or the acquisition by the Company of all or substantially all of the assets of another entity entered into during the term of the Kenig Employment Agreement, in each case with a transaction value of over $20,000,000 and approved by the Board of Directors, whether or not he is then an employee of the Company. Mr. Kenig is eligible to participate in the Company’s 2018 Equity Incentive Plan, pursuant to which the Company may grant equity awards to its officers, directors and employees.
On December 18, 2020, Terra Tech Corp. entered into an Executive Employment Agreement (the “Knuettel Employment Agreement”) with Francis Knuettel II, appointing Mr. Knuettel as the Company’s Interim Chief Executive Officer and President. The Knuettel Employment Agreement, is for a term of six months. Mr. Knuettel’s compensation pursuant to the Knuettel Employment Agreement is One Hundred and Fifty Thousand Dollars ($150,000) and he is eligible to receive a cash performance bonus at the discretion of the Board of Directors. Mr. Knuettel was granted 200,000 fully-vested shares of the Company’s common stock and is entitled to an additional 200,000 fully-vested shares of Common Stock on the six-month anniversary of the Knuettel Employment Agreement; provided it has not been terminated prior to that date. Mr. Knuettel was also granted an option to purchase 600,000 shares of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to the date of the Knuettel Employment Agreement pursuant to the terms of the Company’s 2018 Equity Incentive Plan, which will vest 50% on the three-month anniversary of the Knuettel Employment Agreement and 50% on the six-month anniversary of the Knuettel Employment Agreement; provided it has not been terminated prior to either such date. In addition, Mr. Knuettel is eligible to receive a bonus of 400,000 fully-vested shares of Common Stock and $40,000 upon closing of (A) a merger or consolidation of the Company or a subsidiary of the Company with another entity, or (B) the disposition by the Company of all or substantially all of the Company’s assets or the acquisition by the Company of all or substantially all of the assets of another entity entered into during the term of the Knuettel Employment Agreement, in each case with a transaction value of over $20,000,000 and approved by the Board of Directors, whether or not he is then an employee of the Company. Mr. Knuettel is eligible to participate in the Company’s 2018 Equity Incentive Plan, pursuant to which the Company may grant equity awards to its officers, directors and employees.
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On September 28, 2020, Terra Tech Corp. entered into an Executive Employment Agreement (the “Employment Agreement”) with Jeffrey Batliner, formerly the Company’s Director of Reporting & Analysis, appointing Mr. Batliner as the Company’s Chief Financial Officer, effective October 5, 2020. The Employment Agreement, is for a term of one year. Mr. Batliner’s base salary shall be Two Hundred Thousand Dollars ($200,000) and he shall also be eligible for a performance bonus of up to 100% of his base salary (“Target Performance Bonus”). The Target Performance Bonus shall be based on performance and achievement of Company goals and objectives as defined by the Board of Directors or Compensation Committee and may be greater or less than the Target Performance Bonus. Mr. Batliner may be eligible for severance benefits under certain circumstances as set forth in the Employment Agreement.
Resignation Agreements
On January 22, 2021, the Company entered into a Resignation and Release Agreement with Michael A. Nahass (the “Nahass Resignation Agreement”), pursuant to which Mr. Nahass agreed to resign from his positions as a director, executive officer and employee of the Company effective immediately upon the Company’s closing of a private placement in the amount of not less than $3,500,000, which is expected to occur on or about January 25, 2021 upon the closing of the transactions contemplated by the Securities Purchase Agreement. In addition, the Company extended the time within which vested common stock options held by Mr. Nahass may be exercised to 150 days after the date of resignation.
On January 22, 2021, the Company entered into a Resignation and Release Agreement with Derek Peterson (the “Peterson Resignation Agreement” and, together with the Nahass Resignation Agreement, the “Resignation Agreements”), pursuant to which Mr. Peterson agreed to resign from his positions as a director, executive officer and employee of the Company effective immediately upon the Company’s closing of a private placement in the amount of not less than $3,500,000, which is expected to occur on or about January 25, 2021 upon the closing of the transactions contemplated by the Securities Purchase Agreement. In addition, the Company extended the time within which vested common stock options held by Mr. Peterson may be exercised to 150 days after the date of resignation.
Director Compensation
The following table sets forth director compensation for the year ended December 31, 2020:
|
| Fees Earned Paid in Cash |
|
| Stock Awards |
|
| Option Awards |
|
| Total |
| ||||
Name (1) |
| ($) |
|
| ($) (6) |
|
| ($) |
|
| ($) |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Nicholas Kovacevich (2) |
| $ | - |
|
| $ | 28,500 |
|
| $ | - |
|
| $ | 28,500 |
|
Ira Ritter (3) |
| $ | - |
|
| $ | 28,500 |
|
| $ | - |
|
| $ | 28,500 |
|
Steven Ross (4) |
| $ | 150,000 |
|
| $ | 59,549 |
|
| $ | 263,082 |
|
| $ | 472,630 |
|
Alan Gladstone (5) |
| $ | 150,000 |
|
| $ | 59,549 |
|
| $ | 496,146 |
|
| $ | 705,694 |
|
(1) | Francis Knuettel, Michael Nahass, and Derek Peterson are not included in this table as they were executive officers during fiscal 2020, and thus received no compensation for their service as directors. The compensation of Mr. Knuettel, Mr. Nahass, and Mr. Peterson as our employees is shown in “Item 11 Executive Compensation – Summary Compensation Table.” |
| Appointed as a director on December 10, 2020. |
(3) | Appointed as a director on December 10, 2020. |
(4) | Appointed as a director on July 23, 2012. |
(5) | Appointed as a director on November 15, 2017. Resigned as a director on January 11, 2021. |
(6) | For valuation purposes, the dollar amount shown represents the aggregate award date fair value of awards made in fiscal
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Narrative Disclosure to Summary Compensation Table
No longer required
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
As of the date hereof, we have not entered into any employment agreements with any of our Named Executive Officers.
Pay ratio information
No longer required
Director Compensation
The following table sets forth director compensation for the year ended December 31, 2018:
Fees Earned Paid in Cash Stock Awards Option Awards Non-Equity Incentive Plan Compensation Nonqualified Deferred Compensation All Other Compensation Total Name (1) ($) ($) (4) ($) ($) ($) ($) ($) Steven Ross (2) Alan Gladstone (3) $ 100,000 $ - $ 49,995 $ - $ - $ - $ 149,995 $ 81,250 $ - $ 49,995 $ - $ - $ - $ 131,245
______________
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Narrative to Director Compensation Table
The following is a narrative discussion of the material information that we believe is necessary to understand the information disclosed in the previous table. All travel and lodging expenses associated with corporate matters are reimbursed by us, if and when incurred.
Nicholas Kovacevich
Mr. Kovacevich received 150,000 shares of Common Stock at $0.19 per share when he joined the Board on December 11, 2020.
Ira Ritter
Mr. Ritter received 150,000 shares of Common Stock at $0.19 per share when he joined the Board on December 11, 2020.
Steven J. Ross
Mr. Ross earned cash fees for his services as a director in fiscal 20182020 in the amount of $0.10$0.15 million. Mr. Ross earned cash fees for his services as a director in fiscal 20172019 in the amount of $0.12$0.14 million.
On June 22, 2017,July 1, 2020, we issued togranted Mr. Ross 72,727a ten-year option to acquire 454,545 shares of Common Stock.Stock at $0.11 per share. The priceoption is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was one-sixth (1/6) vested.
On April 2, 2020, we granted Mr. Ross a ten-year option to acquire 1,250,000 shares of Common Stock at $0.07 per shareshare. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was $2.54, as reported onone-quarter (1/4) vested.
On June 20, 2019, we granted Mr. Ross a ten-year option to acquire 500,000 shares of Common Stock at $0.585 per share. The option is in consideration of the OTC Market Group, Inc.’s OTCQX tier on June 22, 2017.services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was one-half (1/2) vested. On July 1, 2019, we granted Mr. Ross a ten-year option to acquire 86,805 shares of Common Stock at $0.576 per share. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was one-half (1/2) vested.
On December 11, 2018, we granted Mr. Ross a ten-year option to acquire 300,000 shares of Common Stock at $1.00 per share. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was one-twelfth (1/12)three-quarters (3/4) vested. On July 30, 2018, we granted Mr. Ross a ten-year option to acquire 55,000 shares of Common Stock at $2.02 per share. The option is in consideration of the services to be rendered, which vested upon issuance and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was ten-twelfths (10/12) vested.
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Alan Gladstone
Mr. Gladstone earned cash fees for his services as a director in fiscal 2020 in the amount of $0.15 million. Mr. Gladstone earned cash fees for his services as a director in fiscal 2019 in the amount of $0.16 million.
On July 1, 2020, we granted Mr. Gladstone a ten-year option to acquire 454,545 shares of Common Stock at $0.11 per share,. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was one-sixth (1/6) vested.
On May 24, 2017,April 2, 2020, we granted Mr. RossGladstone a ten-year option to acquire 50,0001,500,000 shares of Common Stock at $2.54$0.07 per share. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was seven-twelfths (7/12)one-quarter (1/4) vested.
On January 8, 2016,June 20, 2019, we granted Mr. RossGladstone a ten-year option to acquire 53,333700,000 shares of Common Stock at $1.35$0.585 per share. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was two-thirds (2/3)one-half (1/2) vested. On July 1, 2019, we granted Mr. Gladstone a ten-year option to acquire 86,805 shares of Common Stock at $0.576 per share. The option is in consideration of the services to be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2020, the option was one-half (1/2) vested.
Alan Gladstone
On December 11, 2018, we granted Mr. Gladstone earned cash fees for hisa ten-year option to acquire 600,000 shares at $1.00 per share. The option is in consideration of the services as a director in fiscal 2018 into be rendered, which shall vest and become exercisable with respect to one-twelfth (1/12) each quarter until the amountoption is one hundred percent (100.0%) vested. As of $0.08 million. Mr. Gladstone earned cash fees for his services as a director in fiscal 2017 inDecember 31, 2020, the amount of $0.02 million.
option was three-quarters (3/4) vested. On July 30, 2018, we granted Mr. Gladstone a ten-year option to acquire 100,000 shares of Common Stock at $2.02 per share. The option is in consideration of the services to be rendered, which vested upon issuance and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was one-sixth (1/6)ten-twelfths (10/12) vested. On January 30, 2018, we granted Mr. Gladstone a ten-year option to acquire 66,667 shares of Common Stock at $4.68 per share. The option is in consideration of the services to be rendered, which vested upon issuance and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018,2020, the option was one-third (1/3) vested. On November 15, 2017, we granted Mr. Gladstone a ten-year option to acquire 29,167 shares of Common Stock at $3.00 per share. The option is in consideration of the services to be rendered, which vested upon issuance and become exercisable with respect to one-twelfth (1/12) each quarter until the option is one hundred percent (100.0%) vested. As of December 31, 2018, the option was five-twelfths (5/12)completely vested.
Risk Assessment in Compensation Programs
No longer required
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Equity Compensation Plan Information
On January 12, 2016, we adoptedDecember 11, 2018, the 2016Company’s Board of Directors approved the 2018 Equity Incentive Plan (the “Plan”). On June 20, 2019, the Company adopted the Amended and Restated 2018 Equity Incentive Plan (the “2018 Plan”), and our stockholders approved the Plan at our annual meeting of stockholders that was held on September 26, 2016.23, 2019. Pursuant to the terms of the 2018 Plan, the maximum number of shares of Common Stock available for the grant of awards under the 2018 Plan shall not exceed 2.0 million.13,000,000 shares. During the years ended December 31, 20182020 and 2017,2019, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 0.806.59 million and 0.735.80 million shares of Common Stock, respectively. The options have exercise prices of $2.54$0.58 - $4.68$1.00 per share, and generally vest quarterly over a three-year period.
On December 11, 2018, the Company’s Board of Directors approved the 2018 Equity Incentive Plan (the “Plan”), our stockholders will vote to approve it at the next annual meeting of stockholders that will be held sometime in September or October of 2019. Pursuant to the terms of the Plan, the maximum number of shares of Common Stock available for the grant of awards under the Plan shall not exceed 6.60 million. During the year ended December 31, 2018,2019, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 5.10 million shares of Common Stock, respectively. The options have exercise prices of $1.00 per share, and generally vest quarterly over a three-year period.
During the year ended December 31, 2018, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 1.011.06 million shares of Common Stock that were not subject to the 2016 Equity Plan or the 2018 Equity Plan. The options have exercise prices ranging from $2.02 to $3.75 per share, and generally vest quarterly over a three-year period.
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On February 14, 2020, the Board approved an amendment (the “Plan Amendment”) to the Company’s Amended and Restated 2018 Equity Incentive Plan (the “Plan”) to increase the number of shares available for issuance thereunder by 28,976,425 million shares of Terra Tech common stock for a total of 43,976,425 shares of Terra Tech common stock, plus the number of shares, not to exceed 2,000,000 million shares, that may become available under the Company’s 2016 Equity Incentive Plan after termination of awards thereunder, subject to adjustment in accordance with the terms of the Plan.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of March 8, 201916, 2021 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5.0% of our Common Stock; (2) each of our directors, nominees for director and executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 2040 Main Street, Suite 225, Irvine, California 92614.
In computing the number and percentage of shares beneficially owned by each person, we include any shares of Common Stock that could be acquired within 60 days of March 8, 201916, 2021 by the conversion or exercise of shares of Series A Preferred Stock, Series B Preferred Stock, or option awards. These shares, however, are not counted in computing the percentage ownership of any other person.
Name and Address of Beneficial Owner |
| Title of Class |
| Amount and Nature of Beneficial Ownership |
|
| Percent of Common Stock(1) |
| ||
|
|
|
|
|
|
|
|
| ||
Derek Peterson |
| Common Stock |
|
| 18,278,747 | (2) |
|
| 7.89 | % |
Steven Ross |
| Common Stock |
|
| 2,105,527 | (3) |
| * |
| |
Jeffrey Batliner |
| Common Stock |
|
| 600,887 | (4) |
| * |
| |
Francis Knuettel II |
| Common Stock |
|
| 450,000 | (5) |
| * |
| |
Uri Kenig |
| Common Stock |
|
| 300,000 | (6) |
| * |
| |
Nicholas Kovacevich |
| Common Stock |
|
| 274,998 |
| * |
| ||
Ira Ritter |
| Common Stock |
|
| 274,998 | (7) |
| * |
| |
All Directors and Executive Officers as a Group (6 persons) |
|
|
|
| 4,006,410 |
|
|
| 1.73 | % |
Name and Address of Beneficial Owner Title of Class Amount and Nature of Beneficial Ownership Percent of Common Stock (1) Derek Peterson Common Stock (2) Michael A. Nahass Common Stock (3) Michael James Common Stock (4) * Steven Ross Common Stock (5) * Alan Gladstone Common Stock (6) * All Directors and Executive Officers as a Group (5 persons) 1,051,480 1.12 % 2,440,751 2.60 % 918,757 185,060 420,028 5,016,076 5.32 %
________
* | Represents beneficial ownership of less than one percent of the outstanding shares of our Common Stock. |
(1) | As of March |
(2) | |
(3) | Includes |
(4) | Includes |
(5) | Includes |
(6) | Includes |
(7) | Includes 124,998 shares of Common Stock underlying vested options. |
Table of Contents |
The following table sets forth certain information as of March 8, 2019 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5.0% of our Series A Preferred Stock; (2) each of our directors, nominees for director and executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 2040 Main Street, Suite 225, Irvine, California 92614.
Name and Address of Beneficial Owner Title of Class Amount and Nature of Beneficial Ownership Percent of Series A Preferred Stock Derek Peterson Series A Preferred Stock Michael A. Nahass Series A Preferred Stock Michael James Series A Preferred Stock Steven Ross Series A Preferred Stock Alan Gladstone Series A Preferred Stock Kenneth Vande Vrede (1) Series A Preferred Stock 4 33 % All Directors and Executive Officers as a Group (6 persons) 4 33 % 4 33 % – – – – – – 12 100 %
_________
There are no arrangements known to us that might, at a subsequent date, result in a change-in-control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Except as described below, during the past fiscal year, there have been no transactions, whether directly or indirectly, between us and any of our respective officers, directors, beneficial owners of more than 5.0% of our outstanding Common Stock or their family members, that exceeded the lesser of $0.12 million or 1.0% of the average of our total assets at year-end for the last completed fiscal year.
We leaseDuring the landfiscal year ended December 31, 2019, the Company issued promissory notes totaling $1.80 million to OneQor Technologies, Inc (“OneQor”). Derek Peterson and Mike Nahass, the Chief Executive Officer and Chief Operating Officer, respectively at that time. Both had minority ownership interests in Belvidere, New Jersey,OneQor.
On December 30, 2019, the Company entered into a $0.50 million secured promissory note agreement with the Matthew Lee Morgan Trust, which is affiliated with Matthew Morgan, the Chief Executive Officer of OneQor Technologies, Inc. (“OneQor”). Derek Peterson, Chief Executive Officer of Terra Tech and Michael Nahass, President of Terra Tech are minority interest holders in OneQor. The note matures on January 30, 2021, and bears interest at a rate of 10% per annum. The note was converted to the Company’s common stock at maturity.
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’s greenhouse structureGarden sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). The aggregate consideration paid for the Business was a five-year $3,000,000 secured promissory note bearing interest at 3.5% per annum. Michael James, the Company’s former Chief Financial Officer, is situated.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 land is being leased from Whitetown Realty, LLC, an entity in which David Vande VredePurchase Agreement contains customary conditions, representations, warranties, indemnities and Greda Vande Vrede own interests. David Vande Vredecovenants by, among, and Greda Vande Vrede arefor the parentsbenefit of one our former directors, Kenneth Vande Vrede. The lease commenced on January 1, 2015 and expires December 31, 2029. The current monthly lease amount is $14,640 and increases 1.5% each calendar year.the parties.
Pursuant to an Independent Director Agreement dated JuneJuly 1, 20172019 by and between us and Steven J. Ross, we agreed to pay Mr. Ross $10,000$12,500 per month for a period of one year.three years. We also issued to Mr. Ross an aggregate of 72,72786,805 restricted shares of Common Stock, of which all of the shares vested on the date of appointment.
Pursuant to an Independent Director Agreement dated July 31, 2018December 11, 2020 by and between us and Steven J. Ross,Francis Knuettel II, we agreed to paygrant Mr. Ross $8,333 per month for a period of one year. We also issued to Mr. Ross an aggregate of 24,750Knuettel 150,000 restricted shares of Common Stock, of which all of the sharesstock, to be fully vested on the date of appointment. On December 18, 2020, Terra Tech Corp entered into an Executive Employment Agreement with Mr. Knuettel, appointing Mr. Knuettel as the Company’s Interim Chief Executive Officer and President. Therefore Mr. Knuettel was no longer considered an independent director.
Pursuant to an Independent Director Agreement dated November 15, 2017December 11, 2020 by and between us and Alan Gladstone,Nicholas Kovacevich, we agreed to paygrant Mr. Gladstone $6,250 per month for a period of one year. We also issued to Mr. Gladstone an aggregate of 29,167Kovacevich 150,000 restricted shares of the Company’s stock, options, to be fully vested on the date of appointment. On February 1, 2021, the Company and Mr. Kovacevich amended the Independent Director Agreement. Per this amended 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.
Pursuant to an Independent Director Agreement dated July 31, 2018December 11, 2020 by and between us and Alan Gladstone,Ira Ritter, we agreed to paygrant Mr. Ross $8,333 per month for a period of one year. We also issued to Mr. Gladstone an aggregate of 24,750Ritter 150,000 restricted shares of Common Stock, of which all of the sharesstock, to be fully vested on the date of appointment. On February 1, 2021, the Company and Mr. Ritter amended the Independent Director 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.
Table of Contents |
Director Independence
Our Board is currently composed of four members. Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director independence standards. However, we have determined that twothree directors, Steven Ross, Nicholas Kovacevich, and Alan Gladstone,Ira Ritter,, each qualifies as an independent director. We evaluated independence in accordance with Rule 5605 of the NASDAQ Stock Market.
The Board currently has three separately designated standing committees: (i) the Audit Committee, (ii) the Compensation Committee, and (iii) the Governance and Nominating Committee. All three of these committees are solely comprised of independent directors.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table presents fees paid or to be paid for professional audit services rendered by Marcum LLP and MGO for the audit of our annual financial statements and fees billed for other services rendered for the years ended December 31, 20182020 and 2017:2019:
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| Year Ended December 31, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Audit Fees (1) |
| $ | 1,020,566 |
|
| $ | 435,875 |
|
Year Ended | |||||||
December 31, | |||||||
2020 | 2019 | ||||||
Audit Fees (1) | $ | 270,030 | $ | 611,587 |
(1) | Audit Fees consisted of fees billed for professional services rendered for the audit of the Company’s annual financial statements and internal control over financial reporting, review of the interim financial statements included in quarterly reports, and review of other documents filed with the SEC within those fiscal years. |
The Board, or the Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is specific to the particular service or category of services and is generally subject to a specific budget. In addition, the Audit Committee has delegated pre-approval authority to its Chairman who, in turn, must report any pre-approval decisions to the Audit Committee at its next scheduled regular meeting. Our independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Board, or the Audit Committee, as applicable, pre-approved all fees for audit and non-audit work performed during fiscal 20182020 and 2017.2019.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this Annual Report: |
| (1) | Financial Statements – See Index on page F-1 |
Report of Independent Registered Public Accounting Firm – Marcum LLP
Report of Independent Registered Public Accounting Firm
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Consolidated Financial Statements: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Balance Sheets as of December 31, 2020 and 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes to Consolidated Financial Statements |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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