Quarterly report pursuant to Section 13 or 15(d)

PROPERTY EQUIPMENT AND LEASEHOLD IMPROVEMENTS NET

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PROPERTY EQUIPMENT AND LEASEHOLD IMPROVEMENTS NET
6 Months Ended
Jun. 30, 2020
PROPERTY EQUIPMENT AND LEASEHOLD IMPROVEMENTS NET  
NOTE 7. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

NOTE 7 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET

 

Property, equipment, and leasehold improvements, net consists of the following:

  

 

(in thousands)

 

 

 

 June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Land and building

 

$ 11,206

 

 

$ 11,206

 

Furniture and equipment

 

 

2,772

 

 

 

2,787

 

Computer hardware

 

 

210

 

 

 

299

 

Leasehold improvements

 

 

16,165

 

 

 

16,545

 

Construction in progress

 

 

10,131

 

 

 

9,676

 

 

 

 

 

 

 

 

 

 

Subtotal

 

 

40,484

 

 

 

40,513

 

Less accumulated depreciation

 

 

(6,418

)

 

 

(5,044 )

Property, equipment and leasehold improvements, net

 

 

 

 

 

 

 

 

 

 

$ 34,066

 

 

$ 35,469

 

 

Depreciation expense related to property, equipment and leasehold improvements for the six months ended June 30, 2020 and 2019 was $1.92 million and $1.47 million, respectively.

 

Assets Divested

  

Blum Santa Ana

 

On February 26, 2020, the Company agreed to transfer governance and control of our dispensary operation located at 2911 Tech Center Drive, Santa Ana, CA to Martin Vivero and Tetra House Co. (“Tetra”), who are unaffiliated third parties. The company received $2.00 million at closing and is due future payments of $1.80 million, which are reflected within assets of continuing operations. MediFarm So Cal Inc. (“MediFarm So Cal”), a wholly-owned subsidiary of the Company, terminated the existing management services agreement with 55 OC Community Collective Inc. (“55 OC”). 55 OC is a mutual benefit corporation which holds a cannabis license with the City of Santa Ana in the State of California. Previously, MediFarm So Cal managed the dispensary known as “Blum Santa Ana” under the license of 55 OC. Control of 55 OC was transferred to Mr. Vivero and Tetra House Co. via a new management services agreement and the appointment of Mr. Vivero to the Board of Directors of 55 OC, which was pending final regulatory approval as of the date of our report.

 

The Company recognized a loss upon sale of the assets equal to the difference between the consideration paid and the book value of the assets as of the disposition date, less direct costs to sell, and reflected such loss in discontinued operations.

 

The following table summarizes the transaction:

 

 

 

(in thousands)

 

 

 

 

 

Total consideration

 

$

3,800

 

 

 

 

 

 

Net book value of assets divested and liabilities transferred

 

 

 

 

Inventory

 

 

23

 

Prepaid and other current assets

 

 

33

 

Property, plant & equipment

 

 

98

 

Intangible assets and goodwill

 

 

6,565

 

Other long-term assets

 

 

54

 

Lease liability, net of right-of-use asset

 

 

(78

)

Net book value of assets divested and liabilities transferred

 

 

6,694

 

Loss on sale

 

$

(2,894

)

 

Edible Garden

 

On March 30, 2020, Edible Garden Corp. (“Edible Garden”), a wholly-owned subsidiary of Terra Tech Corp. (the “Company”), entered into and closed an Asset Purchase Agreement (the “Purchase Agreement”) with Edible Garden Incorporated (the “Purchaser”), pursuant to which Edible Garden sold and the Purchaser purchased substantially all of the assets of Edible Garden (the “Business”). The consideration paid for the Business included a five-year $3.00 million secured promissory note bearing interest at 3.5% per annum, which is reflected within the assets under discontinued operations, and two option agreements to purchase up to a 20% interest in the Purchaser for a nominal fee. The first option gives the Company the right to purchase a 10% interest in the Purchaser for one dollar at any time between the one and five-year anniversary of the transaction, or at any time should a change in control event or public offering occur. The second option gives the Company the right to purchase an additional 10% interest in the Purchaser for one dollar at any point prior to the five-year anniversary of the transaction. The second option is automatically terminated upon payment in full of the $3.00 million secured promissory note.

 

Michael James, the Company’s former Chief Financial Officer, is a principal of the Purchaser. There is no material relationship between the Company or its affiliates and the Purchaser other than as set forth in the previous sentence. The Purchase Agreement contains customary conditions, representations, warranties, indemnities and covenants by, among, and for the benefit of the parties.

 

The Company recognized a loss upon sale of the assets equal to the difference between the consideration paid and the book value of the assets as of the disposition date and reflected such loss in discontinued operations. The following table summarizes the transaction:

 

 

 

(in thousands)

 

Consideration

 

 

 

Fair value of note receivable

 

$

2,960

 

Fair value of options

 

 

330

 

Less: cash transferred to purchaser

 

 

(30

)

Total consideration

 

$

3,260

 

 

 

 

 

 

Net book value of assets divested and liabilities transferred

 

 

 

 

Accounts receivable

 

$

360

 

Inventory

 

 

520

 

Other current assets

 

 

80

 

Property, plant and equipment

 

 

4,100

 

Intangible assets

 

 

70

 

Other long-term assets

 

 

200

 

Accounts payable and accrued expenses

 

 

(1,700

)

Lease liabilities, net of right of use assets

 

 

(70

)

Net book value of assets divested and liabilities transferred

 

 

3,560

 

Loss on sale

 

$

(300

)