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8-K/A - FORM 8-K/A - Unrivaled Brands, Inc.trtc_8ka.htm

  EXHIBIT 99.3

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF

TERRA TECH CORP., ITS WHOLLY-OWNED SUBSIDIARIES,

AND BLACK OAK GALLERY

 

Pro Forma Financial Information

 

The following unaudited pro forma condensed combined financial statements give effect to the merger (the "Merger") between Terra Tech Corp. ("Terra Tech") and Black Oak Gallery ("Black Oak") and represent our acquisition of all of the capital stock of Black Oak, which was accounted for as a purchase. We are applying the acquisition method of accounting.

 

Black Oak

 

The unaudited pro forma condensed combined financial statements as of March 31, 2016 give effect to the Merger. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015, combines the statement of operations of Terra Tech and Black Oak and gives pro forma effect to these transactions as if they were completed on January 1, 2015.

 

Immediately following the completion of the Merger, assuming the issuance of shares pursuant to certain earn-out contingent consideration shares, Terra Tech's previous stockholders owned 349,739,408 shares of common stock and Black Oak shareholders owned 235,236,144, or approximately 40% of the outstanding shares of Terra Tech's common stock. The acquisition will be accounted for as a purchase, applying the acquisition method of accounting, with the assets acquired and liabilities assumed recorded at fair value.

 

The unaudited pro forma information is presented for illustration purposes only in accordance with the assumptions set forth below and in the notes to the pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined balance sheets as of March 31, 2016 combines the balance sheets of Terra Tech and Black Oak and gives pro forma effect to:

 

(i)

the exchange of 100% of the outstanding shares of Black Oak common stock for the right to receive approximately 8,167 shares of our Series Z Preferred Stock (or, upon conversion, 81,661,649 shares of our common stock), of which approximately 1,176 shares thereof were issued and paid at closing (or, upon conversion, 11,759,242 shares of our common stock), and approximately 8,668,700 shares of our Series B Preferred Stock (or, upon conversion, 46,675,104 shares of our common stock), of which approximately 1,248,300 shares thereof were issued and paid at closing (or, upon conversion, 6,721,254 shares of our common stock), and approximately 21,380 shares of our Series Q Preferred Stock (or, upon conversion, 106,899,391 shares of our common stock), of which approximately 3,696 shares thereof were issued and paid at closing (or, upon conversion, 18,480,493 shares of our common stock);

 

 
1
 

 

(ii)

the recording of a liability associated with the remaining shares of our Series Z Preferred Stock, Series B Preferred Stock, and Series Q Preferred Stock that were issued but not paid at closing pursuant to the Agreement and Plan of Merger (the "Merger Agreement"), of which approximately 4,210 shares of our Series Z Preferred Stock (or, upon conversion, 42,098,295 shares of our common stock), approximately 4,468,872 shares of our Series B Preferred Stock (or, upon conversion, 24,061,862 shares of our common stock), and approximately 8,945 shares of our Series Q Preferred Stock (or, upon conversion, 44,722,796 shares of our common stock) are subject to a 12-month Lockup (the "Lockup Shares"); and approximately 2,781 shares of our Series Z Preferred Stock (or, upon conversion, 27,804,112 shares of our common stock), approximately 2,951,528 shares of our Series B Preferred Stock (or, upon conversion, 15,891,988 shares of our common stock), and approximately 8,739 shares of our Series Q Preferred Stock (or, upon conversion, 43,696,102 shares of our common stock) are subject to certain holdback provisions (the "Holdback Shares"). The Lockup Shares and the Holdback Shares are held in an escrow account as security for the satisfaction of any post-closing adjustments or indemnification claims, as provided in the Merger Agreement. We have recorded an earn-out provision for the Holdback Shares contingent consideration;

  

(iii)

the recording of a contingent consideration associated with the right of those Black Oak Sellers who requested to receive up to $2,088,000 in cash consideration, rather than additional Terra Tech equity, pursuant to certain earn-out provisions (the "Performance-based Cash Payment");

 

(iv)

the recording of the fair value of the assets acquired and liabilities assumed pursuant to the Merger Agreement.

 

The pro forma statement of operations of Terra Tech and Black Oak for the year ended December 31, 2015, has been derived from their respective audited financial statements for the same period. The unaudited pro forma condensed combined balance sheets and statement of operations for the quarter ended March 31, 2016, are based on assumptions and include adjustments as explained in the notes thereto and do not necessarily reflect the results of operations of Terra Tech and Black Oak that actually would have resulted had the acquisition been consummated as of the dates referred to above. Accordingly, such data should not be viewed as fully representative of the past performance of Terra Tech or Black Oak or indicative of future results.

 

These unaudited pro forma condensed combined financial statements are based upon the respective historical financial statements of Terra Tech and Black Oak and should be read in conjunction with the historical financial statements of Terra Tech and Black Oak and the related notes.

 

 
2
 

 

Terra Tech Corp. and Black Oak Gallery
Pro Forma Balance Sheet
As of March 31, 2016

 

 

 

Terra Tech
Corp

 

 

Black Oak
Gallery

 

 

Pro Forma

Adjustments

 

 

Pro Forma

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$1,131,000

 

 

$163,566

 

 

$-

 

 

$1,294,566

 

Accounts receivable, net

 

 

803,916

 

 

 

-

 

 

 

-

 

 

 

803,916

 

Prepaid expenses

 

 

19,368

 

 

 

525,217

 

 

 

-

 

 

 

544,585

 

Inventory

 

 

1,319,061

 

 

 

103,664

 

 

 

-

 

 

 

1,422,725

 

Total Current Assets

 

 

3,273,345

 

 

 

792,447

 

 

 

-

 

 

 

4,065,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, equipment and leasehold improvements, net

 

 

7,314,449

 

 

 

681,896

 

 

 

-

 

 

 

7,996,345

 

Intangible assets, net

 

 

1,474,690

 

 

 

-

 

 

 

-

 

 

 

1,474,690

 

Intangible assets - Black Oak Gallery

 

 

 

 

 

 

 

 

 

 

51,489,665 (2)

 

 

51,489,665

 

Deposits

 

 

90,636

 

 

 

-

 

 

 

-

 

 

 

90,636

 

Total Assets

 

$12,153,120

 

 

$1,474,343

 

 

$51,489,665

 

 

$65,117,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$1,394,387

 

 

$177,228

 

 

$-

 

 

$1,571,615

 

Derivative liability

 

 

1,334,000

 

 

 

-

 

 

 

-

 

 

 

1,334,000

 

Accrued liabilities

 

 

553,778

 

 

 

2,076,810

 

 

 

43,038 (1)

 

 

2,673,626

 

Total Current Liabilities

 

 

3,282,165

 

 

 

2,254,038

 

 

 

43,038

 

 

 

5,579,241

 

Long Term Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

1,250,000

 

 

 

-

 

 

 

-

 

 

 

1,250,000

 

Deferred tax liability, net

 

 

44,000

 

 

 

101,900

 

 

 

-

 

 

 

145,900

 

Total Long Term Liabilities

 

 

1,294,000

 

 

 

101,900

 

 

 

-

 

 

 

1,395,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitment and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Oak Gallery - Contingency

 

 

 

 

 

 

 

 

 

 

12,754,553 (3)

 

 

12,754,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, Convertible Series A, Par value $0.001; authorized and issued 100 shares as of March 31, 2016

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, Convertible Series B, Par value $0.001; authorized 24,970,000 shares as of March 31, 2016; issued and outstanding as of 21,867,172 as of March 31, 2016

 

 

16,150

 

 

 

-

 

 

 

5,717 (4)

 

 

21,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, Convertible Series Q, Par value $0.001; authorized 21,600 shares as of March 31, 2016; 12,639 shares outstanding as of March 31, 2016

 

 

-

 

 

 

-

 

 

 

13 (4)

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, Convertible Series Z, Par value $0.001; authorized 8,300 shares as of March 31, 2016; 5,385 shares outstanding as of March 31, 2016

 

 

-

 

 

 

-

 

 

 

5 (4)

 

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, Par value $0.001; authorized 350,000,000 shares; issued 349,739,408 shares as of March 31, 2016

 

 

349,740

 

 

 

-

 

 

 

 

 

 

 

349,740

 

Additional paid-in capital

 

 

57,176,915

 

 

 

10,100

 

 

 

38,729,377 (4)

 

 

95,916,392

 

Accumulated Deficit

 

 

(50,078,173)

 

 

(891,695)

 

 

(43,038)(1)

 

 

(51,012,906)

Total Terra Tech Corp. stockholders' equity

 

 

7,464,632

 

 

 

(881,595)

 

 

38,692,074

 

 

 

45,275,111

 

Non-controlling interest

 

 

112,323

 

 

 

-

 

 

 

-

 

 

 

112,323

 

Total Stockholders' Equity

 

 

7,576,955

 

 

 

(881,595)

 

 

38,692,074

 

 

 

45,387,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$12,153,120

 

 

$1,474,343

 

 

$51,489,665

 

 

$65,117,128

 

 

 
3
 

 

Terra Tech Corp. and Black Oak Gallery
Pro forma Statement of Operations
For the Quarter Ended March 31, 2016

 

 

 

Terra Tech
Corp

 

 

Black Oak
Gallery

 

 

Pro Forma

Adjustments

 

 

Pro Forma

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

$1,548,167

 

 

$3,372,474

 

 

$(16,076)(5)

 

$4,904,565

 

Cost of Goods Sold

 

 

1,414,193

 

 

 

2,912,104

 

 

 

(8,038)(5)

 

 

4,318,259

 

 

 

 

133,974

 

 

 

460,370

 

 

 

(8,038)

 

 

586,306

 

Selling, general and administrative expenses

 

 

2,046,348

 

 

 

515,692

 

 

 

35,000

(6)

 

 

2,597,040

 

Loss from operations

 

 

(1,912,374)

 

 

(55,322)

 

 

(43,038)

 

 

(2,010,734)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

(94,406)

 

 

-

 

 

 

-

 

 

 

(94,406)

Loss on extinguishment of debt

 

 

(920,797)

 

 

-

 

 

 

-

 

 

 

(920,797)
Loss from derivatives issued with debt greater than debt carrying value

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Gain (Loss) on fair market valuation of derivatives

 

 

(1,160,700)

 

 

-

 

 

 

-

 

 

 

(1,160,700)

Interest Expense

 

 

(55,995)

 

 

-

 

 

 

-

 

 

 

(55,995)

Total Other Income (Expense)

 

 

(2,231,898)

 

 

-

 

 

 

-

 

 

 

(2,231,898)

Loss before Provision of Income Taxes

 

 

(4,144,272)

 

 

(55,322)

 

 

(43,038)

 

 

(4,242,632)

Provision for income taxes

 

 

-

 

 

 

76,868

 

 

 

-

 

 

 

76,868

 

Net Loss

 

 

(4,144,272)

 

 

(132,190)

 

 

(43,038)

 

 

(4,319,500)

Net Loss attributable to non-controlling interest

 

 

18,208

 

 

 

-

 

 

 

-

 

 

 

18,208

 

Net Loss attributable to Terra Tech Corp.

 

$(4,126,064)

 

$(132,190)

 

$(43,038)

 

$(4,301,292)

Note 1 - Adjustment from Pro Forma Statement of Operations.

Note 2 - Fair market value of assets acquired from Black Oak Gallery, see Footnote 4.

Note 3 - Cash and Stock Contingency expected to be paid and issued for Black Oak Gallery acquisition, see Footnote 6.

Note 4 - Preferred stock par value and additional paid in capital for the issuance of stock for the Black Oak Gallery acquisition, see Footnotes 2 and 3.

Note 5 - Sales and cost of goods sold between Terra Tech Corp. and Black Oak Gallery.

Note 6 - Add new Platinum agreement less salaries paid to Black Oak Gallery partners.
 

 
4
 

 

Terra Tech Corp and Black Oak Gallery
Pro Forma Statement of Operations
For the Year Ended December 31, 2015

 
 

 

 

Terra Tech
Corp

 

 

Black Oak
Gallery

 

 

Pro Forma

Adjustments

 

 

Pro Forma

 

Total Revenues

 

$9,975,346

 

 

$12,983,824

 

 

$(683,516)(1)

 

$22,275,654

 

Cost of Goods Sold

 

 

8,958,475

 

 

 

10,709,576

 

 

 

(512,803)(1)

 

 

19,155,248

 

 

 

 

1,016,871

 

 

 

2,274,248

 

 

 

(170,713)

 

 

3,120,406

 

Selling, general and administrative expenses

 

 

9,833,646

 

 

 

2,213,742

 

 

 

108,000

(2)

 

 

12,155,388

 

Loss from operations

 

 

(8,816,775)

 

 

60,506

 

 

 

(278,713)

 

 

(9,034,982)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt discount

 

 

(696,180)

 

 

-

 

 

 

-

 

 

 

(696,180)

Loss on extinguishment of debt

 

 

(619,444)

 

 

-

 

 

 

-

 

 

 

(619,444)
Loss from derivatives issued with debt greater than debt carrying value

 

 

(561,000)

 

 

-

 

 

 

-

 

 

 

(561,000)

Gain (Loss) on fair market valuation of derivatives

 

 

1,800,100

 

 

 

-

 

 

 

-

 

 

 

1,800,100

 

Interest Income (Expense)

 

 

(469,576)

 

 

1,236

 

 

 

-

 

 

 

(468,340)

Total Other Income (Expense)

 

 

(546,100)

 

 

1,236

 

 

 

-

 

 

 

(544,864)

Loss before Provision of Income Taxes

 

 

(9,362,875)

 

 

61,742

 

 

 

(278,713)

 

 

(9,579,846)

Provision for income taxes

 

 

44,000

 

 

 

636,628

 

 

 

-

 

 

 

680,628

 

Net Loss

 

 

(9,406,875)

 

 

(574,886)

 

 

(278,713)

 

 

(10,260,474)

Net Loss attributable to non-controlling interest

 

 

181,295

 

 

 

-

 

 

 

-

 

 

 

181,295

 

Net Loss attributable to Terra Tech Corp.

 

$(9,225,580)

 

$(574,886)

 

$(278,713)

 

$(10,079,179)

 

Note 1 - The revenue and cost of goods sold between Terra Tech Corp. and Black Oak Gallery have been eliminated.

 

Note 2 - The salaries to the Black Oak Gallery partners have been eliminated and replaced with the Platinum management agreement.

 

 
5
 

 

INFORMATION TO THE UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL STATEMENTS

 

1. Black Oak Description

 

Black Oak operates a medical marijuana dispensary under the name Blüm at 556-578 West Grand Avenue, Oakland, California.

 

Black Oak opened its retail storefront in Oakland, California in November of 2012 and is a retail seller, distributor and grower of medical marijuana. Black Oak sells a combination of its own cultivated products, as well as high quality name-brand products from outside suppliers. In addition to multiple grades of medical marijuana, it 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. The location consists of a retail dispensary storefront, indoor cultivation area, laboratory, and a 20-car capacity parking lot, collectively known as the Blüm Campus.

 

2. The Merger and Basis of Presentation

 

The below summary of the Merger Agreement is qualified by the entire agreement, to which the reader should refer and which was filed with the SEC on March 29, 2016, as Exhibit 2.5 to our Annual Report on Form 10-K.

 

The accompanying unaudited pro forma financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

 

On March 31, 2016 (the "Closing Date"), we completed the acquisition of Black Oak, through a merger (the "Merger") of our wholly-owned merger subsidiary, Generic Merger Sub, Inc., with and into Black Oak, with Black Oak as the surviving corporation, and becoming our wholly-owned subsidiary. The acquisition date (the "Acquisition Accounting Date") for accounting purposes was on April 1, 2016.

 

Pursuant to the Merger Agreement, the outstanding shares of common stock of Black Oak held by (i) three of the then-current shareholders of Black Oak (the "Group A Shareholders") were converted into the right to receive approximately 8,167 shares of our Series Z Preferred Stock (or, upon conversion, 81,661,649 shares of our common stock), of which approximately 1,176 shares of Series Z Preferred Stock were issued and paid at closing (or, upon conversion, 11,759,242 shares of our common stock), and approximately 8,668,700 shares of our Series B Preferred Stock (or, upon conversion, 46,675,104 shares of our common stock), of which approximately 1,248,300 shares of Series B Preferred Stock (or, upon conversion, 6,721,254 shares of our common stock) were issued and paid at closing and (ii) the remaining shareholders of Black Oak (the "Group B Shareholders") were converted into the right to receive approximately 21,380 shares of our Series Q Preferred Stock (or, upon conversion, 106,899,391 shares of our common stock), of which approximately 3,696 shares of Series Q Preferred Stock (or, upon conversion, 18,480,493 shares of our common stock) were issued and paid at closing. The shares of Series Z Preferred Stock, Series B Preferred Stock, and Series Q Preferred Stock that were issued but not paid to the Black Oak legacy shareholders at closing are subject to certain holdback and lock-up provisions, and held in an escrow account as security for the satisfaction of any post-closing adjustments or indemnification claims, as provided for in the Merger Agreement.

 

Each share of our Series Q Preferred Stock is to be converted into 5,000 shares of our common stock and each share of our Series Z Preferred Stock is to be converted into 1,857 shares of our Series B Preferred Stock, in each case immediately upon our filing with the Secretary of State of the State of Nevada an Amendment to our Articles of Incorporation to increase our authorized capital. Accordingly, the approximately 21,380 shares of Series Q Preferred Stock issued to the Group B Shareholders is convertible into approximately 106,899,391 shares of our common stock and the approximately 8,167 shares of our Series Z Preferred Stock issued to the Group A Shareholders is convertible into approximately 15,166,552 shares of our Series B Preferred Stock. The Series Z Preferred Stock is intended to mirror the rights of the holders of our Series B Preferred Stock. Each share of our Series B Preferred Stock remains convertible into 5.384325537 shares of our common stock. Certain of the Group B Shareholders requested to receive cash consideration up to approximately $2,088,000 in lieu of additional equity of Terra Tech.

 

The securities issued, and to be issued upon conversion of the preferred stock, are exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") in reliance on Sections 3(a)(9) and 4(a)(2) of the Securities Act.

 

 
6
 

  

Terra Tech - Accounting Acquirer

 

In connection with the Merger and in exchange for all of Black Oak's issued and outstanding shares of common stock, we expect to (i) issue an aggregate value (for accounting purposes as of the Acquisition Accounting Date) of approximately $50.1 million of our capital stock (which equity had a value of approximately $22.9 million as of the date of the Merger Agreement) and also expect to (ii) tender cash consideration equal to approximately $1.4 million, for a total maximum value (for accounting purposes as of the Acquisition Accounting Date) of approximately $51.5 million (or, upon conversion, approximately $25 million as of the date of the Merger Agreement). Notwithstanding the Merger, the composition of our Board of Directors and our executive management did not change. Additionally, control of the Company, measured either by equity ownership or by voting interest, did not change. Although the revenues of Black Oak exceeded those of the Company, the Company's assets exceeded those of Black Oak. The sum of the above analysis supports the determination that the Company is the accounting acquirer.

 

3. Estimate of Consideration Transferred

 

The estimated purchase price of Black Oak (for accounting purposes as of the Acquisition Accounting Date) was approximately $51,489,665. The purchase price of the acquisition was determined based on the value of the associated underlying shares of Terra Tech's common stock on the Acquisition Accounting Date, which value of $0.2620 per share represented the closing sale price of Terra Tech's Common Stock, as quoted on April 1, 2016 on the OTC Market Group Inc.'s OTCQX market.

 

The purchase price represents the sum of:

 

(i) the issuance of approximately 1,176 shares of our Series Z Preferred Stock (or, upon conversion, 11,759,242 shares of our common stock), approximately 1,248,300 shares of our Series B Preferred Stock (or, upon conversion, 6,721,254 shares of our common stock), and approximately 3,696 shares of our Series Q Preferred Stock (or, upon conversion, 18,480,493 shares of our common stock), all of which if fully converted in shares of our common stock, would convert into 36,960,989 shares of our common stock (the "Closing Consideration"); and

 

(ii) the Lockup Shares, which comprise approximately 4,210 shares of our Series Z Preferred Stock (or, upon conversion, 42,098,295 shares of our common stock), approximately 4,468,872 shares of our Series B Preferred Stock (or, upon conversion, 24,061,862 shares of our common stock), and approximately 8,945 shares of our Series Q Preferred Stock (or, upon conversion, 44,722,796 shares of our common stock), all of which if fully converted in shares of our common stock, would convert into approximately 110,882,953 shares of our common stock (the "Lockup Consideration"); and

 

(iii) the Holdback Shares contingent consideration, which comprise up to approximately 2,781 shares of our Series Z Preferred Stock (or, upon conversion, 27,804,112 shares of our common stock), up to approximately 2,951,528 shares of our Series B Preferred Stock (or, upon conversion, 15,891,988 shares of our common stock), and up to approximately 8,739 shares of our Series Q Preferred Stock (or, upon conversion, 43,696,102 shares of our common stock), all of which if fully converted in shares of our common stock, would convert into approximately 87,392,202 shares of our common stock (the "Holdback Consideration"); and

 

(iv) the contingent consideration of up to $2,088,000 in cash consideration pursuant to certain earn-out provisions to those Black Oak Sellers who requested cash consideration, rather than additional Terra Tech equity (the "Performance-based Cash Consideration").

 

 
7
 

 

Closing Consideration - Pursuant to the Merger Agreement, the consideration to be paid in shares of the Company's Preferred Stock at closing was issued and paid on April 1, 2016.

 

Lockup Consideration - The consideration to be paid in shares of the Company's Preferred Stock on approximately the one-year anniversary date of the Merger Agreement was issued on the Acquisition Accounting Date, which shares are held in escrow.

 

Holdback Consideration - The consideration to be paid in shares of the Company's Preferred Stock on approximately the one-year anniversary date of the Merger Agreement and that are subject to certain holdback provisions was issued on the Acquisition Accounting Date but which shares are held in escrow as security for the satisfaction of any post-closing adjustments or indemnification claims as provided for in the Merger Agreement.

 

Performance-based Cash Consideration - The consideration to be paid in cash on approximately the one-year anniversary date of the Merger Agreement and that is subject to certain holdback provisions, is unpaid and recorded as contingent consideration as security for the satisfaction of any post-closing adjustments or indemnification claims as provided for in the Merger Agreement.

 

The below chart outlines a summary of the purchase price:

 

Purchase Price Detail

 

Series B
Preferred Stock

 

 

Series Q
Preferred Stock

 

 

Series Z
Preferred Stock

 

 

Preferred Stock Converted Into Common Stock

 

 

Total
Consideration

 

Closing Consideration

 

 

1,248,300

 

 

 

3,696

 

 

 

1,176

 

 

 

36,960,989

 

 

$9,683,779

 

Lockup Consideration

 

 

4,468,872

 

 

 

8,945

 

 

 

4,210

 

 

 

110,882,953

 

 

 

29,051,334

 

Holdback Consideration

 

 

2,951,528

 

 

 

8,739

 

 

 

2,781

 

 

 

87,392,202

 

 

 

11,324,969

 

Performance-based Cash Consideration

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

1,429,583

 

Totals

 

 

8,668,700

 

 

 

21,380

 

 

 

8,167

 

 

 

235,236,144

 

 

$51,489,665

 

 

4. Net Assets Acquired

 

The acquisition of Black Oak was accounted for in accordance with ASC 805-10 Business Combinations. The assets consisted primarily of the intellectual property and established marketing associated with the name Blüm, including its website www.blumoak.com, the medical marijuana dispensary license and customer relationships.

 

 

8

 

 

The following table summarizes the acquisition with an estimated purchase price (for accounting purposes as of the Acquisition Accounting Date) of $51,489,665:

 

Current assets

 

$792,447

 

Property, plant and equipment

 

 

681,896

 

Customer relationships

 

 

13,406,577

 

Trade Name

 

 

6,884,441

 

Dispensary license

 

 

12,900,442

 

Liabilities

 

 

(2,355,938)

Total identifiable net assets

 

$32,309,865

 

Goodwill

 

 

19,179,800

 

Net assets

 

$51,489,665

 

   

5. Common Stock

 

The following is a summary of Terra Tech common stock outstanding after the Merger:

 

Terra Tech Common Stock

 

Shares

 

Shares held by existing Terra Tech common stockholders as of April 1, 2016

 

 

349,739,408

 

Shares of Terra Tech common stock issued to Black Oak shareholders at closing

 

 

36,960,989

 

Additional shares of Terra Tech common stock to be issued to Black Oak Sellers pursuant to the Lockup Consideration

 

 

110,882,953

 

Additional shares of Terra Tech common stock to be issued to Black Oak Sellers pursuant to the Holdback Consideration

 

 

87,392,202

 

Total potential shares outstanding after the Merger

 

 

584,975,552

 

 

The unaudited pro forma condensed combined financial statements reflect the issuance of 36,960,989 shares of Terra Tech common stock ($0.001 par value per share) to the Black Oak Sellers in exchange for 100% of the common stock of Black Oak.

 

Additionally, the pro forma condensed combined financial statements reflect 110,882,953 shares of Terra Tech common stock to be issued to the Black Oak Sellers pursuant to certain Lockup provisions and 87,392,202 shares of Terra Tech common stock to be issued to the Black Oak Sellers pursuant to certain Holdback earn-out provisions.

 

 

9

 

 

6. Contingent Consideration Liability

 

Terra Tech accounts for Contingent Consideration according to FASB ASC 805 Business Combinations. Contingent consideration typically represents the acquirer's obligation to transfer additional assets or equity interests to the former owners of the acquiree if specified future events occur or conditions are met. FASB ASC 805 requires that contingent consideration be recognized at acquisition-date fair value as part of the consideration transferred in the transaction. FASB ASC 805 uses the fair value definition in Fair Value Measurements, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As defined in FASB ASC 805, contingent consideration is (i) an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met or (ii) the right of the acquirer to the return of previously transferred consideration if specified conditions are met.

 

Accordingly, Terra Tech valued the Holdback Consideration and the Performance-based Cash Payment Consideration (together, "Contingent Consideration"), based on an analysis using a cash flow model to determine the expected contingent consideration payment, which model determined that the aggregate expected contingent consideration liability was $15,305,463 and the present value of the contingent consideration liability was $12,754,553. Terra Tech thus recognized at the Acquisition Accounting Date a $12,754,553 contingent consideration liability amount associated with the Contingent Consideration as part of the consideration transferred pursuant to the Merger Agreement.

 

The probabilities for the different scenarios in determining the likelihood of payouts related to the Contingent Consideration (e.g., 75% probability that upside scenario will be achieved), as well as the discount rate used in our calculations were based on internal Terra Tech projections which were vetted by senior management.

 

Holdback Contingent Consideration

 

The Holdback Contingent Consideration is comprised of (i) the Market-Based Clawback Amount and (ii) the Performance-Based Clawback Amount and is to be paid in shares of our Preferred Stock on approximately the one-year anniversary date of the Merger Agreement.

  

The Market-Based Clawback Amount is determined as follows:

 

a)

If the Terra Tech Common Stock 30-day VWAP on the one-year anniversary date of the Merger Agreement exceeds the Terra Tech Closing Price, the Market-Based Clawback Amount shall mean the number of shares of Terra Tech Common Stock equal to (i) (A) $4,912,000.00 divided by (B) the Terra Tech Closing Price, less (ii) (A) $4,912,000.00 divided by (B) the Terra Tech Common Stock 30-day VWAP on such date.

 
b)

If the Terra Tech Common Stock 30-day VWAP on the one-year anniversary date of the Merger Agreement is less than or equal to the Terra Tech Closing Price, the Market-Based Clawback Amount shall be zero shares.

 

 

10

 

 

In no event will the Market-Based Clawback Amount exceed 50% of the Holdback Shares Amount.

 

The Performance-Based Clawback Amount is determined as follows:

 

a)

The "Lower Threshold" means an amount equal to $11,979,351.00, and the "Upper Threshold" means an amount equal to $16,667,000.00.

 
b)

If Black Oak's operating revenues for the 12-month period following the Closing Date (the "Year 1 Revenue") is less than the Lower Threshold, then the Performance-Based Clawback Amount shall be the number of shares obtained from a quotient, (A) the numerator of which is equal to the sum of (1) $4,912,000.00, plus (2) the product of 1.5 multiplied by the difference between the Lower Threshold and the Year 1 Revenue, and (B) the denominator of which is the Terra Tech Common Stock 30-day VWAP as of the one-year anniversary date of the Merger Agreement.

 
c)

If the Year 1 Revenue is greater than or equal to the Lower Threshold but is less than the Upper Threshold, then the Performance-Based Clawback Amount shall be the number of shares obtained from a quotient, (A) the numerator of which is equal to the product of 1.053 multiplied by the difference between the Upper Threshold and the Year 1 Revenue, and (B) the denominator of which is the Terra Tech Common Stock 30-day VWAP as of the one-year anniversary date of the Merger Agreement.

 
d)

If the Year 1 Revenue is greater than or equal to the Upper Threshold, then the Performance-Based Clawback Amount shall be zero (0) shares.

 

Performance-based Cash Payment Contingent Consideration

 

Pursuant to the Merger Agreement, certain of the Group B Shareholders requested to receive cash consideration of up to approximately $2,088,000 rather than additional Terra Tech equity to be paid on approximately the one-year anniversary date of the Merger Agreement under the following conditions:

 

(a)

zero dollars if Year 1 Revenue is below or equal to $12,000,000; and

(b)

the product obtained by multiplying 0.447 times Year 1 Revenue if Year 1 Revenue is greater than $12,000,000, provided that in no event shall the Performance-based Cash Payment amount exceed $2,088,000.

 

Pursuant to the above formula, if the Revenue in Year 1 equals $16,666,666, then the Performance-based Cash Payment will be $2,088,000 calculated as follows:

 

Year 1 Revenue

 

$16,666,666

 

Less:

 

$12,000,000

 

 

 

$4,666,666

 

 

 

 

0.44742864

 

Performance-based Cash Payment

 

$2,088,000

 

 

 
11
 

  

The Company calculated the Contingent Consideration based upon the following formula:

 

 

 

 

 

 

 

One-year Anniversary Date of the Merger
30-Day VWAP

 

 

 

 

 

 

 

 

 

 

 

 

Probability-Weighted Amounts

 

 

 

 

Year 1 Revenue

 

 

 

 

 

 

Value of Common Stock to Issue

 

Performance-Based Cash Payment

 

 

Probability

 

 

Earn-out Shares

 

 

Performance-Based Cash

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5%

 

$21,633,120

 

 

$2,088,000

 

 

 

3.8%

 

$811,242

 

 

$78,300

 

 

$889,542

 

 

 

 

 

 

$0.1077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Upside

 

 

75%

 

 

15%

 

$15,879,947

 

 

$2,088,000

 

 

 

11.3%

 

$1,786,494

 

 

$234,900

 

 

$2,021,394

 

$16,667,000

 

 

 

 

 

$0.2077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80%

 

$13,866,243

 

 

$2,088,000

 

 

 

60.0%

 

$8,319,746

 

 

$1,252,800

 

 

$9,572,546

 

 

 

 

 

 

 

 

$0.3077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5%

 

$13,958,097

 

 

$747,500

 

 

 

1.0%

 

$139,581

 

 

$7,475

 

 

$147,056

 

 

 

 

 

 

 

 

$0.1077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base

 

 

20%

 

 

15%

 

$11,900,169

 

 

$747,500

 

 

 

3.0%

 

$357,005

 

 

$22,425

 

 

$379,430

 

$13,670,835

 

 

 

 

 

$0.2077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80%

 

$11,179,860

 

 

$747,500

 

 

 

16.0%

 

$1,788,778

 

 

$119,600

 

 

$1,908,378

 

 

 

 

 

 

 

 

$0.3077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5%

 

$4,922,966

 

 

$0

 

 

 

0.3%

 

$12,307

 

 

$0

 

 

$12,307

 

 

 

 

 

 

 

 

$0.1077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Downside

 

 

5%

 

 

15%

 

$7,215,125

 

 

$0

 

 

 

0.8%

 

$54,113

 

 

$0

 

 

$54,113

 

$10,674,670

 

 

 

 

 

$0.2077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80%

 

$8,017,417

 

 

$0

 

 

 

4.0%

 

$320,697

 

 

$0

 

 

$320,697

 

 

 

 

 

 

 

 

$

 0.3077

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value of Expected Earn-out Payment

 

$13,589,963

 

 

$1,715,500

 

 

$15,305,463

 

Price per common Shares

 

$0.2620

 

 

$0.2620

 

 

 

 

 

Discount rate

 

 

20%

 

 

20%

 

 

 

 

Periods

 

 

1.00

 

 

 

1.00

 

 

 

 

 

Present value factor at 20% discount rate for 12 months

 

 

0.8333

 

 

 

0.8333

 

 

 

 

 

Present value of contingent consideration

 

$11,324,969

 

 

$1,429,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of contingent consideration

 

 

 

 

 

 

 

 

 

$12,754,553

 

     

 

 

12