Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Apr. 01, 2020 | Jun. 30, 2019 | |
Document And Entity Information | |||
Entity Registrant Name | GrowLife, Inc. | ||
Entity Central Index Key | 0001161582 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | No | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation, State or Country Code | DE | ||
Entity File Number | 000-50385 | ||
Entity Public Float | $ 23,254,528 | ||
Entity Common Stock, Shares Outstanding | 29,282,602 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 40,834 | $ 2,334,377 |
Accounts receivable - trade, net of allowance for doubtful accounts of $5,690 as of 12/31/2019 and 12/31/2018 | 101,806 | 42,254 |
Inventory, net | 600,674 | 792,664 |
Prepaid costs | 0 | 3,418 |
Deposits | 18,995 | 51,916 |
Total Current Assets | 762,309 | 3,224,629 |
PROPERTY AND EQUIPMENT, NET | 166,482 | 712,866 |
INTANGIBLE ASSETS, NET | 1,802,434 | 2,498,704 |
GOODWILL | 781,749 | 781,749 |
OPERATING LEASE RIGHT OF USE ASSET | 537,522 | 0 |
TOTAL ASSETS | 4,050,496 | 7,217,948 |
CURRENT LIABILITIES: | ||
Accounts payable - trade | 1,157,090 | 1,054,371 |
Accrued expenses | 259,093 | 261,954 |
Accrued expenses - related parties | 31,485 | 73,585 |
Derivative liability | 1,300,915 | 1,795,473 |
Convertible notes payable | 2,884,279 | 3,404,133 |
Notes payable - related parties | 104,144 | 100,020 |
Capital lease payable | 0 | 8,534 |
Deferred revenue | 0 | 89,504 |
Acquisition of EZ-CLONE Enterprises, Inc. payable in cash | 1,026,000 | 0 |
Current portion of operating lease right of use liability | 140,772 | 0 |
Total current liabilities | 6,903,778 | 6,787,574 |
LONG TERM LIABILITIES: | ||
Deferred tax liability | 470,200 | 587,750 |
Long term acquisition of EZ-CLONE Enterprises, Inc. payable in common stock | 900,000 | 0 |
Non-current portion of operating lease right of use liability | 410,734 | 0 |
Total long term liabilities | 1,780,934 | 587,750 |
COMMITMENTS AND CONTINGENCIES (Note 16) | ||
STOCKHOLDERS' DEFICIT | ||
Preferred stock - $0.0001 par value, 10,000,000 shares authorized, no shares issued and outstanding | 0 | 0 |
Common stock - $0.0001 par value, 120,000,000 shares authorized, 28,677,147 and 22,917,327 shares issued and outstanding at 12/31/2019 and 12/31/2018, respectively | 386,269 | 343,749 |
Additional paid-in capital | 143,441,047 | 139,331,067 |
Accumulated deficit | (148,461,532) | (141,176,087) |
Total stockholders' deficit | (4,634,216) | (1,501,271) |
NON CONTROLLING INTEREST IN EZ-CLONE ENTERPRISES, INC. | 0 | 1,343,895 |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ 4,050,496 | $ 7,217,948 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts | $ 5,690 | $ 5,690 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 10,000,000 | 10,000,000 |
Preferred stock, issued | 0 | 0 |
Preferred stock, outstanding | 0 | 0 |
Common stock par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 120,000,000 | 120,000,000 |
Common stock, issued | 28,677,147 | 22,917,327 |
Common stock, outstanding | 28,677,147 | 22,917,327 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Statement [Abstract] | ||
NET REVENUE | $ 8,217,562 | $ 4,573,461 |
COST OF GOODS SOLD | 5,668,435 | 4,105,172 |
GROSS PROFIT | 2,549,127 | 468,289 |
GENERAL AND ADMINISTRATIVE EXPENSES | 7,010,059 | 5,016,977 |
RESTRUCTURING EXPENSE - FLOORING DIVISION | 305,895 | 0 |
RESTRUCTURING EXPENSE - RETAIL STORES AND ONLINE SALES | 250,000 | 0 |
OPERATING LOSS | (5,016,827) | (4,548,688) |
OTHER INCOME (EXPENSE): | ||
Change in fair value of derivative | 496,338 | 977,732 |
Interest expense, net | (1,204,119) | (1,320,811) |
Impairment of acquired assets | 0 | (61,902) |
Loss on debt conversions | (1,767,325) | (6,519,467) |
Total other expense, net | (2,475,106) | (6,924,448) |
LOSS BEFORE INCOME TAXES | (7,491,933) | (11,473,136) |
Income taxes - current benefit | (117,550) | 0 |
NET LOSS | (7,374,383) | (11,473,136) |
Net loss attrituable to noncontrolling interest in EZ-Clone Enterprises, Inc. | 88,938 | 28,355 |
NET LOSS ATTRIBUTABLE TO GROWLIFE, INC. AND SUBSIDIARIES COMMON SHAREHOLDERS | $ (7,285,445) | $ (11,444,781) |
Basic and diluted loss per share | $ (0.29) | $ (0.58) |
Weighted average shares of common stock outstanding- basic and diluted | 25,145,036 | 19,858,753 |
Consolidated Statements of Stoc
Consolidated Statements of Stockholders' Deficit - USD ($) | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Begining balance, shares at Dec. 31, 2017 | 15,784,227 | |||
Begining balance at Dec. 31, 2017 | $ 236,752 | $ 123,678,069 | $ (129,731,305) | $ (5,816,484) |
Stock based compensation for stock options | 44,682 | 44,682 | ||
Stock based compensation for warrants | 196,750 | 196,750 | ||
Shares issued for debt conversion, shares | 16,000 | |||
Shares issued for debt conversion, amount | $ 240 | 32,760 | 33,000 | |
Shares issued for services rendered, shares | 92,735 | |||
Shares issued for services rendered, amount | $ 1,391 | 216,815 | 218,206 | |
Shares issued for convertible note and interest conversion, shares | 4,460,220 | |||
Shares issued for convertible note and interest conversion, amount | $ 66,904 | 9,966,328 | 10,033,232 | |
Shares issued for common stock, shares | 434,512 | |||
Shares issued for common stock, amount | $ 6,518 | 1,293,482 | 1,300,000 | |
Rights offering, shares | 1,407,582 | |||
Rights offering, amount | $ 21,114 | 2,512,010 | 2,533,124 | |
Stock option exercise, shares | 6,667 | |||
Stock option exercise, amount | $ 100 | 5,900 | 6,000 | |
Shares issued for acquisition of EZ-Clone Enterprises, Inc., shares | 715,385 | |||
Shares issued for acquisition of EZ-Clone Enterprises, Inc., amount | $ 10,730 | 1,384,271 | 1,395,001 | |
Noncontrolling interest in EZ-Clone Enterprises, Inc. | 28,355 | 28,355 | ||
Net loss | (11,473,136) | (11,473,136) | ||
Ending balance, shares at Dec. 31, 2018 | 22,917,327 | |||
Ending balance at Dec. 31, 2018 | $ 343,749 | 139,331,067 | (141,176,087) | (1,501,271) |
Stock based compensation for stock options | 62,042 | 62,042 | ||
Stock based compensation for warrants | 96,000 | 96,000 | ||
Shares issued for services rendered, shares | 147,890 | |||
Shares issued for services rendered, amount | $ 2,219 | 172,216 | 174,435 | |
Shares issued for convertible note and interest conversion, shares | 4,495,806 | |||
Shares issued for convertible note and interest conversion, amount | $ 26,721 | 2,655,302 | 2,682,023 | |
Shares issued for settlement of warrant, shares | 833,333 | |||
Shares issued for settlement of warrant, amount | $ 12,500 | 987,500 | 1,000,000 | |
Shares issued for convertible note and commitment fee, shares | 33,333 | |||
Shares issued for convertible note and commitment fee, amount | $ 500 | 24,500 | 25,000 | |
Warrant exercise - cashless, shares | 26,111 | |||
Warrant exercise - cashless, amount | $ 392 | (392) | 0 | |
Share issuance for correction related to funding services, shares | 188,335 | |||
Share issuance for correction related to funding services, amount | $ 188 | 112,812 | 113,000 | |
Fractional shares issued related to reverse stock split | 35,011 | |||
Noncontrolling interest in EZ-Clone Enterprises, Inc. | 88,938 | 88,938 | ||
Net loss | (7,374,383) | (7,374,383) | ||
Ending balance, shares at Dec. 31, 2019 | 28,677,147 | |||
Ending balance at Dec. 31, 2019 | $ 386,269 | $ 143,441,047 | $ (148,461,532) | $ (4,634,216) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net loss | $ (7,285,445) | $ (11,444,781) |
Adjustments to reconcile net loss to net cash (used in) operating activities: | ||
Depreciation | 89,322 | 80,125 |
Restructuring expense - stores & flooring | 555,895 | 0 |
Amortization of intangible assets | 838,262 | 142,628 |
Stock based compensation | 158,042 | 241,433 |
Common stock issued for services | 312,435 | 218,206 |
Non cash interest and amortization of debt discount | 933,265 | 1,190,903 |
Change in fair value of derivative liability | (494,558) | (977,732) |
Loss on debt conversions | 1,767,325 | 6,519,467 |
Impairment of acquired assets | 0 | 61,902 |
Changes in assets and liabilities: | ||
Accounts receivable | (59,552) | 42,254 |
Inventory | 191,990 | (326,986) |
Prepaids costs | 3,418 | (3,418) |
Deposits | 32,921 | (27,608) |
Right of use, net | 13,984 | 0 |
Accounts payable | 371,270 | 232,973 |
Accrued expenses | (131,331) | 116,625 |
Deferred tax liability | (117,550) | 0 |
Deferred revenue | (89,504) | 79,504 |
CASH (USED IN) OPERATING ACTIVITIES | (2,909,811) | (3,854,505) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Investment in purchased assets | (12,463) | (544,432) |
NET CASH (USED IN) INVESTING ACTIVITIES | (12,463) | (544,432) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Repayment of convertible notes payable | (778,872) | 0 |
Proceeds from the issuance of common stock rights | 0 | 2,533,125 |
Common stock option exercise | 0 | 6,000 |
Proceeds from notes payable | 1,416,137 | 2,825,000 |
Repayment on capital lease | (8,534) | 0 |
Proceeds from the issuance of common stock | 0 | 1,300,000 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 628,731 | 6,664,125 |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (2,293,543) | 2,265,188 |
CASH AND CASH EQUIVALENTS, beginning of period | 2,334,377 | 69,191 |
CASH AND CASH EQUIVALENTS, end of period | 40,834 | 2,334,377 |
Non-cash investing and financing activities | ||
Shares issued for convertible note and interest conversion | 1,834,246 | 3,338,082 |
Common shares issued for accounts payable | 0 | 33,000 |
Loss of debt conversions - issuance of stock | 2,035,876 | 6,519,467 |
Gain on debt conversions - reduction of accounts payable | 268,551 | 0 |
Acquisition of EZ-Clone Enterprises, Inc. - intangible assets | 0 | 3,423,081 |
Stock issued for acquisition of EZ-Clone Enterprises, Inc. | 0 | 1,395,000 |
Issuance of noncontrolling interest for EZ Clone Acquistion | 0 | 1,343,895 |
Conversion of noncontrolling interest to acquisition payable | $ 1,343,895 | $ 0 |
1. DESCRIPTION OF BUSINESS AND
1. DESCRIPTION OF BUSINESS AND ORGANIZATION | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
DESCRIPTION OF BUSINESS AND ORGANIZATION | GrowLife, Inc. (“GrowLife” or the “Company”) is incorporated under the laws of the State of Delaware and is headquartered in Kirkland, Washington. The Company was founded in 2012 with the Closing of the Agreement and Plan of Merger with SGT Merger Corporation. The Company’s goal of becoming the nation’s largest cultivation facility service provider for the production of organics, herbs and greens and plant-based medicines has not changed. The Company’s mission is to best serve more cultivators in the design, build-out, expansion and maintenance of their facilities with products of high quality, exceptional value and competitive price. Through a nationwide network of knowledgeable representatives, regional centers and its e-commerce website, GrowLife provides essential and hard-to-find goods including media (i.e., farming soil), industry-leading hydroponics equipment, organic plant nutrients, and thousands more products to specialty grow operations across the United States. The Company primarily sells through its wholly owned subsidiary, GrowLife Hydroponics, Inc. GrowLife companies distribute and sell over 15,000 products through its e-commerce distribution channel, GrowLifeEco.com, and through our regional retail storefronts. GrowLife and its business units are organized and directed to operate strictly in accordance with all applicable state and federal laws. On June 7, 2013, GrowLife Hydroponics completed the purchase of Rocky Mountain Hydroponics, LLC, a Colorado limited liability company (“RMC”), and Evergreen Garden Center, LLC, a Maine limited liability company (“EGC”). The effective date of the purchase was June 7, 2013. On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation. EZ-CLONE is the manufacturer of multiple award-winning products specifically designed for the commercial cloning and propagation stage of indoor plant cultivation including cannabis, food, and other hydroponic farming. The total purchase price was $4 million of which $1,500,000 is payable in cash and $2.5 million payable in stock. At closing, we paid The October 15, 2018 agreement called for the Company, upon delivery of the remaining 49% of EZ-CLONE stock, to acquire such stock within one year for $1,960,000, payable as follows: (i) a cash payment of $855,000; and (ii) the issuance of Company’s common stock at a value of $1,105,000. On November 5, 2019, the Company amended the purchase agreement with one 24.5% shareholder obligating the Company to purchase the remaining 49% of stock by agreeing to a 20% extension fee ($171,000) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). As of December 31, 2019, the $171,000 extension fee has not been paid and we continue in discussion with the shareholders about paying the remaining purchase price payable. On October 17, 2017, the Company were informed by Alpine Securities Corporation (“Alpine”) that Alpine has demonstrated compliance with the Financial Industry Regulatory Authority (“FINRA”) Rule 6432 and Rule 15c2-11 under the Securities Exchange Act of 1934. The Company filed an amended application with the OTC Markets to list the Company’s common stock on the OTCQB and begin to trade on this market as of March 20, 2018. As of March 4, 2019, the Company began to trade on the Pink Sheet stocks system. ommenced trading on the OTCQB Market ("OTCQB") after successfully up-listing from the OTC Pink Market. On October 9, 2019, the Company approved the reduction of authorized capital stock, whereby the total number of the Company’s authorized common stock decreased from 6,000,000,000 by a ratio of 1 for 50, to 120,000,000 shares. On November 20, 2019, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware. As a result of the reduction, the Company an aggregate 130,000,000 authorized shares consisting of: (i)120,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share. The reverse stock split of 1 for 150 was effective at the open of business on November 27, 2019 whereupon the shares of common stock began trading on a split-adjusted basis. The Company’s CUSIP number for the Company’s common stock changed to 39985X203. |
2. GOING CONCERN
2. GOING CONCERN | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
GOING CONCERN | The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $7,374,383 and $11,473,136 for the years ended December 31, 2019 and 2018, respectively. Net cash used in operating activities was $2,909,811 and $3,854,505 for the years ended December 31, 2019 and 2018, respectively. The Company anticipates that it will record losses from operations for the foreseeable future. As of December 31, 2019, the Company’s accumulated deficit was $148,461,532. The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by the Company’s independent registered public accounting firm relating to our consolidated financial statements for the year ended December 31, 2019 includes an explanatory paragraph expressing the substantial doubt about the Company’s ability to continue as a going concern. The Company believes that its cash on hand will be sufficient to fund our operations only until June 30, 2020. The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities or file for bankruptcy and our operations and financial condition may be materially adversely affected. See Note 18 for additional debt proceeds received in 2020. |
3. SIGNIFICANT ACCOUNTING POLIC
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS | Basis of Presentation - Principles of Consolidation Cash and Cash Equivalents Accounts Receivable and Revenue – Sales Returns - Inventories - Property and Equipment Long Lived Assets Intangible Assets Goodwill - Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 – Quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and. Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2019 and 2018 are based upon the short-term nature of the assets and liabilities. Derivative Financial Instruments – Stock Based Compensation Convertible Securities Net Loss Per Share - As of December 31, 2019, there are also (i) stock option grants outstanding for the purchase of 550,000 common shares at an $1.491 average exercise price; and (ii) warrants for the purchase of 2,418,834 shares of common shares at a $3.465 average exercise price. In addition, we have an unknown number of common shares to be issued under the Crossover financing agreements in the case of default. In addition, we have an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements because the number of shares ultimately issued to Chicago Venture depends on the price at which Chicago Venture converts its debt to shares and exercises its warrants. The lower the conversion or exercise prices, the more shares that will be issued to Chicago Venture upon the conversion of debt to shares. We will not know the exact number of shares of stock issued to Chicago Venture until the debt is actually converted to equity. As of December 31, 2018, there are also (i) stock option grants outstanding for the purchase of 666,667 common shares at a $1.485 average exercise price; (ii) warrants for the purchase of 6,018,834 common shares at a $0.029 average exercise price; and (iii) 752,281 shares related to convertible debt that can be converted at $4.53 per share. In addition, the Company has an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements. Dividend Policy Use of Estimates - Reclassifications Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new standard effective January 1, 2019 on a modified retrospective basis and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and the Company’s initial direct costs for any leases that exist prior to adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep leases with an initial term of twelve months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company determines if an arrangement is a lease at inception. Operating and finance leases are included in Right of Use ("ROU") assets, and lease liability obligations in the Company’s consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liability obligations represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company accounts for lease agreements with lease and non-lease components and account for such components as a single lease component. As most of the Company’s leases do not provide an implicit rate, we estimated our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 8 for additional information. |
4. BUSINESS COMBINATIONS, ACQUI
4. BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION | Acquisition of EZ-CLONE Enterprises, Inc. On October 15, 2018, in connection with the Company’s strategy to become a dominate cultivation facilities provider, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation that was founded in January 2000. EZ-CLONE is the manufacturer of multiple award-winning products specifically designed for the commercial cloning and propagation stage of indoor plant cultivation including cannabis, food, and other hydroponic farming. This acquisition is expected to accelerate the Company’s revenue growth, increase the Company gross margins and add additional manufacturing and research and development personnel. On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation. EZ-CLONE is the manufacturer of multiple award-winning products specifically designed for the commercial cloning and propagation stage of indoor plant cultivation including cannabis, food, and other hydroponic farming. The total purchase price was $4 million of which $1,500,000 is payable in cash and $2.5 million payable in stock. At closing, we paid The October 15, 2018 agreement called for the Company, upon delivery of the remaining 49% of EZ Clone stock, to acquire such stock within one year for $1,960,000, payable as follows: (i) a cash payment of $855,000; and (ii) the issuance of Company’s common stock at a value of $1,105,000. On November 5, 2019, the Company amended the purchase agreement with one 24.5% shareholder obligating the Company to purchase the remaining 49% of stock by agreeing to a 20% extension fee ($171,000) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). As of December 31, 2019, the $171,000 extension fee has not been paid and we continue in discussion with the shareholders regarding paying the remaining purchase price payable. The Company accounted for the acquisition in accordance with ASC 805, “Business Combinations”. ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date. For accounting purposes, from the October 15, 2018 acquisition date and through September 30, 2019, the Company has consolidated EZ Clone given their control and have treated its ability to acquire the remaining 49% interest in EZ Clone as a de facto option to buy and has thus categorized it as non-controlling until November 5, 2019 when the amended purchase agreement obligates the Company to purchase the remaining 49%. Effective in the quarter beginning October 1, 2019, the Company for accounting purposes, considers EZ Clone to be 100% owned and thus eliminated the non-controlling interest and recorded an acquisition payable related to the balance owed. As of December 31, 2019, the Company has an acquisition payable totaling $1,926,000, of which $1,026,000 is current and $900,000 is categorized as long term since stock is expected to be issued to settle this and will not utilize current assets. The total liability consists of the discounted value of the future payments of $1,960,0000 and the $171,000 extension fee payable. The Company will accrete the difference between the carrying value of the acquisition payable and the contractual obligations as interest expense through July 2020 when payment is due. The Company treated the $171,000 as a financing fee and expensed it as interest expense in 2019. During the fourth quarter of 2019, the Company recorded a non cash financing charge as interest expense totaling approximately $410,000 to recognize the acquisition payable and to eliminate the non controlling interest. As of the acquisition date in October 2018, the Company recognized approximately $3.4 million of intangible assets and began amortizing them over 3 years. In the fourth quarter of 2019, the Company completed its evaluation of assets acquired and finalized its asset valuation. The finalized valuation resulted in lower intangible assets from the original assessment, allocating some of the intangible to Goodwill and determined that the life of definite life intangibles to be 5 years (See Note 7). The Company adjusted the cost basis and accumulated amortization, reducing both, but did not change 2019 amortization expense that had been recorded through September 30, 2019 which was in excess of $800,000. The change in the purchase accounting also resulted in the recording of a deferred tax liability and the lowering of non-controlling interest by $587,750 and such reclassification was made to the December 31, 2018 balance sheet. The summary of assets acquired and liabilities assumed is based upon the Company final evaluation done in the fourth quarter of 2019 and is detailed below. Intangible assets $ 2,351,000 Goodwill 781,749 Net working capital 551,000 Property and equipment 318,000 Deferred tax liability (587,750 ) $ 3,413,999 The fair value of the intangible assets associated with the assets acquired was $2,351,000 estimated by using a discounted cash flow approach based on future economic benefits. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results. Termination of Agreements with CANX, LLC On February 15, 2019, the Company entered into a Termination of Existing Agreements and Release with CANX USA, LLC, a Nevada limited liability company. In exchange for the Agreement and cancellation of the CANX Agreements and Warrants, the Company agreed to issue $1,000,000 of restricted common stock priced at the February 7, 2019 closing price of $1.20, or 833,333 restricted common stock shares. The Company recorded a loss on debt conversion of $1,000,000 during the year ended December 31, 2019. Pursuant to the Agreement, the Parties agreed to terminate, release and discharge all existing and further rights and obligations between the Parties under, arising out of, or in any way related to that certain Waiver and Modification Agreement and Amended and Restated Joint Venture Agreement made as of July 10, 2014, and any ancillary agreements or instruments thereto, including, but not limited to, the Warrants issued to CANX entitling CANX to purchase 3,600,000 shares of the Company’s common stock at an exercise price of $4.95. Restructuring Expense The Company closed retail stores in Portland, Maine, Encino, California and Calgary, Canada and online sales as of September 30, 2019. Also, during 2019 Company closed the sale of the flooring division located in Grand Prairie, Texas while during 2018 the Company made the final $250,000 payment to complete our acquisition. The Company expects to reduce losses and cash costs by up to $100,000 per month starting October 1, 2019. During the year ended December 31, 2019, the Company recorded restructuring expense of $306,000 in connection with the sale of the flooring division and $250,000 for the closure of the retail stores and online sales. The sale of the flooring division generated no proceeds. |
5. INVENTORY
5. INVENTORY | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
INVENTORY | Inventory at EZ-CLONE as of December 31, 2019 and 2018 consisted of the following: December 31, December 31, 2019 2018 Raw materials $ 329,482 $ 417,570 Work in process 49,253 35,280 Finished goods 92,703 459,814 Inventory deposits 129,236 - Inventory reserve - (120,000 ) Total $ 600,674 $ 792,664 Raw materials consist of supplies for product lines at EZ-CLONE. Finished goods inventory relates to product lines EZ- CLONE. The Company reviews its inventory on a periodic basis to identify products that are slow moving and/or obsolete, and if such products are identified, the Company records the appropriate inventory impairment charge at such time. |
6. PROPERTY AND EQUIPMENT
6. PROPERTY AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY AND EQUIPMENT | Property and equipment as of December 31, 2019 and 2018 consists of the following: December 31, December 31, 2019 2018 Machinery, equipment and tooling $ 356,867 $ 943,327 Computer equipment 16,675 16,675 Leasehold improvements 14,703 14,703 Total property and equipment 388,245 974,705 Less accumulated depreciation and amortization (221,763 ) (261,839 ) Net property and equipment $ 166,482 $ 712,866 Property and equipment, net of accumulated depreciation, were $166,482 and $712,866 as of December 31, 2019 and 2018, respectively. Accumulated depreciation was $221,763 and $261,839 as of December 31, 2019 and 2018, respectively. Total depreciation expense was $89,232 and $80,125 for the years ended December 31, 2019 and 2018, respectively. All equipment is used for manufacturing, selling, general and administrative purposes and accordingly all depreciation is classified in cost of goods sold, selling, general and administrative expenses. On October 15, 2018, the Company acquired 51% of EZ-CLONE Enterprises, Inc. and acquired $318,000 of net property and equipment. During the year ended December 31, 2018, the Company retired fully depreciated assets of $358,156. During the year ended December 31, 2019, the Company disposed in connection with the closure of the flooring division assets with a net book value of $423,442. |
7. INTANGIBLE ASSETS
7. INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
INTANGIBLE ASSETS | Intangible assets as of December 31, 2019 and 2018 consisted of the following: Estimated Useful Lives December 31, 2019 December 31, 2018 Customer Lists 5 Years $ 1,297,000 $ 1,604,341 Intellectual Property 5 Years 1,054,000 1,036,991 less accumulated amortization (548,566 ) (142,628 ) Net Intangible assets-definitive life 1,802,434 2,498,704 Goodwill-indefinite life N/A 781,749 781,749 Total intangible assets and goodwill $ 2,584,183 $ 3,280,453 As of the acquisition date in October 2018, the Company originally recognized approximately $3.4 million of intangible assets and began amortizing them over 3 years. In the fourth quarter of 2019, the Company completed its evaluation of assets acquired and finalized its asset valuation. The finalized valuation resulted in lower intangible assets from the original assessment, allocated some of the intangible to Goodwill and determined that the life of definite life intangibles to be 5 years. In the 4th quarter of 2019, The Company adjusted the cost basis and accumulated amortization, reducing both, but did not change 2019 amortization expense that had been recorded through September 30, 2019 which was in excess of $800,000. Total amortization expense was $838,262 and $142,628 for the years ended December 31, 2019 and 2018, respectively. Amortization expense for the intangibles will be approximately $470,000 for years 2020 through 2022 and approximately $392,000 in 2023. |
8. LEASES
8. LEASES | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
LEASES | The Company previously entered into operating leases for retail and corporate facilities. These leases have terms which range from two to five years, and often include options to renew. These operating leases are listed as separate line items on the Company's December 31, 2018 Consolidated Balance Sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as separate line items on the Company's December 31, 2018 Consolidated Balance Sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $1,378,000 on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. During the quarter ended September 30, 2019, the Company has cancelled all but one lease and has recognized the rent and termination fees related to the cancelled leases as an expense in the current period. As of December 31, 2019, total right-of-use assets and operating lease liabilities for remaining long term lease was approximately $538,522 and $551,506, respectively. During the year ended December 31, 2019, the Company recognized approximately $222,984 in total lease costs for the lease. Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments. Information related to the Company's operating right-of-use assets and related lease liabilities as of and for the year ended December 31, 2019 were as follows: Cash paid for ROU operating lease liability $210,000 Weighted-average remaining lease term 4 years Weighted-average discount rate 10 % Year $ 2019 $ 196,612 2020 216,300 2021 222,792 2022 229,476 2023 236,352 Total lease liability 1,101,532 Less imputed interest (178,028 ) Total lease liability $ 923,504 |
9. ACCOUNTS PAYABLE
9. ACCOUNTS PAYABLE | 12 Months Ended |
Dec. 31, 2019 | |
Payables and Accruals [Abstract] | |
ACCOUNTS PAYABLE | Accounts payable were $1,157,090 and $1,054,371 as of December 31, 2019 and 2018, respectively. Such liabilities consisted of amounts due to vendors for inventory purchases, audit, legal and other expenses incurred by the Company. The increase relates to inventory purchased at EZ-CLONE for production for sales during the three months ended March 31, 2020. During the year ended December 31, 2019, the Company negotiated some settlements with various vendors which resulted in recognizing a gain of $268,000, such amount was recorded as part of the loss on debt conversions on the statement of operations. |
10. ACCRUED EXPENSES
10. ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2019 | |
Payables and Accruals [Abstract] | |
ACCRUED EXPENSES | Accrued expenses were $259,093 and $261,954 as of December 31, 2019 and 2018, respectively. Such liabilities consisted of amounts due to sales tax, payroll and restructuring expense liabilities. |
11. CONVERTIBLE NOTES PAYABLE,
11. CONVERTIBLE NOTES PAYABLE, NET | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
CONVERTIBLE NOTES PAYABLE, NET | Convertible notes payable as of December 31, 2019 consisted of the following: Balance As of Principal Accrued Interest Debt Discount December 31, 2019 10% OID Convertible Promissory Notes $ 2,195,007 $ 220,980 $ - $ 2,415,987 Secured Advance Note 205,228 - - 205,228 12% Convertible Promissory Notes 281,600 3,055 (21,591 ) 263,064 $ 2,681,835 $ 224,035 $ (21,591 ) $ 2,884,279 Convertible notes payable as of December 31, 2018 consisted of the following: Balance As of Principal Accrued Interest Debt Discount December 31, 2018 10% OID Convertible Promissory Notes $ 2,982,299 $ 135,780 $ - $ 3,118,079 7% Convertible note 270,787 15,267 - 286,054 $ 3,253,086 $ 151,047 $ - $ 3,404,133 7% Convertible Notes Payable On March 12, 2018, the Company entered into a Second Amendment to the Note. Pursuant to the Amendment, the Note’s maturity date has been extended to December 31, 2019, and interest accrues at 7% per annum, compounding on the maturity date. As of December 31, 2018, the outstanding principal balance due to Forglen LLC was $270,787 and accrued interest was $15,267, which results in a total amount of $286,054. On December 17, 2019, Forglen LLC converted the remaining principal and accrued interest of $305,075 into 1,375,285 shares of the Company’s common stock at a per share conversion price of $0.222. 10% Convertible Promissory Notes Funding from Chicago Venture Partners, L.P. (“Chicago Venture”), Iliad Research and Trading, L.P. (“Iliad”) and Odyssey Research and Trading, LLC, (“Odyssey”). The Company typically issues original issuance discount notes with these parties that has a stated interest rate of typically 10%. Accrued interest represents the interest to be accreted over the remaining term of the notes. These notes contain terms and conditions that are deemed beneficial conversion features and the Company recognizes a derivative liability related to these terms until the notes are converted. Upon the conversion of these notes, the Company records a loss on debt conversion and reduces their derivative liability. The notes may be converted to common stock after six months until they are converted. As of December 31, 2018, the outstanding principal balance due to Chicago Venture and Iliad was $2,982,299 and accrued interest was $135,780, which results in a total amount of $3,118,079. During the year ended December 31, 2018, Chicago Venture converted principal and interest of $3,104,181 into 3,503,916 shares of our common stock at a per share conversion price of $0.8859 with a fair value of $7,756,330. The Company recognized $6,565,415 loss on debt conversions during the year ended December 31, 2018. During the year ended December 31, 2018, the Company recorded an OID debt discount expense of $660,472 to interest expense related to the Chicago Venture and Iliad financing. As of December 31, 2019, the outstanding principal balance due to Chicago Venture, Iliad and Odyssey was $2,195,007 and accrued interest was $220,980, which results in a total amount of $2,415,987. During the year ended December 31, 2019, Chicago Venture and Iliad converted principal and accrued interest of $1,357,872 into 3,120,521 shares of our common stock at a per share conversion price of $0.766 with a fair value of $2,284,081. The Company recognized $926,208 loss on debt conversions during the year ended December 31, 2019. Securities Purchase Agreement, Secured Promissory Notes and Security Agreement Odyssey Research and Trading, LLC, (“Odyssey”) On July 23, 2019, the Company executed the following agreements with Odyssey: (i) Securities Purchase Agreement; (ii) Secured Promissory Notes; and (iii) Security Agreement (collectively the “Odyssey Agreements”). The Company entered into the Odyssey Agreements with the intent to acquire working capital to grow the Company’s businesses. The total amount of funding under the Odyssey Agreements is $1,105,000. The Convertible Promissory Note carries an original issue discount of $100,000 and a transaction expense amount of $5,000, for total debt of $1,105,000. The Company agreed to reserve three times the number of shares based on the redemption value with a minimum of 3,333,334 shares of its common stock for issuance upon conversion of the Debt, if that occurs in the future. If not converted sooner, the Debt is due on or before July 22, 2020. The Debt carries an interest rate of ten percent (10%). The Debt is convertible, at Odyssey’s option, into the Company’s common stock at $1.50 per share subject to adjustment as provided for in the Secured Promissory Notes. The Company’s obligation to pay the Debt, or any portion thereof, is secured by all of the Company’s assets. The Company has approximately $645,000 available under the Notes as of December 31, 2019 but cannot currently access the available funds. The 10% Notes are convertible at the holder’s option into the Company’s common stock at 65% of the lower of $1.35 or the current fair market value of the stock. Based upon the closing price of the stock at December 31, 2019, the notes would convert to approximately 10,822,822 shares. Secured Advance Note with Crossover Capital Fund I LLC (“Crossover”) On September 20, 2019, the Company closed a Secured Advance Note with Crossover Capital Fund I LLC (the “Crossover Note”). The Company entered into the Crossover Note with the intent to acquire working capital to grow the Company’s businesses. The total amount of funding under the Crossover Note is $250,000. The Crossover Note carries an original issue discount of $57,400 and a transaction expense amount of $7,000, for total debt of $308,400. On December 22, 2019, the Note incased by $25,700. The original issue discount was immediately recorded as interest expense due to the note maturity being less than one year. The Company agreed to reserve three times the number of shares based on the conversion value in case of default under the Crossover Note, if that occurs in the future. The Crossover Note is due in nine months and is repayable weekly at $9,205. The Crossover Note is convertible into the Company’s common stock at the market value share price subject to adjustment as provided for in the Crossover Note in the case of default. The Company’s obligation to pay the Crossover Note, or any portion thereof, is secured by all of the Company’s assets. As of December 31, 2019, the outstanding principal balance due Crossover was $205,228. The Company also issued 33,333 shares of common stock to Crossover as a commitment fee that was valued at fair market value at $25,000 or $0.75 per share and expensed as interest expense during the year ended December 31, 2019. 12% Convertible Promissory Notes The Company entered into Convertible Promissory Notes with Power Up Lending Group Ltd on November 18, 2019 and December 9, 2019 for $281,600 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $250,000, and recorded interest expense of $3,055, a transaction expense amount of $6,000 and amortization of debt discount of $21,591. The Company recorded as interest expense in 2019 the value of the beneficial conversion feature of $93,867 related to the potential conversion at a discount after six months. |
12. DERIVATIVE LIABILITY
12. DERIVATIVE LIABILITY | 12 Months Ended |
Dec. 31, 2019 | |
Derivative Liability [Abstract] | |
DERIVATIVE LIABILITY | The Convertible Notes payable include a conversion feature that pursuant ASC 815 “Derivatives and Hedging”, has been identified as an embedded derivative financial instrument and which the Company has elected to account for under the fair value method of accounting. If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20. Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method. The debt is convertible at the lesser of 65% of the fair value of the Company’s common stock or $1.35 requiring the conversion feature to be bifurcated from the host debt contract and accounting for separately as a derivative, resulting in periodic revaluations. The notes underlying the derivatives are short term in nature and generally converted to stock in less than one year. The derivative is valued at period end with the key inputs being current stock price and the conversion feature. There was a derivative liability of $1,300,915 and $1,795,473 as of December 31, 2019 and 2018. For the year ended December 31, 2019, the Company recorded non-cash income of $496,338 related to the “change in fair value of derivative” expense related to the Chicago Venture and Iliad financing. Derivative liability as of December 31, 2019 was as follows: Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 December 31, 2019 Liabilities: Derivative Instruments $ - $ - $ 1,300,915 $ 1,300,915 Total $ - $ - $ 1,300,915 $ 1,300,915 Derivative liability as of December 31, 2018 was as follows: Fair Value Measurements Using Inputs Carrying Amount at Financial Instruments Level 1 Level 2 Level 3 December 31, 2018 Liabilities: Derivative Instruments $ - $ - $ 1,795,747 $ 1,795,747 Total $ - $ - $ 1,795,747 $ 1,795,747 The change in the value of the derivative during 2019 and 2018 resulted in a benefit totaling $496,338 and $977,732 and these were the only changes in level 3 fair value instruments during such years. |
13. RELATED PARTY TRANSACTIONS
13. RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS | Since January 1, 2018, the Company engaged in the following reportable transactions with our directors, executive officers, holders of more than 5% of our voting securities, and affiliates or immediately family members of our directors, executive officers and holders of more than 5% of our voting securities. Certain Relationships Please see the transactions with Chicago Venture Partners, L.P. discussed in Notes 11, 13 and 14. Related Party Transactions Transactions with Marco Hegyi On October 21, 2018, a 5 year Warrant for Mr. Hegyi to purchase up to 66,666 shares of our common stock at an exercise price of $1.50 per share vested. The warrant was valued at $390,000 and we recorded $178,750 as compensation expense for the year ended December 31, 2018. On October 15, 2018, Mr. Hegyi received Warrants to purchase up to 320,000 shares of our common stock at an exercise price of $1.80 per share and which vest on October 15, 2018, 2019 and 2020. The Warrants are exercisable for 5 years. The warrants that vested on October 15, 2019 and 2018 were valued at $192,000 and we recorded compensation expense of $96,000 for the years ended December 31, 2019 and 2018. On October 15, 2018, the Board of Directors approved an Employment Agreement with Marco Hegyi pursuant to which the Company engaged Mr. Hegyi as its Chief Executive Officer through October 15, 2021. See Note 16 for additional details. Transactions with an Entity Controlled by Mark E. Scott On October 15, 2018, an entity controlled by Mr. Scott was granted an option to purchase 133,333 shares of common stock at an exercise price of $1.80 per share. The stock option grant vests quarterly over three years and is exercisable for 5 years. The stock option grant was valued at $40,000. The Company recorded $13,333 and $2,833 as compensation expense for the years ended December 31, 2019 and 2018, respectively. On October 15, 2018, the Company’s Compensation Committee approved an Employment Agreement with Mark E. Scott pursuant to which the Company engaged Mr. Scott as its Chief Financial Officer through October 15, 2021. Mr. Scott’s previous Agreement was cancelled. See Note 16 for additional details. Transaction with Joseph Barnes On October 15, 2018, Mr. Barnes was granted an option to purchase 120,000 shares of common stock at an exercise price of $1.80 per share. The stock option grant vests quarterly over three years and is exercisable for 5 years. The stock option grant was valued at $36,000. The Company recorded $12,000 and $2,550 as compensation expense for the years ended December 31, 2019 and 2018, respectively. On October 15, 2018, the Company’s Compensation Committee of the Company approved an Employment Agreement with Joseph Barnes pursuant to which the Company engaged Mr. Barnes as President of the GrowLife Hydroponics Company through October 15, 2021. Mr. Barnes’s previous Agreement was cancelled. See Note 16 for additional details. Transactions with Katherine McLain Ms. Katherine McLain was appointed as a director on February 14, 2017. On February 1, 2018, the Company issued 19,288 shares of the Company’s common stock to Katherine McLain that was valued at $2.00 per share or $57,863. On February 22, 2019, the Company issued 54,054 shares of the Company’s common stock to Katherine McLain valued at $1.11 per share or $60,000. This issuance was an annual award for independent director services. Transaction with Thom Kozik Mr. Kozik was appointed as a director on October 5, 2017. On February 1, 2018, the Company issued 6,521 shares of the Company’s common stock to Thom Kozik that was valued at $3.00 per share or $19,562. On February 22, 2019, the Company issued 54,054 shares of the Company’s common stock to Mr. Kozik valued at $1.11 per share or $60,000. This issuance was an annual award for independent director services. Notes Payable to Related Parties EZ-CLONE has $104,144 and $104,020 due to relatives of the shareholders as of December 31, 2019 and 2018, respectively. |
14. EQUITY
14. EQUITY | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
EQUITY | Authorized Capital Stock On October 9, 2019, the Company approved the reduction of authorized capital stock, whereby the total number of the Company’s authorized common stock decreased from 6,000,000,000 by a ratio of 1 for 50, to 120,000,000 shares. On November 20, 2019, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware. As a result of the reduction, we have an aggregate 130,000,000 authorized shares consisting of : (i) 120,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share. The reverse stock split of 1 for 150 was effective at the open of business on November 27, 2019 whereupon the shares of the Company’s common stock began trading on a split-adjusted basis. Our CUSIP number will change to 39985X203. Non-Voting Preferred Stock Under the terms of our articles of incorporation, our board of directors is authorized to issue shares of non-voting preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of non-voting preferred stock. The purpose of authorizing our board of directors to issue non-voting preferred stock and determine our rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of non-voting preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Other than the Series B and C Preferred Stock discussed below, there are no shares of non-voting preferred stock presently outstanding and we have no present plans to issue any shares of preferred stock. Capital Stock Issued and Outstanding As of December 31, 2019, the Company had issued and outstanding securities of 28,677,147 shares of common stock. Voting Common Stock Holders of the Company’s common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. On all other matters, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote is required for approval, unless otherwise provided in our articles of incorporation, bylaws or applicable law. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future. Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect. The Company has compensated consultants and service providers with restricted common stock during the development of our business and when our capital resources were not adequate to provide payment in cash. During the year ended December 31, 2019, the Company had the following issuances of unregistered equity securities to accredited investors unless otherwise indicated: During the year ended December 31, 2019, the Company issued 147,890 shares to suppliers for services provided. The Company valued the shares at $174,435 per share or $1.179. During the year ended December 31, 2019, Chicago Venture and Iliad converted principal and accrued interest of $1,357,872 into 3,120,521 shares of our common stock at a per share conversion price of $0.766 with a fair value of $2,284,081. The Company recognized $926,208 loss on debt conversions during the year ended December 31, 2019. On February 15, 2019, the Company entered into a Termination of Existing Agreements and Release with CANX USA, LLC, a Nevada limited liability company. In exchange for the Agreement and cancellation of the CANX Agreements and Warrants, the Company agreed to issue $1,000,000 of restricted common stock priced at the February 7, 2019 closing price of $1.20, or 833,333 restricted common stock shares. The Company recorded a loss on debt conversion of $1,000,000 during the year ended December 31. 2019. Pursuant to the Agreement, the Parties agreed to terminate, release and discharge all existing and further rights and obligations between the Parties under, arising out of, or in any way related to that certain Waiver and Modification Agreement and Amended and Restated Joint Venture Agreement made as of July 10, 2014, and any ancillary agreements or instruments thereto, including, but not limited to, the Warrants issued to CANX entitling CANX to purchase 3,600,000 shares of the Company’s common stock at an exercise price of $4.95. On May 2, 2019, the Company issued 26,111 shares valued at $1.90 to a former employee related to a cashless stock option exercise. On September 21, 2019, The Company issued 33,333 shares of common stock to Crossover as a commitment fee that was valued at fair market value at $25,000 or $0.75 per share and was expensed during the year ended December 31, 2019. On November 27, 2019, the Company issued 35,011 fractional shares as a result of the reverse stock split that was effective at the open of business on November 27, 2019. The Company issued 188,335 shares in conjunction with resolving a business matter. The Company valued the shares at $0.60 per share of $113,000 and this amount was recorded as a loss on debt conversions during the twelve months ended December 31, 2019. On December 17, 2019, Forglen LLC converted principal and accrued interest of $305,075 into 1,375,285 shares of the Company’s common stock at a per share conversion price of $0.222. During the year ended December 31, 2018, the Company had had the following sales of unregistered of equity securities to accredited investors unless otherwise indicated: On February 7, 2018, the Company issued 51,068 shares to three directors. The shares were valued at the fair market price of $3.00 per share or $153,205. The shares were issued for annual director service to the Company. On February 12, 2018, the Company received a Notice of Conversion from Forglen LLC converting principal and interest of $321,945 owed under that certain 7% Convertible Note as amended June 19, 2014 into 846,677 at $0.3803 shares of the Company’s common stock with a fair value of $2,235,200. On March 13, 2018, the Company, received a Notice of Conversion from Logic Works LLC converting principal and interest of $41,690 owed under that a 6% Convertible Note into 109,637 shares of our common stock at $.3803 with a fair value of $248,329. As of March 13, 2018, the outstanding balance on the Convertible Note was $0. During the year ended December 31, 2018, the Company issued 16,000 shares of its common stock to a service provider pursuant to conversions of debt totaling $33,000. The shares were valued at the fair market price of $2.0625 per share. During the year ended December 31, 2018, the Company issued 41,667 shares of its common stock to a service provider and a former director related to services. The shares were valued at the fair market price of $1.56 per share or $65,000. During the year ended December 31, 2018, Chicago Venture converted principal and interest of $3,104,181 into 3,503,916 shares of our common stock at a per share conversion price of $0.8859 with a fair value of $7,756,330. The Company recognized $6,565,415 loss on debt conversions during the year ended December 31, 2018. During the year ended December 31, 2018, an employee exercised a stock option grant for 6,667 shares at $0.90 or $6,000. Securities Purchase Agreements with St. George Investments, LLC On February 9, 2018, the Company executed the following agreements with St. George Investments LLC, a Utah limited liability company: (i) Securities Purchase Agreement; and (ii) Warrant to Purchase Shares of Common Stock. The Company entered into the St. George Agreements with the intent to acquire working capital to grow the Company’s businesses. Pursuant to the St. George Agreements, the Company agreed to sell and to issue to St. George for an aggregate purchase price of $1,000,000: (a) 324,586 Shares of newly issued restricted Common Stock of the Company at $3.081 per share; and (b) the Warrant. St. George has paid the entire Purchase Price for the Securities. The Warrant is exercisable for a period of five (5) years from the Closing, for the purchase of up to 324,586 shares of the Company’s Common Stock at an exercise price of $7.50 per share of Common Stock. The Warrant is subject to a cashless exercise option at the election of St. George and other adjustments as detailed in the Warrant. On March 20, 2018, the Company entered into and closed on a Common Stock Purchase Agreement with St. George Investments, LLC, a Utah limited liability company. The Company issued St. George 42,735 shares of newly issued restricted Common Stock of the Company at a purchase price of $2.34 per share. On April 26, 2018, the Company entered into and closed on a Common Stock Purchase Agreement with St. George Investments, LLC, Pursuant to the St. George Agreements, the Company sold and agreed to issue to St. George 33,003 shares of newly issued restricted Common Stock of the Company at a purchase price of $3.03 per share. On May 25, 2018, the Company entered into and closed on a Common Stock Purchase Agreement with St. George Investments, LLC, Pursuant to the St. George Agreements, the Company sold and agreed to issue to St. George 34,188 shares of newly issued restricted Common Stock of the Company at a purchase price of $2.925 per share. On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-Clone and issued 715,385 restricted shares of our common stock at a price of $1.95 per share or $1,395,000. On November 30, 2018, the Company closed its Rights Offering. We received $2,533,648 under the Rights Offering and issued 1,407,582 shares of common stock at $1.80 per share. Warrants The Company had the following warrant activity during the year ended December 31, 2019: On February 15, 2019, the Company entered into a Termination of Existing Agreements and Release with CANX USA, LLC, a Nevada limited liability company. In exchange for the Agreement and cancellation of the CANX Agreements and Warrants, the Company agreed to issue $1,000,000 of restricted common stock priced at the February 7, 2019 closing price of $1.20, or 833,333 restricted common stock shares. The Company recorded a loss on debt conversion of $1,000,000 during the year ended December 31, 2019. Pursuant to the Agreement, the Parties agreed to terminate, release and discharge all existing and further rights and obligations between the Parties under, arising out of, or in any way related to that certain Waiver and Modification Agreement and Amended and Restated Joint Venture Agreement made as of July 10, 2014, and any ancillary agreements or instruments thereto, including, but not limited to, the Warrants issued to CANX entitling CANX to purchase 3,600,000 shares of the Company’s common stock at an exercise price of $4.95. A summary of the warrants issued as of December 31, 2019 is as follows: December 31, 2019 Weighted Average Exercise Shares Price Outstanding at January 1, 2019 6,018,834 $ 4.350 Issued - $ - Exercised - $ - Forfeited (3,600,000 ) $ (4.950 ) Expired - $ - Outstanding at December 31, 2019 2,418,834 $ 3.465 Exercisable at December 31, 2019 2,312,168 $ - A summary of the status of the warrants outstanding as of December 31, 2019 is presented below: December 31, 2019 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life Price Exercisable Price 366,667 6.66 $ 1.500 366,667 $ 1.500 320,000 4.83 1.800 213,333 1.800 1,407,582 1.83 3.150 1,407,582 3.150 324,586 3.08 7.500 324,586 7.500 - - - - - 2,418,834 2.77 $ 3.465 2,312,168 $ 3.374 Warrants had no intrinsic value as of December 31, 2019. The warrants were valued using the following assumptions: Dividend yield 0 % Expected life 1-5 Years Expected volatility 70-200 % Risk free interest rate 0.78-2.6 % |
15. STOCK OPTIONS
15. STOCK OPTIONS | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
STOCK OPTIONS | Description of Stock Option Plan The Company has 1,333,333 shares available for issuance under the First Amended and Restated 2017 Stock Incentive Plan. The Company has outstanding unexercised stock option grants totaling 550,000 shares at an average exercise price of $1.491 per share as of December 31, 2019. The Company filed registration statements on Form S-8 to register 1,333,333 shares of our common stock related to the 2017 Stock Incentive Plan and First Amended and Restated 2017 Stock Incentive Plan. Determining Fair Value under ASC 718 The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed. Stock Option Activity During the year ended December 31, 2019, the Company had the following stock option activity: On February 6, 2019, the Company issued a stock option grant to an advisory board member for 3,333 shares of common stock at an exercise price of $1.20 per share. The stock option grant vests quarterly over three years and is exercisable for 3 years. The stock option grant was valued at $1,000. On April 26, 2019, the Company issued stock option grants to two employees for 20,000 shares of common stock at an exercise price of $1.50 per share. The stock option grant vests quarterly over three years and is exercisable for 3 years. The stock option grants were valued at $3,000. On April 2, 2019, the Company amended the exercise price on stock option grants for 33,333 shares and changed the exercise price from $3.00 to $1.50 per share. On May 2, 2019, the Company issued 26,111 shares valued at $0.90 to a former employee related to a cashless stock option exercise related to a stock option grant for 100.556 shares issued at $0.90. During the year ended December 31, 2019, a stock option grant for 13,333 shares of common stock at an exercise price of $3.00 per share expired. During the year ended December 31, 2018, the Company had the following stock option activity: On February 23, 2018, an employee was granted an option to purchase 13,333 shares of common stock at an exercise price of $3.20 per share. The stock option grant vests quarterly over two years and is exercisable for 5 years. The stock option grant was valued at $13,000. On February 23, 2018, an employee was granted an option to purchase 6,667 shares of common stock at an exercise price of $3.00 per share. The stock option grant vests quarterly over one year and is exercisable for 5 years. The stock option grant was valued at $6,500. On May 1, 2018, an employee was granted an option to purchase 13,333 shares of common stock at an exercise price of $3.00 per share. The stock option grant vests quarterly over one year and is exercisable for 5 years. The stock option grant was valued at $13,000. On June 1, 2018, an employee was granted an option to purchase 12,333 shares of common stock at an exercise price of $3.00 per share. The stock option grant vests quarterly over one year and is exercisable for 5 years. The stock option grant was valued at $13,000. On October 15, 2018, an entity controlled by Mr. Scott was granted an option to purchase 133,333 shares of common stock at an exercise price of $1.80 per share. The stock option grant vests quarterly over three years and are exercisable for 5 years. The stock option grants were valued at $40,000 and the Company recorded this amount as compensation expense for the year ended December 31, 2018. On October 15, 2018, Mr. Barnes was granted an option to purchase 120,000 shares of common stock at an exercise price of $1.80 per share. The stock option grant vests quarterly over three years and are exercisable for 5 years. The stock option grants were valued at $36,000 and the Company recorded this amount as compensation expense for the year ended December 31, 2018. As of December 31, 2019, there are 550,000 options to purchase common stock at an average exercise price of $1.49 per share outstanding under the 2017 Amended and Restated Stock Incentive Plan. The Company recorded $62,132 and $44,682 of compensation expense, net of related tax effects, relative to stock options for the year ended December 31, 2019 and 2018 in accordance with ASC Topic 718. Net loss per share (basic and diluted) associated with this expense was approximately ($0.00). As of December 31, 2019, there is $68,638 of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 3.37 years. Stock option activity for the year ended December 31, 2019 is as follows: Weighted Average Options Exercise Price $ Outstanding as of December 31, 2017 373,333 $ 1.07 400,000 Granted 300,000 1.95 596,000 Exercised (6,667 ) 0.90 (6,000 ) Forfeitures - - - Outstanding as of January 1, 2019 666,667 1.41 940,000 Granted 23,333 1.20 34,000 Exercised (26,111 ) (0.90 ) (23,500 ) Forfeitures (113,889 ) (1.15 ) (130,500 ) Outstanding as of December 31, 2019 550,000 $ 1.49 820,000 The following table summarizes information about stock options outstanding and exercisable at December 31, 2019: Weighted Weighted Average Weighted Average Range of Number Remaining Life Average Number Exercise Price Exercise Prices Outstanding In Years Exercise Price Exercisable Exercisable $ 0.90 80,000 3.00 $ 0.90 60,000 $ 0.90 1.05 66,667 3.00 1.05 50,000 1.05 1.2-1.35 16,667 1.05 1.2-1.35 11,944 1.2-1.35 1.50 133,333 2.86 1.50 108,333 1.50 1.80 253,333 4.00 1.80 105,556 1.80 550,000 3.37 $ 1.491 335,833 $ 1.25 Stock option grants totaling 550,000 shares of common stock no intrinsic value as of December 31, 2019. The stock option grants were valued using the following assumptions: Dividend yield 0 % Expected life 1-5 Years Expected volatility 70-200 % Risk free interest rate 0.78-2.6 % |
16. COMMITMENTS, CONTINGENCIES
16. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS | Legal Proceedings From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and may be adjusted from time to time according to developments. The Company’s know of no material, existing or pending legal proceedings against our Company, nor is the Company involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to the Company’s interest. As of September 30, 2019, the Company closed retail stores in Portland, Maine, Encino, California and Calgary, Canada. The Company is negotiating with the landlords and the Company has recorded restructuring reserves. Operating Leases The Company is obligated under the following leases for its various facilities. On May 31, 2019, the Company rented space at 5400 Carillon Point, Kirkland, Washington 98033 for $623 per month for the Company’s corporate office and use of space in the Regus network, including California. The Company’s agreement expires May 31, 2020. On December 14, 2018, GrowLife, Inc. entered into a lease agreement with Pensco Trust Company for a 28,000 square feet industrial space at 10170 Croydon Way, Sacramento, California 95827 used for the assembly and sales of plastic parts by EZ-CLONE. The monthly lease payment is $17,500 and increased approximately 3% per year. The lease expires on December 31, 2023. Terminated Leases On October 1, 2017, GrowLife Hydroponics, Inc. entered into a lease in Calgary, Canada. The monthly lease is approximately $3,246. The lease expires September 30, 2022. This lease was terminated effective September 30, 2019. On December 19, 2017, GrowLife Innovations, Inc. entered into a lease in Grand Prairie, Texas dated October 9, 2017, for 5,000 square feet for the manufacturing and distribution of its flooring products. The monthly lease payment is $15,000. The lease expires December 1, 2022 and can be renewed. This lease was terminated effective September 30, 2019 with the sale of the flooring division. On July 2, 2018, GrowLife Hydroponics, Inc. entered into a store lease for 1,950 square feet in Portland, Maine. The monthly lease is approximately $2,113, with 3% increases in year two and three. The lease expires July 2, 2021 and can be extended. This lease was terminated effective September 30, 2019. On August 31, 2018, GrowLife, Inc. entered into the Fourth Amendment to the Lease Agreement for the store in Encino, California. The monthly lease is approximately $6,720, with a 3% increase on March 1, 2019. The lease expires September 1, 2019 and the Company is required to provide six months’ notice to terminate the lease. This lease was terminated effective September 30, 2019. Employment Agreements Employment Agreement with Marco Hegyi On October 15, 2018, the Board of Directors approved an Employment Agreement with Marco Hegyi pursuant to which we engaged Mr. Hegyi as its Chief Executive Officer through October 15, 2021. Mr. Hegyi’s annual compensation is $275,000. Mr. Hegyi is also entitled to receive an annual bonus equal to four percent (4%) of the Company’s EBITDA for that year. The annual bonus shall be paid no later than 31 days following the end of each calendar year. Mr. Hegyi received 320,000 warrants in October 2018 as follows: (i) Warrant to purchase up to 106,667 shares of our common stock at an exercise price of $1.80 per share which vested immediately; and (ii) two Warrants to purchase up to 106,667 shares of common stock of the Company at an exercise price of $1.80 per share. One warrant for 106,667 shares of our common stock vested on October 15, 2019. Additional warrants for 106,667 shares of the Company’s common stock vest on October 15, 2020 and 2021, respectively. The Warrants are exercisable for 5 years. Mr. Hegyi is entitled to participate in all group employment benefits that are offered by the Company to its senior executives and management employees from time to time, subject to the terms and conditions of such benefit plans, including any eligibility requirements. In addition, the Company will purchase and maintain during the Term an insurance policy on Mr. Hegyi’s life in the amount of $2,000,000 payable to Mr. Hegyi’s named heirs or estate as the beneficiary. If the Company terminates Mr. Hegyi’s employment at any time prior to the expiration of the Term without Cause, as defined in the Employment Agreement, or if Mr. Hegyi terminates his employment at any time for “Good Reason” or due to a “Disability”, Mr. Hegyi will be entitled to receive (i) his Base Salary amount through the end of the Term; and (ii) his Annual Bonus amount for each year during the remainder of the Term. Employment Agreement with Mark E. Scott On October 15, 2018, the Compensation Committee approved an Employment Agreement with Mark E. Scott pursuant to which the Company engaged Mr. Scott as its Chief Financial Officer through October 15, 2021. Mr. Scott’s previous Agreement was cancelled. Mr. Scott’s annual compensation is $165,000. Mr. Scott is also entitled to receive an annual bonus equal to two percent (2%) of the Company’s EBITDA for that year. The annual bonus shall be paid no later than 31 days following the end of each calendar year. Our Board of Directors granted Mr. Scott an option to purchase 133,333 shares of the Company’s Common Stock under our 2017 Amended and Restated Stock Incentive Plan at an exercise price of $1.80 per share. The Shares vest quarterly over three years. All options will have a five-year life and allow for a cashless exercise. The stock option grant is subject to the terms and conditions of our Amended and Restated Stock Incentive Plan, including vesting requirements. In the event that Mr. Scott’s continuous status as employee to us is terminated by us without Cause or Mr. Scott terminates his employment with us for Good Reason as defined in the Scott Agreement, in either case upon or within twelve months after a Change in Control as defined in our amended and Restated Stock Incentive Plan, then 100% of the total number of Shares shall immediately become vested. Mr. Scott is entitled to participate in all group employment benefits that are offered by us to our senior executives and management employees from time to time, subject to the terms and conditions of such benefit plans, including any eligibility requirements. In addition, the Company is required purchase and maintain an insurance policy on Mr. Scott’s life in the amount of $2,000,000 payable to Mr. Scott’s named heirs or estate as the beneficiary. Finally, Mr. Scott is entitled to twenty days of vacation annually and also has certain insurance and travel employment benefits. If the Company terminates Mr. Scott’s employment at any time prior to the expiration of the Term without Cause, as defined in the Employment Agreement, or if Mr. Scott terminates his employment at any time for “Good Reason” or due to a “Disability”, Mr. Scott will be entitled to receive (i) his Base Salary amount for ninety days; and (ii) his Annual Bonus amount for each year during the remainder of the Term. Employment Agreement with Joseph Barnes On October 15, 2018, the Compensation Committee approved an Employment Agreement with Joseph Barnes pursuant to which we engaged Mr. Barnes as President of the GrowLife Hydroponics Company through October 15, 2021. Mr. Barnes’s previous Agreement was cancelled. Mr. Barnes’s annual compensation is $165,000. Mr. Barnes is also entitled to receive an annual bonus equal to two percent (2%) of the Company’s EBITDA for that year. The annual bonus shall be paid no later than 31 days following the end of each calendar year. The Board of Directors granted Mr. Barnes an option to purchase 120,000 shares of the Company’s Common Stock under the Company’s 2017 Amended and Restated Stock Incentive Plan at an exercise price of $1.80 per share. The Shares vest quarterly over three years. All options will have a five-year life and allow for a cashless exercise. The stock option grant is subject to the terms and conditions of our Amended and Restated Stock Incentive Plan, including vesting requirements. In the event that Mr. Barnes’s continuous status as employee to us is terminated by us without Cause or Mr. Barnes terminates his employment with us for Good Reason as defined in the Barnes Agreement, in either case upon or within twelve months after a Change in Control as defined in our Amended and Restated Stock Incentive, then 100% of the total number of Shares shall immediately become vested. Mr. Barnes is entitled to participate in all group employment benefits that are offered by us to our senior executives and management employees from time to time, subject to the terms and conditions of such benefit plans, including any eligibility requirements. In addition, the Company is required purchase and maintain an insurance policy on Mr. Barnes’s life in the amount of $2,000,000 payable to Mr. Barnes’s named heirs or estate as the beneficiary. Finally, Mr. Barnes is entitled to twenty days of vacation annually and also has certain insurance and travel employment benefits. If the Company terminates Mr. Barnes’s employment at any time prior to the expiration of the Term without Cause, as defined in the Employment Agreement, or if Mr. Barnes terminates his employment at any time for “Good Reason” or due to a “Disability”, Mr. Barnes will be entitled to receive (i) his Base Salary amount for ninety days; and (ii) his Annual Bonus amount for each year during the remainder of the Term. |
17. INCOME TAXES
17. INCOME TAXES | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | The Company has incurred losses since inception, which have generated net operating loss carryforwards. The net operating loss carryforwards arise solely from United States sources. EZ Clone currently files its own separate tax return as it does not meet the qualifications for being included in the Company’s consolidated tax returns. Taxable losses and the future benefit of EZ Clone losses since our transaction with them in October 2018 have not been material. The Company has net operating loss carryforwards of approximately $21,528,000, which expire in 2022-2037. Because it is not more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards, a corresponding valuation allowance of approximately $21,528,000 was established as of December 31, 2019. Additionally, under the Tax Reform Act of 1986, the amounts of, and benefits from, net operating losses may be limited in certain circumstances, including a change in control. Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. There can be no assurance that the Company will be able to utilize any net operating loss carryforwards in the future. The Company is subject to possible tax examination for the years 2014 through 2019. For the year ended December 31, 2019, the Company’s effective tax rate was a benefit of 2%, this was solely the result of the reduction of the deferred tax liability originally recorded in 2018 in connection with the acquisition of EZ Clone. In accordance with the ASC 740, “Accounting for income taxes”, and in connection with the acquisition of EZ Clone the Company recorded a deferred tax liability of $587,750 related to the inside basis difference between book and tax basis of intangible assets acquired. Beginning in 2019, the deferred tax liability is reduced annually by $117,550 as the difference in book and tax basis becomes less. The reduction of the deferred tax liability resulted in a tax benefit of $117,550 in 2019. U.S. Tax Reform On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Reform Act). The Tax Reform Act significantly revises the future ongoing federal income tax by, among other things, lowering U.S. corporate income tax rates effective January 1, 2018. The Company has calculated a blended U.S. federal income tax rate of approximately 21% for the fiscal years ending December 31, 2019 and 2018 and 21.0% for subsequent fiscal years. Remeasurement of the Company’s deferred tax balance under the Tax Reform Act resulted in a non-cash tax benefit reduction of approximately $2.5 million for the year ended December 31, 2018. The changes included in the Tax Reform Act are broad and complex. The final transition impacts of the Tax Reform Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Reform Act, any legislative action to address questions that arise because of the Tax Reform Act and any changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act. The principal components of the Company’s deferred tax assets and liabilities at December 31, 2019 and 2018 are as follows: 2019 2018 Net operating loss carryforwards $ 4,520,814 $ 3,917,000 Less valuation allowance (4,520,814 ) (3,917,000 ) Net deferred tax assets - - Deferred tax liability-intangible basis difference (470,200 ) (587,750 ) Net deferred tax liability $ (470,200 ) $ (587,750 ) Change in valuation allowance $ (603,814 ) $ (848,008 ) A reconciliation of the United States Federal Statutory rate to the Company’s effective tax rate for the years ended December 31, 2019 and 2018 is as follows: 2019 2018 Federal statutory rate -21.0 % -21.0 % State statutory rate -6.0 % -6.0 % Change in valuation allowance 27.0 % 27.0 % Reduction in deferred tax liability 2 % 0.0 % Effective tax rate-benefit 2 % 0.0 % The Company’s tax returns for 2014 to 2019 are open to review by the Internal Revenue Service. |
18. SUBSEQUENT EVENTS
18. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are available. There were the material events subsequent to December 31, 2019: COVID-19 Pandemic Presently, the impact of COVID-19 has not shown any imminent adverse effects on the Company’s business, especially since states across the United States—including California—has deemed cannabis businesses as “essential,” allowing the Company’s business to continue its operations. This notwithstanding, it is still unknown and difficult to predict what adverse effects, if any, COVID-19 can have on the Company’s business, or against the various aspects of same. As of the date of this Annual Report, COVID-19 coronavirus has been declared a pandemic by the World Health Organization, has been declared a National Emergency by the United States Government and has resulted in several states being designated disaster zones. COVID-19 coronavirus caused significant volatility in global markets. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted, and additional cities are considering, quarantining and “shelter-in-place” regulations which severely limit the ability of people to move and travel and require non-essential businesses and organizations to close. Recent shelter-in-place and essential-only travel regulations could negatively impact the Company’s customers. In addition, while the Company’s products are manufactured in the United States, the Company still could experience significant supply chain disruptions due to interruptions in operations at any or all of our suppliers’ facilities or downline suppliers. If the Company experiences significant delays in receiving our products the Company will experience delays in fulfilling orders and ultimately receiving payment, which could result in loss of sales and a loss of customers, and adversely impact our financial condition and results of operations. The current status of COVID-19 coronavirus closures and restrictions could also negatively impact the Company’s ability to receive funding from the Company’s existing capital sources as each business is and has been affected uniquely. Trading on OTCQB As of March 17, 2020, the Company c ommenced trading on the OTCQB Market ("OTCQB") after successfully up-listing from the OTC Pink Market. Debt Conversion On March 6, 2020, Chicago Venture converted principal and accrued interest of $100,000 into 605,294 shares of the Company’s common stock at a per share conversion price of $0.165. Securities Purchase Agreement, Secured Promissory Notes and Security Agreement with Chicago Venture Partners, L.P (Chicago Venture) On January 30, 2020, the Company executed the following agreements with Chicago Venture: (i) Securities Purchase Agreement; (ii) Secured Convertible Promissory Notes (“Notes”); and (iii) Security Agreement (collectively the “Chicago Venture Agreements”). The Company entered into the Chicago Venture Agreements with the intent to acquire working capital to grow the Company’s businesses. The total amount of funding under the CVP Agreements is $500,000 in various tranches. The Notes carry an original issue discount of $50,000 and a transaction expense amount of $5,000, for total debt of $555,000 (“Debt”). The Company agreed to reserve 53,333 shares of its common stock for issuance upon conversion of the Debt, if that occurs in the future. If not converted sooner, the Debt is due on or before January 29, 2021. The Debt carries an interest rate of ten percent (10%). The Debt is convertible, at CVP’s option, into the Company’s common stock at $0.30 per share subject to adjustment as provided for in the Notes. The Company received approximately $500,000 of funding under the chicago Venture agreements in 2020. The Company’s obligation to pay the Debt, or any portion thereof, is secured by all of the Company’s assets. Secured Advance Note with Crossover Capital Fund I LLC (“Crossover”) On September 20, 2019, the Company closed a Secured Advance Note with Crossover Capital Fund I LLC (the “Crossover Note”). As of December 31, 2019, the outstanding principal balance due Crossover was $205,228. The Crossover Note is due in nine months and is repayable weekly at $9,205. The balance as of March 26, 2020 is $168,408 and the Company is working with Crossover on past due payments. |
3. SIGNIFICANT ACCOUNTING POL_2
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation - |
Principles of Consolidation | Principles of Consolidation |
Cash and Cash Equivalents | Cash and Cash Equivalents |
Accounts Receivable and Revenue | Accounts Receivable and Revenue – |
Sales Returns | Sales Returns - |
Inventories | Inventories - |
Property and Equipment | Property and Equipment |
Long Lived Assets | Long Lived Assets |
Intangible Assets | Intangible Assets |
Goodwill | Goodwill - |
Fair Value Measurements and Financial Instruments | Fair Value Measurements and Financial Instruments Fair Value Measurement and Disclosures Level 1 – Quoted prices in active markets for identical assets and liabilities; Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and. Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2019 and 2018 are based upon the short-term nature of the assets and liabilities. |
Derivative Financial Instruments | Derivative Financial Instruments – |
Stock Based Compensation | Stock Based Compensation |
Convertible Securities | Convertible Securities |
Net Loss Per Share | Net Loss Per Share - As of December 31, 2019, there are also (i) stock option grants outstanding for the purchase of 550,000 common shares at an $1.491 average exercise price; and (ii) warrants for the purchase of 2,418,834 shares of common shares at a $3.465 average exercise price. In addition, we have an unknown number of common shares to be issued under the Crossover financing agreements in the case of default. In addition, we have an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements because the number of shares ultimately issued to Chicago Venture depends on the price at which Chicago Venture converts its debt to shares and exercises its warrants. The lower the conversion or exercise prices, the more shares that will be issued to Chicago Venture upon the conversion of debt to shares. We will not know the exact number of shares of stock issued to Chicago Venture until the debt is actually converted to equity. As of December 31, 2018, there are also (i) stock option grants outstanding for the purchase of 666,667 common shares at a $1.485 average exercise price; (ii) warrants for the purchase of 6,018,834 common shares at a $0.029 average exercise price; and (iii) 752,281 shares related to convertible debt that can be converted at $4.53 per share. In addition, the Company has an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements. |
Dividend Policy | Dividend Policy |
Use of Estimates | Use of Estimates - |
Reclassifications | Reclassifications |
Recent Accounting Pronouncements | Recent Accounting Pronouncements A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements. In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), as amended, which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new standard effective January 1, 2019 on a modified retrospective basis and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carryforward our historical lease classification, our assessment on whether a contract is or contains a lease, and the Company’s initial direct costs for any leases that exist prior to adoption of the new standard. The Company also elected to combine lease and non-lease components and to keep leases with an initial term of twelve months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company determines if an arrangement is a lease at inception. Operating and finance leases are included in Right of Use ("ROU") assets, and lease liability obligations in the Company’s consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liability obligations represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company accounts for lease agreements with lease and non-lease components and account for such components as a single lease component. As most of the Company’s leases do not provide an implicit rate, we estimated our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. Please refer to Note 8 for additional information. |
4. BUSINESS COMBINATIONS, ACQ_2
4. BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Business Combinations [Abstract] | |
Assets acquired and liabilities assumed | Intangible assets $ 2,351,000 Goodwill 781,749 Net working capital 551,000 Property and equipment 318,000 Deferred tax liability (587,750 ) $ 3,413,999 |
5. INVENTORY (Tables)
5. INVENTORY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventory | December 31, December 31, 2019 2018 Raw materials $ 329,482 $ 417,570 Work in process 49,253 35,280 Finished goods 92,703 459,814 Inventory deposits 129,236 - Inventory reserve - (120,000 ) Total $ 600,674 $ 792,664 |
6. PROPERTY AND EQUIPMENT (Tabl
6. PROPERTY AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | December 31, December 31, 2019 2018 Machinery, equipment and tooling $ 356,867 $ 943,327 Computer equipment 16,675 16,675 Leasehold improvements 14,703 14,703 Total property and equipment 388,245 974,705 Less accumulated depreciation and amortization (221,763 ) (261,839 ) Net property and equipment $ 166,482 $ 712,866 |
7. INTANGIBLE ASSETS (Tables)
7. INTANGIBLE ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible assets | Estimated Useful Lives December 31, 2019 December 31, 2018 Customer Lists 5 Years $ 1,297,000 $ 1,604,341 Intellectual Property 5 Years 1,054,000 1,036,991 less accumulated amortization (548,566 ) (142,628 ) Net Intangible assets-definitive life 1,802,434 2,498,704 Goodwill-indefinite life N/A 781,749 781,749 Total intangible assets and goodwill $ 2,584,183 $ 3,280,453 |
8. LEASES (Tables)
8. LEASES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Lease liability maturity | Year $ 2019 $ 196,612 2020 216,300 2021 222,792 2022 229,476 2023 236,352 Total lease liability 1,101,532 Less imputed interest (178,028 ) Total lease liability $ 923,504 |
11. CONVERTIBLE NOTES PAYABLE_2
11. CONVERTIBLE NOTES PAYABLE, NET (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
Convertible notes | Balance As of Principal Accrued Interest Debt Discount December 31, 2019 10% OID Convertible Promissory Notes $ 2,195,007 $ 220,980 $ - $ 2,415,987 Secured Advance Note 205,228 - - 205,228 12% Convertible Promissory Notes 281,600 3,055 (21,591 ) 263,064 $ 2,681,835 $ 224,035 $ (21,591 ) $ 2,884,279 Balance As of Principal Accrued Interest Debt Discount December 31, 2018 10% OID Convertible Promissory Notes $ 2,982,299 $ 135,780 $ - $ 3,118,079 7% Convertible note 270,787 15,267 - 286,054 $ 3,253,086 $ 151,047 $ - $ 3,404,133 |
12. DERIVATIVE LIABILITY (Table
12. DERIVATIVE LIABILITY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Derivative Liability [Abstract] | |
Fair value of derivative liability | Fair Value Measurements Using Inputs Amount at Financial Instruments Level 1 Level 2 Level 3 December 31, 2019 Liabilities: Derivative Instruments $ - $ - $ 1,300,915 $ 1,300,915 Total $ - $ - $ 1,300,915 $ 1,300,915 Fair Value Measurements Using Inputs Carrying Amount at Financial Instruments Level 1 Level 2 Level 3 December 31, 2018 Liabilities: Derivative Instruments $ - $ - $ 1,795,747 $ 1,795,747 Total $ - $ - $ 1,795,747 $ 1,795,747 |
14. EQUITY (Tables)
14. EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
Warrants | December 31, 2019 Weighted Average Exercise Shares Price Outstanding at January 1, 2019 6,018,834 $ 4.350 Issued - $ - Exercised - $ - Forfeited (3,600,000 ) $ (4.950 ) Expired - $ - Outstanding at December 31, 2019 2,418,834 $ 3.465 Exercisable at December 31, 2019 2,312,168 $ - December 31, 2019 Weighted Weighted Weighted Average Average Average Number of Remaining Exercise Shares Exercise Warrants Life Price Exercisable Price 366,667 6.66 $ 1.500 366,667 $ 1.500 320,000 4.83 1.800 213,333 1.800 1,407,582 1.83 3.150 1,407,582 3.150 324,586 3.08 7.500 324,586 7.500 - - - - - 2,418,834 2.77 $ 3.465 2,312,168 $ 3.374 |
Warrant valuation assumptions | Dividend yield 0 % Expected life 1-5 Years Expected volatility 70-200 % Risk free interest rate 0.78-2.6 % |
15. STOCK OPTIONS (Tables)
15. STOCK OPTIONS (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Share-based Payment Arrangement [Abstract] | |
Stock options | Weighted Average Options Exercise Price $ Outstanding as of December 31, 2017 373,333 $ 1.07 400,000 Granted 300,000 1.95 596,000 Exercised (6,667 ) 0.90 (6,000 ) Forfeitures - - - Outstanding as of January 1, 2019 666,667 1.41 940,000 Granted 23,333 1.20 34,000 Exercised (26,111 ) (0.90 ) (23,500 ) Forfeitures (113,889 ) (1.15 ) (130,500 ) Outstanding as of December 31, 2019 550,000 $ 1.49 820,000 Weighted Weighted Average Weighted Average Range of Number Remaining Life Average Number Exercise Price Exercise Prices Outstanding In Years Exercise Price Exercisable Exercisable $ 0.90 80,000 3.00 $ 0.90 60,000 $ 0.90 1.05 66,667 3.00 1.05 50,000 1.05 1.2-1.35 16,667 1.05 1.2-1.35 11,944 1.2-1.35 1.50 133,333 2.86 1.50 108,333 1.50 1.80 253,333 4.00 1.80 105,556 1.80 550,000 3.37 $ 1.491 335,833 $ 1.25 |
Stock option valluation assumptions | Dividend yield 0 % Expected life 1-5 Years Expected volatility 70-200 % Risk free interest rate 0.78-2.6 % |
17. INCOME TAXES (Tables)
17. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Deferred tax assets and liabilities | 2019 2018 Net operating loss carryforwards $ 4,520,814 $ 3,917,000 Less valuation allowance (4,520,814 ) (3,917,000 ) Net deferred tax assets - - Deferred tax liability-intangible basis difference (470,200 ) (587,750 ) Net deferred tax liability $ (470,200 ) $ (587,750 ) Change in valuation allowance $ (603,814 ) $ (848,008 ) |
Income tax reconciliation | 2019 2018 Federal statutory rate -21.0 % -21.0 % State statutory rate -6.0 % -6.0 % Change in valuation allowance 27.0 % 27.0 % Reduction in deferred tax liability 2 % 0.0 % Effective tax rate-benefit 2 % 0.0 % |
2. GOING CONCERN (Details Narra
2. GOING CONCERN (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
Net loss | $ (7,374,383) | $ (11,473,136) |
Net cash used in operating activities | (2,909,811) | (3,854,505) |
Accumulated deficit | $ (148,461,532) | $ (141,176,087) |
3. SIGNIFICANT ACCOUNTING POL_3
3. SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Accounting Policies [Abstract] | ||
Uninsured deposits | $ 0 | |
Reserve for sales return | 20,000 | $ 20,000 |
Inventory reserve | $ 0 | $ 120,000 |
4. BUSINESS COMBINATIONS, ACQ_3
4. BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Business Combinations [Abstract] | ||
Intangible assets | $ 2,351,000 | |
Goodwill | 781,749 | $ 781,749 |
Net working capital | 551,000 | |
Property and equipment | 318,000 | |
Deferred tax liability | (587,750) | |
Total | $ 3,413,999 |
4. BUSINESS COMBINATIONS, ACQ_4
4. BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Business Combinations [Abstract] | ||
Restructuring expense - flooring division | $ 305,895 | $ 0 |
Restructuring expense - retail stores and online sales | $ 250,000 | $ 0 |
5. INVENTORY (Details)
5. INVENTORY (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 329,482 | $ 417,570 |
Work in process | 49,253 | 35,280 |
Finished goods | 92,703 | 459,814 |
Inventory deposits | 129,236 | 0 |
Inventory reserve | 0 | (120,000) |
Total inventory | $ 600,674 | $ 792,664 |
6. PROPERTY AND EQUIPMENT (Deta
6. PROPERTY AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Property, Plant and Equipment [Abstract] | ||
Machinery, equipment and tooling | $ 356,867 | $ 943,327 |
Computer equipment | 16,675 | 16,675 |
Leasehold improvements | 14,703 | 14,703 |
Total property and equipment | 388,245 | 974,705 |
Less accumulated depreciation and amortization | (221,763) | (261,839) |
Net property and equipment | $ 166,482 | $ 712,866 |
6. PROPERTY AND EQUIPMENT (De_2
6. PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Net property and equipment | $ 166,482 | $ 712,866 |
Accumulated depreciation and amortization | (221,763) | (261,839) |
Depreciation expense | $ 89,322 | $ 80,125 |
7. INTANGIBLE ASSETS (Details)
7. INTANGIBLE ASSETS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Less: accumulated amortization | $ (548,566) | $ (142,628) |
Net intangible assets - definitive life | 1,802,434 | 2,498,704 |
Goodwill - indefinite life | 781,749 | 781,749 |
Total intangible assets and goodwill | 2,584,183 | 3,280,453 |
Customer Lists | ||
Intangible assets - definitive life, gross | $ 1,297,000 | 1,604,341 |
Estimated useful lives | 5 years | |
Patents | ||
Intangible assets - definitive life, gross | $ 1,054,000 | $ 1,036,991 |
Estimated useful lives | 5 years |
7. INTANGIBLE ASSETS (Details N
7. INTANGIBLE ASSETS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 838,262 | $ 142,628 |
8. LEASES (Details)
8. LEASES (Details) | Dec. 31, 2019USD ($) |
Leases [Abstract] | |
2019 | $ 196,612 |
2020 | 216,300 |
2021 | 222,792 |
2022 | 229,476 |
2023 | 236,352 |
Total lease liability | 1,101,532 |
Less: imputed interest | (178,028) |
Total lease liability | $ 923,504 |
8. LEASES (Details Narrative)
8. LEASES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Leases [Abstract] | ||
Right-of-use assets | $ 537,522 | $ 0 |
Operating lease liabilities | 923,504 | |
Lease cost | 222,984 | |
Cash paid for operating lease liabilities | $ 210,000 | |
Weighted-average remaining lease term | 4 years | |
Weighted-average discount rate | 10.00% |
9. ACCOUNTS PAYABLE (Details Na
9. ACCOUNTS PAYABLE (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,157,090 | $ 1,054,371 |
10. ACCRUED EXPENSES (Details N
10. ACCRUED EXPENSES (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Accrued expenses | $ 259,093 | $ 261,954 |
11. CONVERTIBLE NOTES PAYABLE_3
11. CONVERTIBLE NOTES PAYABLE, NET (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Principal amount due | $ 2,681,835 | $ 3,253,086 |
Accrued Interest | 224,035 | 151,047 |
Debt discount | (21,591) | 0 |
Convertible notes payable | 2,884,279 | 3,404,133 |
10% OID Convertible Promissory Notes | ||
Principal amount due | 2,195,007 | 2,982,299 |
Accrued Interest | 220,980 | 135,780 |
Debt discount | 0 | 0 |
Convertible notes payable | 2,415,987 | 3,118,079 |
Secured Advance Note | ||
Principal amount due | 205,228 | |
Accrued Interest | 0 | |
Debt discount | 0 | |
Convertible notes payable | 205,228 | |
12% Convertible Promissory Notes | ||
Principal amount due | 281,600 | |
Accrued Interest | 3,055 | |
Debt discount | (21,591) | |
Convertible notes payable | $ 263,064 | |
7% Convertible Note | ||
Principal amount due | 270,787 | |
Accrued Interest | 15,267 | |
Debt discount | 0 | |
Convertible notes payable | $ 286,054 |
12. DERIVATIVE LIABILITY (Detai
12. DERIVATIVE LIABILITY (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Derivative instruments | $ 1,300,915 | $ 1,795,747 |
Total | 1,300,915 | 1,795,747 |
Level 1 | ||
Derivative instruments | 0 | 0 |
Total | 0 | 0 |
Level 2 | ||
Derivative instruments | 0 | 0 |
Total | 0 | 0 |
Level 3 | ||
Derivative instruments | 1,300,915 | 1,795,747 |
Total | $ 1,300,915 | $ 1,795,747 |
14. EQUITY (Details)
14. EQUITY (Details) - Warrants | 12 Months Ended |
Dec. 31, 2019$ / sharesshares | |
Shares | |
Outstanding, beginning of period | shares | 6,018,834 |
Issued | shares | 0 |
Exercised | shares | 0 |
Forfeited | shares | (3,600,000) |
Expired | shares | 0 |
Outstanding, end of period | shares | 2,418,834 |
Exercisable, end of period | shares | 2,312,168 |
Weighted Average Exercise Price | |
Outstanding, beginning of period | $ / shares | $ 4.350 |
Issued | $ / shares | .000 |
Exercised | $ / shares | .000 |
Forfeited | $ / shares | (4.950) |
Expired | $ / shares | .000 |
Outstanding, end of period | $ / shares | 3.465 |
Exercisable, end of period | $ / shares | $ .000 |
14. EQUITY (Details 1)
14. EQUITY (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Weighted average remaining life | 3 years 4 months 13 days | |
Price Range 1 | ||
Shares outstanding | 366,667 | |
Weighted average remaining life | 6 years 7 months 28 days | |
Weighted average exercise price outstanding | $ 1.500 | |
Shares exercisable | 366,667 | |
Weighted average exercise price exercisable | $ 1.500 | |
Price Range 2 | ||
Shares outstanding | 320,000 | |
Weighted average remaining life | 4 years 9 months 29 days | |
Weighted average exercise price outstanding | $ 1.800 | |
Shares exercisable | 213,333 | |
Weighted average exercise price exercisable | $ 1.800 | |
Price Range 3 | ||
Shares outstanding | 1,407,582 | |
Weighted average remaining life | 1 year 9 months 29 days | |
Weighted average exercise price outstanding | $ 3.150 | |
Shares exercisable | 1,407,582 | |
Weighted average exercise price exercisable | $ 3.150 | |
Price Range 4 | ||
Shares outstanding | 324,586 | |
Weighted average remaining life | 3 years 29 days | |
Weighted average exercise price outstanding | $ 7.500 | |
Shares exercisable | 324,586 | |
Weighted average exercise price exercisable | $ 7.500 | |
Price Range 5 | ||
Shares outstanding | 0 | |
Weighted average remaining life | 0 years | |
Weighted average exercise price outstanding | $ 0 | |
Shares exercisable | 0 | |
Weighted average exercise price exercisable | $ 0 | |
Warrants | ||
Shares outstanding | 2,418,834 | 6,018,834 |
Weighted average remaining life | 2 years 9 months 7 days | |
Weighted average exercise price outstanding | $ 3.465 | $ 4.350 |
Shares exercisable | 2,312,168 | |
Weighted average exercise price exercisable | $ 3.374 |
14 EQUITY (Details 2)
14 EQUITY (Details 2) | 12 Months Ended |
Dec. 31, 2019 | |
Dividend yield | 0.00% |
Minimum | |
Expected life | 1 year |
Expected volatility | 70.00% |
Risk free interest rate | 0.78% |
Maximum | |
Expected life | 5 years |
Expected volatility | 200.00% |
Risk free interest rate | 2.60% |
14. EQUITY (Details Narrative)
14. EQUITY (Details Narrative) | Dec. 31, 2019USD ($) |
Equity [Abstract] | |
Warrants intrinsic value | $ 0 |
15. STOCK OPTIONS (Details)
15. STOCK OPTIONS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Aggregate Intrinsic Value | ||
Exercised | $ 6,000 | |
Outstanding, end of period | $ 0 | |
Stock Options | ||
Shares | ||
Outstanding, beginning of period | 666,667 | 373,333 |
Granted | 23,333 | 300,000 |
Exercised | (26,111) | (6,667) |
Forfeitures | (113,889) | 0 |
Outstanding, end of period | 550,000 | 666,667 |
Weighted Average Exercise Price | ||
Outstanding, beginning of period | $ 1.41 | $ 1.07 |
Granted | 1.20 | 1.95 |
Exercised | (.90) | .90 |
Forfeitures | (1.15) | (.00) |
Outstanding, end of period | $ 1.49 | $ 1.41 |
Aggregate Intrinsic Value | ||
Outstanding, beginning of period | $ 940,000 | $ 400,000 |
Granted | $ 34,000 | $ 596,000 |
Exercised | $ (23,500) | $ 6,000 |
Forfeitures | $ (130,500) | $ 0 |
Outstanding, end of period | $ 820,000 | $ 940,000 |
15. STOCK OPTIONS (Details 1)
15. STOCK OPTIONS (Details 1) - $ / shares | 12 Months Ended | ||
Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Weighted average remaining life in years | 3 years 4 months 13 days | ||
Exercise Price Range 1 | |||
Outstanding | 80,000 | ||
Weighted average remaining life in years | 3 years | ||
Weighted average exercise price outstanding | $ .90 | ||
Exerciseable | 60,000 | ||
Weighted average exercise price exercisable | $ .90 | ||
Exercise Price Range 2 | |||
Outstanding | 66,667 | ||
Weighted average remaining life in years | 3 years | ||
Weighted average exercise price outstanding | $ 1.05 | ||
Exerciseable | 50,000 | ||
Weighted average exercise price exercisable | $ 1.05 | ||
Exercise Price Range 3 | |||
Outstanding | 16,667 | ||
Weighted average remaining life in years | 1 year 18 days | ||
Exerciseable | 11,944 | ||
Exercise Price Range 3 | Minimum | |||
Weighted average exercise price outstanding | $ 1.20 | ||
Exerciseable | 108,333 | ||
Weighted average exercise price exercisable | $ 1.20 | ||
Exercise Price Range 3 | Maximum | |||
Weighted average exercise price outstanding | $ 1.35 | ||
Exerciseable | 105,556 | ||
Weighted average exercise price exercisable | $ 1.35 | ||
Exercise Price Range 4 | |||
Outstanding | 133,333 | ||
Weighted average remaining life in years | 2 years 10 months 10 days | ||
Weighted average exercise price outstanding | $ 1.50 | ||
Exerciseable | 335,833 | ||
Weighted average exercise price exercisable | $ 1.50 | ||
Exercise Price Range 5 | |||
Outstanding | 253,333 | ||
Weighted average remaining life in years | 4 years | ||
Weighted average exercise price outstanding | $ 1.80 | ||
Weighted average exercise price exercisable | $ 1.80 | ||
Stock Options | |||
Outstanding | 550,000 | 666,667 | 373,333 |
Weighted average remaining life in years | 3 years 4 months 13 days | ||
Weighted average exercise price outstanding | $ 1.49 | $ 1.41 | $ 1.07 |
Weighted average exercise price exercisable | $ 1.25 |
15. STOCK OPTIONS (Details 2)
15. STOCK OPTIONS (Details 2) | 12 Months Ended |
Dec. 31, 2019 | |
Dividend yield | 0.00% |
Minimum | |
Expected life | 1 year |
Expected volatility | 70.00% |
Risk free interest rate | 0.78% |
Maximum | |
Expected life | 5 years |
Expected volatility | 200.00% |
Risk free interest rate | 2.60% |
15. STOCK OPTIONS (Details Narr
15. STOCK OPTIONS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Total unrecognized costs related to employee granted stock options | $ 68,638 | |
Weighted average remaining life in years | 3 years 4 months 13 days | |
Stock options intrinsic value | $ 0 | |
2017 Stock Incentive Plan | ||
Compensation expense related to Stock Incentive Plan | $ 62,132 | $ 44,682 |
17. INCOME TAXES (Details)
17. INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 4,520,814 | $ 3,917,000 |
Less valuation allowance | (4,520,814) | (3,917,000) |
Net deferred tax asset | 0 | 0 |
Deferred tax liability - intangible basis difference | (470,200) | (587,750) |
Net deferred tax liability | (470,200) | (587,750) |
Change in valuation allowance | $ (630,814) | $ (848,008) |
17. INCOME TAX (Details 1)
17. INCOME TAX (Details 1) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Federal statutory rate | (21.00%) | (21.00%) |
State statutory rate | (6.00%) | (6.00%) |
Change in valuation allowance | 27.00% | 27.00% |
Reduction in deferred tax liability | 2.00% | 0.00% |
Total | 2.00% | 0.00% |
17. INCOME TAXES (Details Narra
17. INCOME TAXES (Details Narrative) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Income Tax Disclosure [Abstract] | |
Net operating loss carryforwards | $ 21,528,000 |
Net operating loss carryforwards expiration | 2022-2037 |