Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 05, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | Terra Tech Corp. | |
Entity Central Index Key | 1,451,512 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
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 | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 521,345,040 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,016 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Current Assets: | ||
Cash | $ 3,397,317 | $ 418,082 |
Accounts Receivable, Net | 1,072,389 | 741,844 |
Prepaid Expenses | 237,623 | 147,230 |
Inventory | 2,468,099 | 949,448 |
Total Current Assets | 7,175,428 | 2,256,604 |
Property, Equipment and Leasehold Improvements, Net | 9,804,904 | 6,694,975 |
Goodwill | 32,296,948 | |
Intangible Assets, Net | 20,634,410 | 118,932 |
Deposits | 53,543 | 94,528 |
TOTAL ASSETS | 69,965,233 | 9,165,039 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 6,386,859 | 1,119,459 |
Derivative Liability | 6,895,000 | 743,400 |
Short-Term Debt | 1,953,687 | 917,363 |
Income Taxes Payable | 1,783,731 | |
Total Current Liabilities | 17,019,277 | 2,780,222 |
Long-Term Liabilities: | ||
Long-Term Debt | 835,955 | |
Deferred Tax Liability, Net | 194,900 | 44,000 |
Total Long-Term Liabilities | 1,030,855 | 44,000 |
Total Liabilities | 18,050,132 | 2,824,222 |
COMMITMENTS AND CONTINGENCIES | 12,655,741 | |
STOCKHOLDERS' EQUITY: | ||
Common Stock, Par Value $0.001; Authorized 990,000,000 Shares as of September 30, 2016; Authorized 350,000,000 Shares as of December 31, 2015; Issued 473,917,277 and 303,023,744 Shares as of September 30, 2016 and December 31, 2015, Respectively | 473,917 | 303,024 |
Additional Paid-In Capital | 99,844,560 | 51,843,071 |
Accumulated Deficit | (60,600,170) | (45,952,109) |
Total Terra Tech Corp. Stockholders' Equity | 39,758,690 | 6,210,286 |
Non-Controlling Interest | (499,330) | 130,531 |
Total Stockholders' Equity | 39,259,360 | 6,340,817 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 69,965,233 | 9,165,039 |
Convertible Series A Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value | ||
Convertible Series B Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value | $ 40,383 | $ 16,300 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2016 | Dec. 31, 2015 |
Stockholders' Equity | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, Authorized | 990,000,000 | 350,000,000 |
Common stock, Issued | 473,917,277 | 303,023,744 |
Common stock, Outstanding | 473,917,277 | 303,023,744 |
Convertible Series A Preferred Stock | ||
Stockholders' Equity | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 100 | 100 |
Preferred stock, Issued | 100 | 100 |
Preferred stock, Outstanding | 100 | |
Convertible Series B Preferred Stock | ||
Stockholders' Equity | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 49,999,900 | 24,999,900 |
Preferred stock, Issued | 40,382,962 | 16,300,000 |
Preferred stock, Outstanding | 40,382,962 | 16,300,000 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Condensed Consolidated Statements Of Operations | ||||
Total Revenues | $ 6,950,365 | $ 2,018,351 | $ 18,198,441 | $ 7,805,994 |
Cost of Goods Sold | 5,630,979 | 1,648,545 | 15,095,137 | 6,944,859 |
Gross Profit | 1,319,386 | 369,806 | 3,103,304 | 861,135 |
Selling, General and Administrative Expenses | 6,005,946 | 2,099,314 | 13,519,615 | 7,792,445 |
Loss from Operations | (4,686,560) | (1,729,508) | (10,416,311) | (6,931,310) |
Other (Expense) Income: | ||||
Amortization of Debt Discount | (610,089) | (258,306) | (922,621) | (524,161) |
Loss on Extinguishment of Debt | (263,950) | (920,797) | (263,950) | |
Loss from Derivatives Issued With Debt Greater Than Debt Carrying Value | (867,000) | (1,355,000) | (561,000) | |
Gain (Loss) on Fair Market Valuation of Derivatives | 771,000 | 372,400 | (595,700) | 1,779,600 |
Interest Expense | (159,633) | (108,563) | (276,193) | (426,793) |
Total Other (Expense) Income | (865,722) | (258,419) | (4,070,311) | 3,696 |
Loss Before Provision for Income Taxes | (5,552,282) | (1,987,927) | (14,486,622) | (6,927,614) |
Provision for Income Taxes | 410,300 | 3,000 | 791,300 | 8,076 |
Net Loss | (5,962,582) | (1,990,927) | (15,277,922) | (6,935,690) |
Net Loss Attributable to Non-Controlling Interests | 374,823 | 32,760 | 629,861 | 144,433 |
NET LOSS ATTRIBUTABLE TO TERRA TECH CORP. | $ (5,587,759) | $ (1,958,167) | $ (14,648,061) | $ (6,791,257) |
Net Loss Per Common Share Attributable to Terra Tech Corp. Common Stockholders - Basic and Diluted | $ (0.01) | $ (0.01) | $ (0.04) | $ (0.03) |
Weighted-Average Number of Common Shares Outstanding - Basic and Diluted | 352,676,081 | 252,220,146 | 343,052,572 | 224,483,147 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (14,648,061) | $ (6,791,257) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||
(Gain) Loss on Fair Market Valuation of Derivatives | 595,700 | (1,779,600) |
Loss on Extinguishment of Debt | 920,797 | 263,950 |
Amortization of Debt Discount | 922,621 | 524,161 |
Depreciation and Amortization | 1,653,791 | 481,321 |
Warrants Issued With Common Stock and Debt | 1,148,069 | |
Stock Issued for Compensation | 715,039 | 680,630 |
Stock Issued for Director Fees | 60,550 | |
Stock Issued for Services | 20,727 | 656,186 |
Stock Option Expense | 142,766 | |
Equity Instruments Issued With Debt Greater Than Debt Carrying Amount | 1,355,000 | 561,000 |
Change in Accounts Receivable Reserve | 102,253 | 169,683 |
Changes in Operating Assets and Liabilities: | ||
Accounts Receivable | (432,798) | (440,850) |
Prepaid Expenses | 434,824 | (1,073) |
Inventory | (1,356,365) | 5,793 |
Deposits | (3,375) | (23,072) |
Accounts Payable and Accrued Expenses | 3,177,610 | 1,138,463 |
Income Tax Payable | 1,783,731 | |
Net Cash Used in Operations | (4,555,190) | (3,406,596) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Cash Assumed in Acquisition | 163,566 | |
Purchase of Property and Equipment | (3,211,064) | (590,219) |
Purchase of Intangible Assets - Trademarks | (75,000) | |
Net Cash Used in Investing Activities | (3,122,498) | (590,219) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from Issuance of Notes Payable | 4,928,650 | 1,650,000 |
Proceeds from Issuance of Common Stock | 3,208,134 | 3,012,234 |
Proceeds from Exercise of Warrants | 3,150,000 | |
Payments By Subsidiaries for Non-Controlling Interest | (629,861) | (144,433) |
Net Cash Provided by Financing Activities | 10,656,923 | 4,517,801 |
NET CHANGE IN CASH AND CASH EQUIVALENTS | 2,979,235 | 520,986 |
Cash and Cash Equivalents at Beginning of Period | 418,082 | 846,650 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 3,397,317 | 1,367,636 |
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: | ||
Cash Paid for Interest | 16,500 | |
SUPPLEMENTAL DISCLOSURE FOR FINANCING ACTIVITIES: | ||
Warrant Expense | $ 142,766 | $ 1,148,069 |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Organization References in this document to the Company, Terra Tech, we, us, or our are intended to mean Terra Tech Corp. (Terra Tech), individually, or as the context requires, collectively with its subsidiaries on a consolidated basis. We were incorporated in Nevada on July 22, 2008, under the name Private Secretary, Inc. Our original business was developing a software program that would allow for automatic call processing through voice-over-Internet protocol, or VoIP, technology. Our operations were limited to capital formation, organization, and development of its business plan and target customer market. We generated no revenue. We changed our name to Terra Tech Corp. on January 27, 2012. On February 9, 2012, we completed a reverse-triangular merger with GrowOp Technology Ltd., a Nevada corporation (GrowOp Technology), whereby we acquired all of the issued and outstanding shares of GrowOp Technology and in exchange we issued: (i) 33,998,520 shares of its common stock, (ii) 100 shares of Series A Preferred Stock, convertible into shares of common stock on a one-for-one basis, and (iii) 14,750,000 shares of Series B Preferred Stock, with each share convertible into 5.384325537 shares of common stock. As a result of the merger, GrowOp Technology became our wholly-owned subsidiary. Following the merger, Terra Tech ceased its prior operations and is now solely a holding company. Through GrowOp Technology, we engage in the design, marketing, and sale of hydroponic equipment with proprietary technology to create sustainable solutions for the cultivation of indoor agriculture. We are also a wholesale seller of locally grown hydroponic produce, herbs, and florals through our wholly-owned subsidiary, Edible Garden Corporation, a Nevada corporation (Edible Garden). We acquired all of the issued and outstanding shares in Edible Garden pursuant to a Share Exchange Agreement, dated March 23, 2013 (the Share Exchange Agreement), entered into by and among Terra Tech, Edible Garden, and the stockholders of Edible Garden. Pursuant to the Share Exchange Agreement, we offered and sold 1,250,000 shares of our common stock in consideration for all the issued and outstanding shares in Edible Garden. Separately, Amy Almsteier, one of our stockholders and a director (and, at that time, an executive officer), offered and sold 7,650,000 shares of Series B Preferred Stock to Kenneth Vande Vrede, Michael Vande Vrede, Steven Vande Vrede, Daniel Vande Vrede, Beverly Willekes, and David Vande Vrede (collectively, the Former EG Principal Stockholders). On March 19, 2014, we formed MediFarm, LLC, a Nevada limited liability company (MediFarm), as a subsidiary. On July 18, 2014, we formed MediFarm I, LLC, a Nevada limited liability company (MediFarm I), as a subsidiary. On July 30, 2014, we formed MediFarm II, LLC, a Nevada limited liability company (MediFarm II), as a subsidiary. Through MediFarm, MediFarm I, and MediFarm II, we are currently operating one medical marijuana dispensary facility in Nevada and plan to operate additional medical marijuana cultivation, production, and dispensary facilities in that state. In April 2016, MediFarm commenced operations at its dispensary in Las Vegas, Nevada under the Blüm brand. On September 16, 2014, we formed IVXX, LLC, a Nevada limited liability company (IVXX), as a wholly-owned subsidiary, for the purpose of producing a line of cannabis flowers and cigarettes, as well as a complete line of cannabis pure concentrates including: oils, waxes, shatters, and clears. We began producing and selling IVXXs products during the first quarter of fiscal 2015. We currently offer these products to 200 select dispensaries in California. We use our extraction lab located in Oakland, California to manufacture these products. IVXX also sells clothing, apparel, and other various branded products. On October 14, 2015, we formed MediFarm I Real Estate, LLC, a Nevada limited liability company (MediFarm I RE). MediFarm I RE is a real estate holding company that owns the real property and building at which a medical marijuana dispensary facility will be located. It is our intention that MediFarm I will operate the medical marijuana dispensary. We own 50% of the membership interests in MediFarm I RE. The remaining membership interests are owned by Forever Young Investments, LLC (50%), an otherwise unaffiliated entity. On April 1, 2016, we acquired Black Oak Gallery, a California corporation (Black Oak). Black Oak operates a medical marijuana dispensary in Oakland, California under the name Blüm, pursuant to that certain Agreement and Plan of Merger, dated December 23, 2015 (the Merger Agreement), with Generic Merger Sub, Inc., a California corporation and our wholly-owned subsidiary (the Merger Sub), and Black Oak. The Merger Agreement was amended by a First Amendment to the Agreement and Plan of Merger, dated February 29, 2016. Pursuant to the Merger Agreement, the Merger Sub merged with and into Black Oak, with Black Oak as the surviving corporation, and became our wholly-owned subsidiary (the Merger). The Merger is intended to qualify for Federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, the outstanding shares of common stock of Black Oak held by (i) three of the current shareholders of Black Oak (the Group A Shareholders) were converted into the right to receive approximately 8,166 shares of our Series Z preferred stock, par value $0.001 per share (Series Z Preferred Stock), of which approximately 1,175 shares of Series Z Preferred Stock were issued and paid at closing, and approximately 8,668,700 shares of our Series B preferred stock, par value $0.001 per share (Series B Preferred Stock), of which approximately 1,248,300 shares of Series B Preferred Stock were issued and paid at closing and (ii) the remaining shareholders of Black Oak (the Group B Shareholders) were converted into the right to receive approximately 21,378 shares of our Series Q preferred stock, par value $0.001 per share (Series Q Preferred Stock), of which approximately 3,695 shares of Series Q Preferred Stock were issued and paid at closing. The shares of Series Z Preferred Stock, Series B Preferred Stock, and Series Q Preferred Stock that were issued but not paid to the Black Oak shareholders at closing are subject to certain holdback and lock-up provisions, and held in an escrow account as security for the satisfaction of any post-closing adjustments or indemnification claims, as provided for in the Merger Agreement. Each share of Series Q Preferred Stock was converted into 5,000 shares of our common stock and each share of Series Z Preferred Stock was converted into 1,857 shares of our Series B Preferred Stock, in each case immediately upon our filing with the Secretary of State of the State of Nevada an Amendment to our Articles of Incorporation to increase our authorized capital for, among other reasons, satisfaction of the terms of this potential transaction. Accordingly, the approximately 21,378 shares of Series Q Preferred Stock was issued to the Group B Shareholders was converted into approximately 106,890,000 shares of common stock and the approximately 8,166 shares of Series Z Preferred Stock was issued to the Group A Shareholders was converted into approximately 15,164,262 shares of Series B Preferred Stock. The Series Z Preferred Stock was intended to mirror the rights of the holders of our Series B Preferred Stock. Each share of our Series B Preferred Stock remains convertible into 5.384325537 shares of our common stock. The aggregate fair market value of the securities issued in the Merger was approximately $22.9 million. The Group B Shareholders may also receive cash consideration equal to approximately $2.1 million. The securities paid to the Group A Shareholders and the Group B Shareholders are subject to certain post-closing adjustments that are based on certain performance indicators as of the first anniversary of the closing date of the Merger. The first indicator is based on the performance of the volume-weighted average price of our common stock on the first anniversary of the closing date of the Merger compared to the price of our common stock on the date of the Merger Agreement. The second indicator is based on our revenues for the twelve-month period following the closing date of the Merger. A portion of the securities that the Group A Shareholders and the Group B Shareholders are entitled to receive at closing of the Merger will be held in an escrow until the first anniversary of the closing date of the Merger and the post-closing adjustments are complete. Since the Merger was completed on April 1, 2016, Black Oaks financial results are included in our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016. Basis of Presentation The accompanying unaudited consolidated financial statements include all of the accounts of Terra Tech. and subsidiaries. These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals considered necessary for a fair presentation, have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, Financial Statements and Supplementary Data, of our 2015 Annual Report on Form 10-K. Use of Estimates The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and all highly liquid investments with a maturity of three months or less from the date of purchase, including money market mutual funds, short-term time deposits, and government agency and corporate obligations, are classified as cash and cash equivalents. Accounts Receivable We review all outstanding accounts receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. We do not accrue interest receivable on past due accounts receivable. There was an allowance for doubtful accounts of $159,169 at September 30, 2016 and $184,642 at December 31, 2015. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3 to 32 years for machinery and equipment, leasehold improvements, and buildings are amortized over the estimated useful life. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. We test property and equipment for impairment annually for recoverability or whenever events or changes in circumstances indicate that the carry amount may not be recoverable. For the year ended December 31, 2015 and for the nine months ended September 30, 2016, we have concluded that the sum of the undiscounted cash flows exceeds the carry amount of the assets. Intangibles Intangible assets are stated at historical cost and amortized over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: customer relationships, five to 15 years; trade names, five to 15 years; and dispensary license, 15 years. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), we will write the carrying value down to the fair value in the period identified. We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group). The Carrying Value, Recoverability and Impairment of Long-Lived Assets We have adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification for our long-lived assets. Our long -lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. We consider the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in our overall strategy with respect to the manner of use of the acquired assets or changes in our overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in our stock price for a sustained period of time; and (vi) regulatory changes. We evaluate acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. The impairment charges, if any, are included in operating expenses in the accompanying statements of operations. Based on the test results, no impairments have occurred. Deposits Deposits are for stores, land and utility companies located in California, Nevada and New Jersey. Revenue Recognition Cannabis Products We recognize revenue from product sales net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured. We recognize revenue in accordance with ASC 605, Revenue Recognition Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments, and returns, and net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Revenue is recorded upon transfer of title and risk to the customer which occurs at the time customers take delivery of our products at our retail dispensary. Upon purchase, we have no further performance obligations and collection is assured as sales are paid for at time of purchase. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory and sold directly to our end-customers at our retail dispensary. We recognize revenue from the sale of consignment inventory on a gross basis, as it has determined that it is the primary obligor to the customer, has latitude in establishing the sales prices and profit margins of its products, has discretion in selecting its suppliers, is responsible for loss or damage to consigned inventory and through its customer validation process performs an important part of the process of providing such products to authorized customers. We believe that these factors outweigh the fact that we do not have title to the consigned inventory prior to its sale. During the three and nine months ended September 30, 2016, sales returns were not significant and, as such, no sales return allowance has been recorded as of September 30, 2016. Hydroponic Produce We recognize revenue from products grown in our greenhouses and sold net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured. For sales for which we use an outside grower, we evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. We determine the product specifications, cultivation, and packaging, while disclosing trade and operational secrets, greenhouse technologies, and nutrients used to grow. We are the primary obligor in the transaction because it is our brand that is sold into the retail channel. We are subject to inventory risk until product is accepted by the retailer. We bear credit risk for the amount billed to the retailer and, thus, must pay the grower in the event the selling price is not collected. This revenue is recorded at the gross sale price once the retailer has accepted delivery, selling price is fixed, and collection is reasonably assured. Cost of Goods Sold Cannabis Products Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as, packaging and other supplies, fees for services and processing, other expenses for services, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs. It also includes the cost incurred in producing the oils, waxes, shatters, and clears sold by IVXX. Hydroponic Produce Cost of goods sold are for the plants grown and purchased and sold into the retail marketplace by Edible Garden. Loyalty Rewards Program We offer a customer loyalty rewards program that allows members to earn discounts on future purchases. The amount of unused discounts earned by our loyalty rewards program members is included in accrued liabilities and recorded as a reduction of revenue at the time a qualifying purchase is made. Revenue is recognized when points are redeemed by the loyalty rewards program member. We began offering customers the loyalty rewards program during April 2015 and the value of points accrued as of September 30, 2016 was $25,097. Research and Development Research and development costs are expensed as incurred. Income Taxes We provide for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related Federal and state deferred tax asset for the nine months ended September 30, 2016. Loss Per Common Share Net loss per share is computed in accordance with the provisions of ASC 260, Earnings Per Share, Fair Value of Financial Instruments We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 Level 2 - Level 3 - Our valuation techniques used to measure the fair value of money market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. We have not elected the fair value option for any eligible financial instruments. Recently Issued Accounting Standards Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new standard also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new standard will be effective for the Company on January 1, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures. Balance Sheet Classification of Deferred Taxes In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The new standard is effective for public entities for annual periods beginning after December 15, 2016, with early adoption allowed on either a prospective or retrospective basis. The Company adopted ASU 2015-17, on a prospective basis, for its annual period ending December 31, 2015. Accordingly, the accompanying unaudited consolidated balance sheet at September 30, 2016 reflects the presentation of deferred tax assets and deferred tax liabilities in accordance with ASU 2015-17. Inventory Measurement In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11), which requires entities to measure inventory at the lower of cost and net realizable value (NRV). A SU 2015-11 defines NRV as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The ASU will not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The guidance in ASU 2015-11 is effective prospectively for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. Upon transition, entities must disclose the nature of and reason for the accounting change. The Company does not expect that the adoption of this standard will have a material effect on its consolidated financial statements. Going Concern Disclosures In August 2014, the FASB issued ASU No. 2014-15: Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entitys ability to continue as a going concern. ASU 2014-15 is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements. |
GOING CONCERN
GOING CONCERN | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 2. GOING CONCERN | Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities, and upon additional financing. Management believes they can raise the appropriate funds needed to support their business plan and develop an operating company that is cash-flow positive. However, we incurred net losses for the nine months ended September 30, 2016, and have an accumulated deficit of $60,600,170 at September 30, 2016. We have not been able to generate sufficient cash from operating activities to fund its ongoing operations. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations. These factors raise substantial doubt about our ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should we be unable to continue as a going concern. |
CONCENTRATIONS OF BUSINESS AND
CONCENTRATIONS OF BUSINESS AND CREDIT RISK | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK | We maintain cash balances in several financial institutions that are insured by the Federal Deposit Insurance Corporation up to certain federal limitations. We provide credit in the normal course of business to customers located throughout the U.S. We perform ongoing credit evaluations of our customers and maintain allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. |
ACQUISITIONS
ACQUISITIONS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 4. ACQUISITIONS | In March 2016, we acquired certain assets from Therapeutics Medical. The fair value of total consideration transferred in connection with the acquisition was $1,250,000. Of the total purchase price, $58,622 was attributed to finished goods inventory, $191,378 was attributed to the existing brands, and $1,000,000 was attributed to the trademarks, patent, customer list, and vendor numbers. We have determined that the trademarks, patent, customer list, and vendor numbers have a useful life of 5 years. On April 1, 2016, we acquired all of the assets of Black Oak. The acquisition of Black Oak was accounted for in accordance with ASC 805-10 Business Combinations. The assets consisted primarily of the intellectual property and established marketing associated with the brand name Blüm, including its website, www.blumoak.com, the medical marijuana dispensary license, and customer relationships. The following table summarizes the acquisition with a purchase price of $51,489,665: Current assets, (inclusive of cash of $163,566) $ 792,447 Property, plant and equipment 681,896 Customer relationships 7,480,800 Trade Name 4,280,000 Dispensary license 8,214,700 Liabilities (2,355,938 ) Total identifiable net assets 19,093,905 Goodwill 32,395,760 Net assets $ 51,489,665 The estimated purchase price of Black Oak (for accounting purposes) was $51,489,665. The purchase price was determined based on the value of the shares of our common stock issuable upon conversion of the various series of preferred stock issued in connection with the acquisition, or $0.2620 per share of common stock, which was the closing sales price of our common stock on April 1, 2016, as quoted on the OTC Market Group Inc.s OTCQX tier. The purchase price represents the sum of: (i) the issuance of approximately 1,176 shares of our Series Z Preferred Stock (or, upon conversion, 11,759,242 shares of our common stock), approximately 1,248,300 shares of our Series B Preferred Stock (or, upon conversion, 6,721,254 shares of our common stock), and approximately 3,696 shares of our Series Q Preferred Stock (or, upon conversion, 18,480,493 shares of our common stock), which collectively, were converted into 36,960,989 shares of our common stock (the Closing Consideration); and (ii) the issuance of approximately 4,210 shares of our Series Z Preferred Stock (or, upon conversion, 42,098,295 shares of our common stock), approximately 4,468,872 shares of our Series B Preferred Stock (or, upon conversion, 24,061,862 shares of our common stock), and approximately 8,945 shares of our Series Q Preferred Stock (or, upon conversion, 44,722,796 shares of our common stock), which collectively, were converted into approximately 110,882,953 shares of our common stock (the Lockup Consideration); and (iii) the issuance of approximately 2,781 shares of our Series Z Preferred Stock (or, upon conversion, 27,804,112 shares of our common stock), approximately 2,951,528 shares of our Series B Preferred Stock (or, upon conversion, 15,891,988 shares of our common stock), and approximately 8,739 shares of our Series Q Preferred Stock (or, upon conversion, 43,696,102 shares of our common stock), which collectively, were converted into approximately 87,392,202 shares of our common stock (the Holdback Consideration); and (iv) the contingent cash consideration of up to $2,088,000 pursuant to certain earn-out provisions set forth in the Merger Agreement, payable to the Group B Shareholders (the Performance-based Cash Consideration). Closing Consideration Pursuant to the Merger Agreement, the Closing Consideration was issued and paid on April 1, 2016, the closing date. Lockup Consideration Pursuant to the Merger Agreement, the Lockup Consideration was issued on April 1, 2016, the closing date; however, such shares will be held in an escrow account for a period of one year. Holdback Consideration Pursuant to the Merger Agreement, Holdback Consideration was issued on April 1, 2016, the closing date; however, such shares will be held in an escrow account for a period of one year as security for the satisfaction of any post-closing adjustments or indemnification claims as provided for in the Merger Agreement. Performance-Based Cash Consideration Pursuant to the Merger Agreement, the Performance-Based Cash Consideration is to be paid in cash on approximately the one-year anniversary date of the Merger Agreement and is subject to certain holdback provisions. Accordingly, the Performance-Based Cash Consideration is unpaid and recorded as contingent consideration as security for the satisfaction of any post-closing adjustments or indemnification claims as provided for in the Merger Agreement. The below chart outlines a summary of the purchase price: Purchase Price Detail Series B Preferred Stock Series Q Preferred Stock Series Z Preferred Stock Preferred Stock Converted Into Common Stock Total Consideration Closing Consideration 1,248,300 3,696 1,176 36,960,989 $ 9,683,779 Lockup Consideration 4,468,872 8,945 4,210 110,882,953 29,051,334 Holdback Consideration 2,951,528 8,739 2,781 87,392,202 11,324,969 Performance-based Cash Consideration - - - - 1,429,583 Totals 8,668,700 21,380 8,167 235,236,144 $ 51,489,665 The Series Q Preferred Stock was converted into 106,890,000 shares of common stock in September 2016. The Series Z Preferred Stock was converted into 15,164,262 Series B Preferred Stock in September 2016. |
INVENTORY
INVENTORY | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 5. INVENTORY | Inventory consists of raw materials for Edible Gardens herb, produce, and floral product lines and IVXXs line of cannabis pure concentrates. Work-In-Progress consists of live plants grown for Edible Gardens herb, produce, and floral product lines along with IVXXs line of cannabis pure concentrates. Finished goods consists of Blums, MediFarms and IVXXs line of cannabis packaged to be sold to the patients and into dispensaries. Cost of goods sold is calculated using the average costing method. The Company reviews its inventory periodically to determine net realizable value. The Company writes down inventory, if required, based on forecasted demand. These factors are impacted by market and economic conditions, new products introductions, and require estimates that may include uncertain elements. Inventory at September 30, 2016 and December 31, 2015 consisted of the following: September 30, December 31, 2016 2015 Raw Materials $ 576,508 $ 277,340 Work-In-Progress 419,432 542,530 Finished Goods 1,472,159 129,578 $ 2,468,099 $ 949,448 |
PROPERTY, EQUIPMENT AND LEASEHO
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 6. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS | Property, equipment, and leasehold improvements, at cost, less accumulated depreciation, at September 30, 2016 and December 31, 2015 consisted of the following: September 30, December 31, 2016 2015 Land $ 702,020 $ 1,454,124 Furniture 507,182 70,786 Equipment 3,502,268 2,322,444 Leasehold improvements 7,236,177 3,893,330 Subtotal 11,947,647 7,740,684 Less accumulated depreciation (2,142,743 ) (1,045,709 ) Total $ 9,804,904 $ 6,694,975 Depreciation expense related to property, equipment and leasehold improvements for the nine months ended September 30, 2016 was $827,391 and for the year ended December 31, 2015 was $602,814. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 7. INTANGIBLE ASSETS | Intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $826,400 and $42,480 during the nine months ended September 30, 2016, and the year ended December 31, 2015, respectively. Based solely on the amortizable intangible assets recorded at September 30, 2016, we estimate amortization expense to be $1,239,290 in 2016, $1,651,560 in 2017, $1,622,532 in 2018, $1,609,080 in 2019, $1,609,080 in 2020 and an aggregate of $13,719,270 in years after 2020. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, changes in useful lives or other relevant factors or changes. September 30, 2016 Useful Gross Life Carrying Accumulated Amortized intangible assets: in Years Amount Amortization Customer Relationships 5 to 15 $ 8,693,200 $ 495,208 Trade Name 5 to 15 $ 4,666,898 $ 181,356 Dispensary License 15 $ 8,214,700 $ 263,824 Total $ 21,574,798 $ 940,388 |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses consisted of the following: September 30, December 31, 2016 2015 Accounts payable $ 2,179,783 $ 1,105,994 Sales tax payable 226,319 - Accrued expenses 3,734,367 - Interest payable 246,390 103,465 $ 6,386,859 $ 1,119,459 |
NOTES PAYABLE
NOTES PAYABLE | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 9. NOTES PAYABLE | Notes payable are as follows: September 30, December 31, 2016 2015 Promissory note dated July 25, 2014 issued to an accredited investor, which matured July 24, 2015 and bore interest at a rate of 12% per annum. The holder of the note extended the maturity to July 25, 2017. Principal and interest may be converted into common stock based on the average trading price of the ten days prior to maturity at the holders option. $ 150,000 $ 150,000 Unsecured promissory demand notes issued to an accredited investor, which bears interest at a rate of 4% per annum. Holder may elect to convert into common stock at $0.75 per share. In 2015, the investor exchanged the notes from other accredited investors. 114,306 114,306 5% Original issue discount senior secured convertible promissory note dated May 5, 2014 issued to accredited investors, which matured November 5, 2015, and bore interest at a rate of 12% per annum. The fixed conversion price in effect was set at 90% of the 20-day volume weighted average price (VWAP) of our common stock on February 5, 2014, or $0.30753 per share. In 2015, the holder of the note converted some of the debt and accrued interest into common stock. The remaining balance of the note and accrued interest was converted into common stock in March 2016. - 96,491 Convertible promissory note dated April 7, 2015 issued to accredited investors, which matures October 7, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1303, subject to adjustment. The remaining balance of the note and accrued interest was converted into common stock in January 2016. - 170,856 Convertible promissory note dated May 13, 2015 issued to accredited investors, which matures November 13, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1211, subject to adjustment. The remaining balance of the note and accrued interest was converted into common stock in January 2016. - 170,783 Convertible promissory note dated December 14, 2015, issued to accredited investors, which matures December 13, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1211, subject to adjustment. 439,381 214,927 Convertible promissory note dated March 10, 2016, issued to accredited investors, which matures September 10, 2017 and bears interest at a rate of 1% per annum. The conversion price in effect is 90% of the average of the lowest three (3) VWAPs for the five (5) consecutive trading days prior to the conversion date. 1,250,000 - Convertible promissory note dated May 27, 2016, and amended on July 25, 2016 issued to accredited investors, which matures May 27, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 699,341 - Convertible promissory note dated July 25, 2016, issued to accredited investors, which matures July 25, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 84,185 - Convertible promissory note dated August 12, 2016, issued to accredited investors, which matures August 12, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 39,137 - Convertible promissory note dated September 1, 2016, issued to accredited investors, which matures September 1, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 13,292 - Total Debt 2,789,642 917,363 Less short-term portion 1,953,687 917,363 Long-term portion $ 835,955 $ 0 Total debt as of September 30, 2016 and December 31, 2015, was $2,789,642 and $917,363, respectively, which included unamortized debt discount of $4,474,664 and $693,435, respectively. The senior secured promissory notes are secured by shares of common stock. There was accrued interest of $91,527 as of September 30, 2016. |
CONTINGENT CONSIDERATION LIABIL
CONTINGENT CONSIDERATION LIABILITY | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 10. CONTINGENT CONSIDERATION LIABILITY | The Company accounts for contingent consideration according to FASB ASC 805 Business Combinations Fair Value Measurements Accordingly, the Company valued the Holdback Consideration and the Performance-based Cash Consideration (collectively, the Contingent Consideration), based on an analysis using a cash flow model to determine the expected contingent consideration payment, which model determined that the aggregate expected contingent consideration liability was $15,305,463 and the present value of the contingent consideration liability was $12,754,553. Accordingly, the Company recognized at April 1, 2016, the closing date of the Black Oak merger, a $12,754,553 contingent consideration liability associated with the Contingent Consideration paid pursuant to the Merger Agreement. In determining the likelihood of payouts related to the Contingent Consideration, the probabilities for various scenarios ( e g Holdback Consideration The Holdback Consideration is comprised of (i) the market-based clawback amount (the Market-Based Clawback Amount) and (ii) the performance-based clawback amount (the Performance-Based Clawback Amount). The Holdback Consideration, which is comprised of shares of our preferred stock, was issued on April 1, 2016, the closing date of the Black Oak merger, and will be held in an escrow account for a period of one year. The Market-Based Clawback Amount is determined as follows: a) If the Terra Tech Common Stock 30-day VWAP on the one-year anniversary date of the Merger Agreement exceeds the Terra Tech Closing Price, the Market-Based Clawback Amount shall mean the number of shares of Terra Tech Common Stock equal to (i) (A) $4,912,000.00 divided by (B) the Terra Tech Closing Price, less (ii) (A) $4,912,000.00 divided by (B) the Terra Tech Common Stock 30-day VWAP on such date. b) If the Terra Tech Common Stock 30-day VWAP on the one-year anniversary date of the Merger Agreement is less than or equal to the Terra Tech Closing Price, the Market-Based Clawback Amount shall be zero shares. In no event will the Market-Based Clawback Amount exceed 50% of the Holdback Consideration. The Performance-Based Clawback Amount is determined as follows: a) The Lower Threshold means an amount equal to $11,979,351.00, and the Upper Threshold means an amount equal to $16,667,000.00. b) If Black Oaks operating revenues for the 12-month period following the closing date of the Black Oak merger (the Year 1 Revenue) is less than the Lower Threshold, then the Performance-Based Clawback Amount will be the number of shares obtained from a quotient, (A) the numerator of which is equal to the sum of (1) $4,912,000.00, plus (2) the product of 1.5 multiplied by the difference between the Lower Threshold and the Year 1 Revenue, and (B) the denominator of which is the Terra Tech common stock 30-day VWAP as of the one-year anniversary date of the closing of the Black Oak merger. c) If the Year 1 Revenue is greater than or equal to the Lower Threshold but is less than the Upper Threshold, then the Performance-Based Clawback Amount will be the number of shares obtained from a quotient, (A) the numerator of which is equal to the product of 1.053 multiplied by the difference between the Upper Threshold and the Year 1 Revenue, and (B) the denominator of which is the Terra Tech common stock 30-day VWAP as of the one-year anniversary date of the closing of the Black Oak merger. d) If the Year 1 Revenue is greater than or equal to the Upper Threshold, then the Performance-Based Clawback Amount will be zero shares Performance-Based Cash Consideration Pursuant to the Merger Agreement, the Group B Shareholders may receive cash consideration of up to approximately $2,088,000 to be paid on approximately the one-year anniversary date of the closing of the Black Oak merger, to be determined as follows: (a) $0 if Year 1 Revenue is less than or equal to $12,000,000; and (b) the product obtained by multiplying 0.447 times Year 1 Revenue if Year 1 Revenue is greater than $12,000,000; provided, that in no event will the Performance-based Cash Consideration amount exceed $2,088,000. For example, pursuant to the above formula, if the revenue in Year 1 equals $16,666,666, then the Performance-based Cash Consideration will be $2,088,000 calculated as follows: Year 1 Revenue $ 16,666,666 Less: $ 12,000,000 $ 4,666,666 0.44742864 Performance-based Cash Payment $ 2,088,000 The Contingent Consideration at September 30, 2016 was based upon the following formula: One-year Anniversary Date of the Value of Performance- Merger 30- Common Based Probability-Weighted Amounts Year 1 Revenue Day VWAP Stock to Issue Cash Payment Probability Earn-out Shares Performance-Based Cash Total 5 % $ 14,262,022 $ 2,088,000 4.0 % $ 570,481 $ 83,520 $ 654,001 $ 0.2811 Upside 80% 15 % $ 13,060,699 $ 2,088,000 12.0 % $ 1,567,284 $ 250,560 $ 1,817,844 $ 16,667,000 $ 0.3811 80 % $ 12,358,783 $ 2,088,000 64.0 % $ 7,909,621 $ 1,336,320 $ 9,245,941 $ 0.4811 5 % $ 11,321,432 $ 747,500 0.8 % $ 84,911 $ 5,606 $ 90,517 $ 0.2811 Base 15% 15 % $ 10,891,714 $ 747,500 2.3 % $ 245,064 $ 16,819 $ 261,882 $ 13,670,835 $ 0.3811 80 % $ 10,640,637 $ 747,500 12.0 % $ 1,276,876 $ 89,700 $ 1,366,576 $ 0.4811 5 % $ 7,859,732 $ 0 0.3 % $ 19,649 $ 0 $ 19,649 $ 0.2811 Downside 5% 15 % $ 8,338,359 $ 0 0.8 % $ 62,538 $ 0 $ 62,538 $ 10,674,670 $ 0.3811 80 % $ 8,618,014 $ 0 4.0 % $ 344,721 $ 0 $ 344,721 $ 0.4811 Fair Value of Expected Earn-out Payment $ 12,081,144 $ 1,782,525 $ 13,863,669 Price per common Shares $ 0.2620 $ 0.2620 Discount rate 20 20 Periods (nper) 0.500 $ 0.500 Payments $ 0 $ 0 Present value factor at 20% discount rate for 12 months 0.9129 0.9129 Present value of contingent consideration $ 11,028,525 $ 1,627,216 Present value of contingent consideration $ 12,655,741 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 11. FAIR VALUE MEASUREMENTS | The following table represents the fair value hierarchy for those financial assets measured at fair value on a recurring basis: Fair Value at September 30, Fair Value Measurement Using 2016 Level 1 Level 2 Level 3 Derivative Liability - Conversion Feature $ 6,895,000 - - $ 6,895,000 $ 6,895,000 - - $ 6,895,000 Fair Value at December 31, Fair Value Measurement Using 2015 Level 1 Level 2 Level 3 Derivative Liability - Conversion Feature $ 743,400 - - $ 743,400 $ 743,400 - - $ 743,400 Liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Balance at December 31, 2015 $ 743,400 Change in fair market value of conversion feature 595,700 Issuance of equity instruments with debt greater than debt carrying amount 1,355,000 Derivative debt converted into equity (570,100 ) Issuance of equity instruments with derivatives 4,771,000 Balance at September 30, 2016 $ 6,895,000 |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 12. INCOME TAXES | The expense (benefit) for income taxes consists of the following: September 30, 2016 December 31, 2015 Current: Federal $ 742,300 $ - State - - 742,300 - Deferred: Federal 49,000 44,000 State - - Total $ 791,300 $ 44,000 The components of deferred tax assets and liabilities are as follows: September 30, 2016 December 31, 2015 Deferred income tax assets: Allowance for bad debt $ 70,000 $ 74,000 Warrants and interest expense 4,002,000 3,412,000 Derivatives expense 1,992,000 729,000 Net operating loss 9,353,000 7,029,000 15,417,000 11,244,000 Deferred income tax liabilities: Depreciation (194,900 ) (44,000 ) Total 15,222,100 11,200,000 Valuation allowance (15,417,000 ) (11,244,000 ) Net deferred tax assets (liabilities) $ (194,900 ) $ (44,000 ) Permanent differences include ordinary and necessary business expenses deemed by the Company as a non-allowable deduction under Internal Revenue Code Section 280E, and tax deductions related to equity compensation that are less than the compensation recognized for financial reporting. As of September 30, 2016, and December 31, 2015, the Company had net operating loss carryforwards of approximately $26,700,000 and $18,600,000, respectively, which, if unused, will expire beginning in years 2034. These tax attributes are subject to an annual limitation from equity shifts, which constitute a change of ownership as defined under Internal Revenue Code Section 382, which will limit their utilization. The Company has yet to assess the effect of these limitations, but expects these losses to be substantially limited. Accordingly, the Company has placed a reserve against any assets associated with these losses. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative losses incurred through the period ended September 30, 2016. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of September 30, 2016, a valuation allowance of has been recorded against all deferred tax assets as these assets are more likely than not to be unrealized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. For the three quarters ended September 30, 2016, IVXX produced and sold cannabis pure concentrates, both Black Oak and MediFarm operated medical marijuana dispensaries, subjecting the Company to the limits of Internal Revenue Code Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. For the nine months ended September 30, 2016, the income tax expense is the tax on the gross sales in excess of direct costs that subject the Company to federal income tax pursuant to IRC Section 280E. The Company recorded a deferred tax liability related to the tax depreciation related to its cannabis operations in excess of that reported for financial reporting purposes. |
CAPITAL STOCK
CAPITAL STOCK | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 13. CAPITAL STOCK | Preferred Stock The Company authorized 50 million shares of preferred stock with $0.001 par value. The Company designated 100 shares of preferred stock as Series A Preferred Stock, of which there were 100 shares of Series A Preferred Stock outstanding as of September 30, 2016. Series A Preferred Stock is convertible on a one-for-one basis into common stock and has all of the voting rights of the Companys common stock. The Company designated 49,990,900 shares of preferred stock as Series B Preferred Stock, of which there were 40,382,962 shares of Series B Preferred Stock outstanding as of September 30, 2016. Each share of Series B Preferred Stock: (i) is entitled to 100 votes for each share of common stock into which a shares of Series B Preferred Stock is convertible and (ii) is convertible, at the option of the holder, on a 1-for-5.384325537 basis, into shares of the Companys common stock. Common Stock The Company authorized 990 million shares of common stock, $0.001 par value per share. As of September 30, 2016, 473,917,277 shares of common stock were issued and outstanding. |
WARRANTS
WARRANTS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 14. WARRANTS | The Company has the following shares of common stock reserved for exercise of the warrants outstanding as of September 30, 2016: September 30, 2016 Shares Weighted Average Exercise Price Warrants outstanding beginning of year 32,426,008 $ 0.18 Warrants exercised (26,251,785 ) 0.17 Warrants granted 10,395,675 0.22 Warrants expired (523.333 ) (0.45 ) Warrants outstanding end of period 16,046,565 $ 0.18 The following table summarizes information about fixed-price warrants outstanding: Range of Number Outstanding at Average Remaining Weighted Exercise September 30, Contractual Average Prices 2016 Life Exercise Price $ 0.33 439,637 4 Months $ 0.33 $ 0.16 750,000 6 Months $ 0.16 $ 0.14 1,578,947 21 Months $ 0.14 $ 0.21 400,644 21 Months $ 0.21 $ 0.14 1,846,300 22 Months $ 0.14 $ 0.06 4,567,002 24 Months $ 0.06 $ 0.16 1,118,068 29 Months $ 0.16 $ 0.13 863,392 30 Months $ 0.13 $ 0.12 928,984 32 Months $ 0.12 $ 0.35 1,625,000 45 Months $ 0.35 $ 0.35 535,714 47 Months $ 0.35 $ 0.44 1,214,286 47 Months $ 0.44 $ 0.37 178,571 48 Months $ 0.37 16,046,545 |
COMMITMENTS
COMMITMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 15. COMMITMENTS | The Company entered into an agreement with Platinum Standard, LLC (Platinum) to be the operator of Black Oak Gallery. Beginning on April 1, 2016 the Company will pay Platinum $500,000 for the first fiscal year, $550,000 for the second fiscal year and $600,000 for the third fiscal year. The Company leases certain business facilities under operating lease agreements that specify minimum rentals. Many of these have renewal provisions along with the option to acquire the property. The Companys net rent expense for the nine months ended September 30, 2016 and 2015 was $431,959 and $379,166, respectively. Future minimum lease payments under non-cancelable operating leases having an initial or remaining term of more than one year are as follows: Scheduled Year Ending December 31: Payments 2016 $ 541,656 2017 487,518 2018 478,587 2019 342,336 2020 256,173 2021 and thereafter 2,021,484 Total minimum rental payments $ 4,127,754 |
LITIGATION AND CLAIMS
LITIGATION AND CLAIMS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 16. LITIGATION AND CLAIMS | The Company is the subject of lawsuits and claims arising in the ordinary course of business from time to time. The Company reviews any such legal proceedings and claims on an ongoing basis and follow appropriate accounting guidance when making accrual and disclosure decisions. The Company establishes accruals for those contingencies where the incurrence of a loss is probable and can be reasonably estimated, and it discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for the Companys financial statements to not be misleading. To estimate whether a loss contingency should be accrued by a charge to income, the Company evaluates, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss. The Company does not record liabilities when the likelihood that the liability has been incurred is probable, but the amount cannot be reasonably estimated. Based upon present information, the Company determined that there were no matters that required an accrual as of September 30, 2016, nor were there any asserted or unasserted claims for which material losses are reasonably possible. |
SEGMENT INFORMATION
SEGMENT INFORMATION | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 17. SEGMENT INFORMATION | The Companys operating and reportable segments are currently organized around the following products that it offers as part of its core business strategy: · Hydroponic Produce · Cannabis Products These two reportable segments, which are described in greater detail below, had previously been reported on a combined basis as they had been operated and evaluated as one operating segment. The Company experienced significant growth over the last year in most of our product areas. As the Company has grown organically, and as the Company previously added to its capabilities through acquisitions, its products have increased in scale and become more strategically important and distinctly organized and managed under these two groupings. In addition, Derek Peterson, the Companys chief operating decision maker (CODM) has begun reviewing results and managing and allocating resources between these two strategic business groupings, and has begun budgeting using these business segments. The Companys segment information for the nine months ended September 30, 2016 has been reclassified to conform to its current presentation. The Companys CODM reviews revenues including intersegment revenues, gross profit and operating income (loss) before income taxes when evaluating segment performance and allocating resources to each segment. Accordingly, intersegment revenue is included in the segment revenues presented in the tables below and is eliminated from revenues and cost of sales in the Eliminations and Other column. The Eliminations and Other column also includes various income and expense items that the Company does not allocate to its operating segments. These income and expense amounts include the results of the Companys hydroponic equipment, which are not material, interest income, interest expense, corporate overhead, and corporate-wide expense items such as legal and professional fees as well as expense items for which we have not identified a reasonable basis for allocation. The accounting policies of the reportable segments are the same as those described in Note 1 of the Notes to the Consolidated Financial Statements. Hydroponic Produce The Companys locally grown hydroponic produce, which include produce, herbs, and floral products, are started from seed and are grown in environmentally controlled greenhouses. When harvested, the products are sold through retailers targeted to customers seeking produce, herbs, or floral products locally grown using environmentally sustainable methods. Cannabis Products The Company currently operates or plans to operate medical marijuana cultivation, production, and dispensary facilities in California and Nevada through its subsidiaries, Black Oak Gallery, MediFarm, MediFarm I, and MediFarm II. The Company was granted eight provisional permits in Nevada and have received approval from the local authorities with respect to all of the permits. IVXXs cannabis products are currently produced in the Companys lab in California and are sold in select dispensaries throughout California. Summarized financial information concerning the Companys reportable segments is shown in the following tables. Total asset amounts at September 30, 2016 and 2015 exclude intercompany receivable balances eliminated in consolidation. Three Months Ended September 30, 2016 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 2,138,260 $ 4,769,912 $ 42,193 $ 6,950,365 Cost of Goods Sold 1,857,783 3,747,841 25,355 5,630,979 Gross Margin 280,477 1,022,071 16,838 1,319,386 Selling, general and administrative expenses 705,751 1,920,468 3,379,727 6,005,946 Loss from operations (425,274 ) (898,397 ) (3,362,889 ) (4,686,560 ) Other Income (Expenses) Amortization of debt discount - - (610,089 ) (610,089 ) Loss on extinguishment of debt - - - - Loss from derivatives issued with debt greater than debt carrying value - - (867,000 ) (867,000 ) Gain (Loss) on fair market valuation of derivatives - - 771,000 771,000 Interest Income (Expense) - (250 ) (159,383 ) (159,633 ) Total Other Income (Expense) - (250 ) (865,472 ) (865,722 ) Loss before Provision of Income Taxes $ (425,274 ) $ (898,647 ) $ (4,228,361 ) $ (5,552,282 ) Three Months Ended September 30, 2015 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 1,597,378 $ 420,973 $ - $ 2,018,351 Cost of Goods Sold 1,370,804 290,256 (12,515 ) 1,648,545 Gross Margin 226,574 130,717 12,515 369,806 Selling, general and administrative expenses 441,177 164,970 1,493,167 2,099,314 Loss from operations (214,603 ) (34,253 ) (1,480,652 ) (1,729,508 ) Other Income (Expenses) Amortization of debt discount - - (258,306 ) (258,306 ) Loss on extinguishment of debt - - (263,950 ) (263,950 ) Loss from derivatives issued with debt greater than debt carrying value - - - - Gain (Loss) on fair market valuation of derivatives - - 372,400 372,400 Interest Income (Expense) - - (108,563 ) (108,563 ) Total Other Income (Expense) - - (258,419 ) (258,419 ) Loss before Provision of Income Taxes $ (214,603 ) $ (34,253 ) $ (1,739,071 ) $ (1,987,927 ) Nine Months Ended September 30, 2016 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 9,413,121 $ 8,669,092 $ 116,228 $ 18,198,441 Cost of Goods Sold 8,472,797 6,557,137 65,203 15,095,137 Gross Margin 940,324 2,111,955 51,025 3,103,304 Selling, general and administrative expenses 2,083,778 3,772,056 7,663,781 13,519,615 Loss from operations (1,143,454 ) (1,660,101 ) (7,612,756 ) (10,416,311 ) Other Income (Expenses) Amortization of debt discount - - (922,621 ) (922,621 ) Loss on extinguishment of debt - - (920,797 ) (920,797 ) Loss from derivatives issued with debt greater than debt carrying value - - (1,355,000 ) (1,355,000 ) Gain (Loss) on fair market valuation of derivatives - - (595,700 ) (595,700 ) Interest Income (Expense) - - (276,193 ) (276,193 ) Total Other Income (Expense) - - (4,070,311 ) (4,070,311 ) Loss before Provision of Income Taxes $ (1,143,454 ) $ (1,660,101 ) $ (11,683,067 ) $ (14,486,622 ) Total assets at September 30, 2016 $ 6,725,967 $ 2,390,233 $ 60,849,033 $ 69,965,233 Nine Months Ended September 30, 2015 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 6,832,805 $ 852,745 $ 120,444 $ 7,805,994 Cost of Goods Sold 6,266,858 569,417 108,584 6,944,859 Gross Margin 565,947 283,328 11,860 861,135 Selling, general and administrative expenses 1,373,976 721,104 5,697,365 7,792,445 Loss from operations (808,029 ) (437,776 ) (5,685,505 ) (6,931,310 ) Other Income (Expenses) Amortization of debt discount - - (524,161 ) (524,161 ) Loss on extinguishment of debt - - (263,950 ) (263,950 ) Loss from derivatives issued with debt greater than debt carrying value - - (561,000 ) (561,000 ) Gain (Loss) on fair market valuation of derivatives - - 1,779,600 1,779,600 Interest Income (Expense) - - (426,793 ) (426,793 ) Total Other Income (Expense) - - 3,696 3,696 Loss before Provision of Income Taxes $ (808,029 ) $ (437,776 ) $ (5,681,809 ) $ (6,927,614 ) Total assets at September 30, 2015 $ 5,645,677 $ 1,105,796 $ 1,887,156 $ 8,638,629 |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 18. RELATED PARTY TRANSACTIONS | During the three months ended March 31, 2016, our subsidiary, IVXX, purchased raw materials totaling $16,076 from Black Oak, an entity in which the Companys Chief Executive Officer then-held an ownership interest. On April 1, 2016, we completed the merger, whereby Merger Sub merged with and into Black Oak, with Black Oak as the surviving corporation, and becoming a wholly-owned subsidiary of the Company. The terms of the purchases of the raw materials were at arms-length. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2016 | |
Notes to Financial Statements | |
Note 19. SUBSEQUENT EVENTS | Securities Purchase Agreement - September 30, 2016 On September 30, 2016, we entered into a Securities Purchase Agreement (the Purchase Agreement 1) with an accredited investor (the Purchaser 1) pursuant to which we sold to the Purchaser 1 a 12% Senior Convertible Promissory Note due March 31, 2018 (the Note 1) in the principal amount of $3,377,500 for a purchase price of $3,377,500 (the Offering 1). We received $3,367,500 in net proceeds from the Offering 1 after deducting fees and expenses. The Note 1 and the shares of our common stock, par value $0.001 per share (the Common Stock 1) issuable upon conversion of the Note 1 (the Conversion Shares 1) are collectively referred to herein as the Securities 1. The Purchase Agreement 1 contains customary representations, warranties, and covenants by, among, and for the benefit of the parties. Pursuant to the Purchase Agreement 1, we agreed to register the Conversion Shares 1 for issuance to the Purchaser 1. On October 4, 2016, we registered the Conversion Shares 1 pursuant to a prospectus supplement filed with the SEC pursuant to our effective shelf registration statement on Form S-3 (Registration No. 333-210673), declared effective by the SEC on August 12, 2016. 12% Senior Convertible Promissory Note The Note matures on March 31, 2018 (the Maturity Date), less any amounts converted or redeemed prior to the Maturity Date. The Note accrues interest at a rate of 12% per annum, payable on the Maturity Date or upon any conversion, prepayment, event of default or other acceleration of payment under the Note. All interest payments under the Note are payable, at our option, in cash or shares of Common Stock. All principal and interest due and owing under the Note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.35 or (ii) 75% of the average of the three (3) lowest daily volume weighted-average prices of the Common Stock in the fifteen (15) trading days prior to the conversion date (the Conversion Price), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price of the Note will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect. In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) days notice, that the holder convert the Note at the Conversion Price. We may prepay in cash any portion of the outstanding principal amount of the Note and any accrued and unpaid interest by, upon ten (10) days written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the Note; (ii) 115% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the Note; or (iii) 125% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the Note. Securities Purchase Agreement - October 28, 2016 On October 28, 2016, we entered into a Securities Purchase Agreement (the Purchase Agreement 2) with an accredited investor (the Purchaser 2) pursuant to which we sold to the Purchaser 2 a 12% Senior Convertible Promissory Note due April 28, 2018 (the Note 2) in the principal amount of $7,051,000 for a purchase price of $7,051,000 (the Offering 2). There were no fees or expenses deducted from the net proceeds received by us in the Offering 2. The Note 2 and the shares of our common stock, par value $0.001 per share (the Common Stock 2) issuable upon conversion of the Note 2 (the Conversion Shares 2) are collectively referred to herein as the Securities 2. The Purchase Agreement 2 contains customary representations, warranties, and covenants by, among, and for the benefit of the parties. Pursuant to the Purchase Agreement 2, we agreed to sell the Securities 2 pursuant to an effective shelf registration statement on Form S-3 (Registration No 333-210673), declared effective by the SEC on August 12, 2016, and a related prospectus supplement thereto. 12% Senior Convertible Promissory Note The Note matures on April 28, 2018 (the Maturity Date), less any amounts converted or redeemed prior to the Maturity Date. The Note accrues interest at a rate of 12% per annum, payable on the Maturity Date or upon any conversion, prepayment, event of default or other acceleration of payment under the Note. All interest payments under the Note are payable, at the Companys option, in cash or shares of Common Stock. All principal and interest due and owing under the Note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) $0.41 or (ii) 83.5% of the average of the three (3) lowest daily volume weighted average prices of the Common Stock in the fifteen (15) trading days prior to the conversion date (the Conversion Price), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price of the Note will automatically become 70% of the average of the three (3) lowest volume weighted average prices of the Common Stock in the twenty (20) consecutive trading days prior to the conversion date for so long as such event of default remains in effect. In addition, at any time that (i) the daily volume weighted average price of the Common Stock for the prior ten (10) consecutive trading days is $0.70 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) days notice, that the holder convert the Note at the Conversion Price. The Company may prepay in cash any portion of the outstanding principal amount of the Note and any accrued and unpaid interest by, upon ten (10) days' written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the Note; (ii) 115% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the Note; or (iii) 125% of the sum of the then-outstanding principal amount of the Note plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the Note. Debt and Interest Converted into Equity During the fourth quarter of 2016, senior secured convertible promissory notes and accrued interest in the amount of $9,345,108 was converted into 31,281,006 shares of common stock. |
SUMMARY OF SIGNIFICANT ACCOUN25
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2016 | |
Summary Of Significant Accounting Policies Policies | |
Organization | References in this document to the Company, Terra Tech, we, us, or our are intended to mean Terra Tech Corp. (Terra Tech), individually, or as the context requires, collectively with its subsidiaries on a consolidated basis. We were incorporated in Nevada on July 22, 2008, under the name Private Secretary, Inc. Our original business was developing a software program that would allow for automatic call processing through voice-over-Internet protocol, or VoIP, technology. Our operations were limited to capital formation, organization, and development of its business plan and target customer market. We generated no revenue. We changed our name to Terra Tech Corp. on January 27, 2012. On February 9, 2012, we completed a reverse-triangular merger with GrowOp Technology Ltd., a Nevada corporation (GrowOp Technology), whereby we acquired all of the issued and outstanding shares of GrowOp Technology and in exchange we issued: (i) 33,998,520 shares of its common stock, (ii) 100 shares of Series A Preferred Stock, convertible into shares of common stock on a one-for-one basis, and (iii) 14,750,000 shares of Series B Preferred Stock, with each share convertible into 5.384325537 shares of common stock. As a result of the merger, GrowOp Technology became our wholly-owned subsidiary. Following the merger, Terra Tech ceased its prior operations and is now solely a holding company. Through GrowOp Technology, we engage in the design, marketing, and sale of hydroponic equipment with proprietary technology to create sustainable solutions for the cultivation of indoor agriculture. We are also a wholesale seller of locally grown hydroponic produce, herbs, and florals through our wholly-owned subsidiary, Edible Garden Corporation, a Nevada corporation (Edible Garden). We acquired all of the issued and outstanding shares in Edible Garden pursuant to a Share Exchange Agreement, dated March 23, 2013 (the Share Exchange Agreement), entered into by and among Terra Tech, Edible Garden, and the stockholders of Edible Garden. Pursuant to the Share Exchange Agreement, we offered and sold 1,250,000 shares of our common stock in consideration for all the issued and outstanding shares in Edible Garden. Separately, Amy Almsteier, one of our stockholders and a director (and, at that time, an executive officer), offered and sold 7,650,000 shares of Series B Preferred Stock to Kenneth Vande Vrede, Michael Vande Vrede, Steven Vande Vrede, Daniel Vande Vrede, Beverly Willekes, and David Vande Vrede (collectively, the Former EG Principal Stockholders). On March 19, 2014, we formed MediFarm, LLC, a Nevada limited liability company (MediFarm), as a subsidiary. On July 18, 2014, we formed MediFarm I, LLC, a Nevada limited liability company (MediFarm I), as a subsidiary. On July 30, 2014, we formed MediFarm II, LLC, a Nevada limited liability company (MediFarm II), as a subsidiary. Through MediFarm, MediFarm I, and MediFarm II, we are currently operating one medical marijuana dispensary facility in Nevada and plan to operate additional medical marijuana cultivation, production, and dispensary facilities in that state. In April 2016, MediFarm commenced operations at its dispensary in Las Vegas, Nevada under the Blüm brand. On September 16, 2014, we formed IVXX, LLC, a Nevada limited liability company (IVXX), as a wholly-owned subsidiary, for the purpose of producing a line of cannabis flowers and cigarettes, as well as a complete line of cannabis pure concentrates including: oils, waxes, shatters, and clears. We began producing and selling IVXXs products during the first quarter of fiscal 2015. We currently offer these products to 200 select dispensaries in California. We use our extraction lab located in Oakland, California to manufacture these products. IVXX also sells clothing, apparel, and other various branded products. On October 14, 2015, we formed MediFarm I Real Estate, LLC, a Nevada limited liability company (MediFarm I RE). MediFarm I RE is a real estate holding company that owns the real property and building at which a medical marijuana dispensary facility will be located. It is our intention that MediFarm I will operate the medical marijuana dispensary. We own 50% of the membership interests in MediFarm I RE. The remaining membership interests are owned by Forever Young Investments, LLC (50%), an otherwise unaffiliated entity. On April 1, 2016, we acquired Black Oak Gallery, a California corporation (Black Oak). Black Oak operates a medical marijuana dispensary in Oakland, California under the name Blüm, pursuant to that certain Agreement and Plan of Merger, dated December 23, 2015 (the Merger Agreement), with Generic Merger Sub, Inc., a California corporation and our wholly-owned subsidiary (the Merger Sub), and Black Oak. The Merger Agreement was amended by a First Amendment to the Agreement and Plan of Merger, dated February 29, 2016. Pursuant to the Merger Agreement, the Merger Sub merged with and into Black Oak, with Black Oak as the surviving corporation, and became our wholly-owned subsidiary (the Merger). The Merger is intended to qualify for Federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, the outstanding shares of common stock of Black Oak held by (i) three of the current shareholders of Black Oak (the Group A Shareholders) were converted into the right to receive approximately 8,166 shares of our Series Z preferred stock, par value $0.001 per share (Series Z Preferred Stock), of which approximately 1,175 shares of Series Z Preferred Stock were issued and paid at closing, and approximately 8,668,700 shares of our Series B preferred stock, par value $0.001 per share (Series B Preferred Stock), of which approximately 1,248,300 shares of Series B Preferred Stock were issued and paid at closing and (ii) the remaining shareholders of Black Oak (the Group B Shareholders) were converted into the right to receive approximately 21,378 shares of our Series Q preferred stock, par value $0.001 per share (Series Q Preferred Stock), of which approximately 3,695 shares of Series Q Preferred Stock were issued and paid at closing. The shares of Series Z Preferred Stock, Series B Preferred Stock, and Series Q Preferred Stock that were issued but not paid to the Black Oak shareholders at closing are subject to certain holdback and lock-up provisions, and held in an escrow account as security for the satisfaction of any post-closing adjustments or indemnification claims, as provided for in the Merger Agreement. Each share of Series Q Preferred Stock was converted into 5,000 shares of our common stock and each share of Series Z Preferred Stock was converted into 1,857 shares of our Series B Preferred Stock, in each case immediately upon our filing with the Secretary of State of the State of Nevada an Amendment to our Articles of Incorporation to increase our authorized capital for, among other reasons, satisfaction of the terms of this potential transaction. Accordingly, the approximately 21,378 shares of Series Q Preferred Stock was issued to the Group B Shareholders was converted into approximately 106,890,000 shares of common stock and the approximately 8,166 shares of Series Z Preferred Stock was issued to the Group A Shareholders was converted into approximately 15,164,262 shares of Series B Preferred Stock. The Series Z Preferred Stock was intended to mirror the rights of the holders of our Series B Preferred Stock. Each share of our Series B Preferred Stock remains convertible into 5.384325537 shares of our common stock. The aggregate fair market value of the securities issued in the Merger was approximately $22.9 million. The Group B Shareholders may also receive cash consideration equal to approximately $2.1 million. The securities paid to the Group A Shareholders and the Group B Shareholders are subject to certain post-closing adjustments that are based on certain performance indicators as of the first anniversary of the closing date of the Merger. The first indicator is based on the performance of the volume-weighted average price of our common stock on the first anniversary of the closing date of the Merger compared to the price of our common stock on the date of the Merger Agreement. The second indicator is based on our revenues for the twelve-month period following the closing date of the Merger. A portion of the securities that the Group A Shareholders and the Group B Shareholders are entitled to receive at closing of the Merger will be held in an escrow until the first anniversary of the closing date of the Merger and the post-closing adjustments are complete. Since the Merger was completed on April 1, 2016, Black Oaks financial results are included in our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2016. |
Basis of Presentation | The accompanying unaudited consolidated financial statements include all of the accounts of Terra Tech. and subsidiaries. These unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals considered necessary for a fair presentation, have been included. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted in accordance with the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes in Item 8 of Part II, Financial Statements and Supplementary Data, of our 2015 Annual Report on Form 10-K. |
Use of Estimates | The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
Cash and Cash Equivalents | Cash and all highly liquid investments with a maturity of three months or less from the date of purchase, including money market mutual funds, short-term time deposits, and government agency and corporate obligations, are classified as cash and cash equivalents. |
Accounts Receivable | We review all outstanding accounts receivable for collectability on a quarterly basis. An allowance for doubtful accounts is recorded for any amounts deemed uncollectable. We do not accrue interest receivable on past due accounts receivable. There was an allowance for doubtful accounts of $159,169 at September 30, 2016 and $184,642 at December 31, 2015. |
Property, Equipment and Leasehold Improvements | Property, equipment and leasehold improvements are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets: 3 to 32 years for machinery and equipment, leasehold improvements, and buildings are amortized over the estimated useful life. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. We test property and equipment for impairment annually for recoverability or whenever events or changes in circumstances indicate that the carry amount may not be recoverable. For the year ended December 31, 2015 and for the nine months ended September 30, 2016, we have concluded that the sum of the undiscounted cash flows exceeds the carry amount of the assets. |
Intangibles | Intangible assets are stated at historical cost and amortized over their estimated useful lives. We use a straight-line method of amortization, unless a method that better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up can be reliably determined. The approximate useful lives for amortization of our intangible assets are as follows: customer relationships, five to 15 years; trade names, five to 15 years; and dispensary license, 15 years. We review intangible assets subject to amortization quarterly to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in legal factors or business climate that could affect the value of an asset, a product recall, or an adverse action or assessment by a regulator. If an impairment indicator exists, we test the intangible asset for recoverability. For purposes of the recoverability test, we group our amortizable intangible assets with other assets and liabilities at the lowest level of identifiable cash flows if the intangible asset does not generate cash flows independent of other assets and liabilities. If the carrying value of the intangible asset (asset group) exceeds the undiscounted cash flows expected to result from the use and eventual disposition of the intangible asset (asset group), we will write the carrying value down to the fair value in the period identified. We calculate fair value of our intangible assets as the present value of estimated future cash flows we expect to generate from the asset using a risk-adjusted discount rate. In determining our estimated future cash flows associated with our intangible assets, we use estimates and assumptions about future revenue contributions, cost structures and remaining useful lives of the asset (asset group). |
The Carrying Value, Recoverability and Impairment of Long-Lived Assets | We have adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification for our long-lived assets. Our long -lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We assess the recoverability of our long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the assets expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. We consider the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in our overall strategy with respect to the manner of use of the acquired assets or changes in our overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in our stock price for a sustained period of time; and (vi) regulatory changes. We evaluate acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events. The impairment charges, if any, are included in operating expenses in the accompanying statements of operations. Based on the test results, no impairments have occurred. |
Deposits | Deposits are for stores, land and utility companies located in California, Nevada and New Jersey. |
Revenue Recognition | Cannabis Products We recognize revenue from product sales net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured. We recognize revenue in accordance with ASC 605, Revenue Recognition Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments, and returns, and net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as current liabilities until remitted to the relevant government authority. Revenue is recorded upon transfer of title and risk to the customer which occurs at the time customers take delivery of our products at our retail dispensary. Upon purchase, we have no further performance obligations and collection is assured as sales are paid for at time of purchase. Revenue related to the sale of consignment inventory is not recognized until the product is pulled from inventory and sold directly to our end-customers at our retail dispensary. We recognize revenue from the sale of consignment inventory on a gross basis, as it has determined that it is the primary obligor to the customer, has latitude in establishing the sales prices and profit margins of its products, has discretion in selecting its suppliers, is responsible for loss or damage to consigned inventory and through its customer validation process performs an important part of the process of providing such products to authorized customers. We believe that these factors outweigh the fact that we do not have title to the consigned inventory prior to its sale. During the three and nine months ended September 30, 2016, sales returns were not significant and, as such, no sales return allowance has been recorded as of September 30, 2016. Hydroponic Produce We recognize revenue from products grown in our greenhouses and sold net of discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the customer, which occurs at shipping (F.O.B. terms). Upon shipment, we have no further performance obligations, selling price is fixed, and collection is reasonably assured. For sales for which we use an outside grower, we evaluate whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. We determine the product specifications, cultivation, and packaging, while disclosing trade and operational secrets, greenhouse technologies, and nutrients used to grow. We are the primary obligor in the transaction because it is our brand that is sold into the retail channel. We are subject to inventory risk until product is accepted by the retailer. We bear credit risk for the amount billed to the retailer and, thus, must pay the grower in the event the selling price is not collected. This revenue is recorded at the gross sale price once the retailer has accepted delivery, selling price is fixed, and collection is reasonably assured. |
Cost of Goods Sold | Cannabis Products Cost of goods sold includes the costs directly attributable to product sales and includes amounts paid for finished goods, such as flower, edibles, and concentrates, as well as, packaging and other supplies, fees for services and processing, other expenses for services, and allocated overhead. Overhead expenses include allocations of rent, administrative salaries, utilities, and related costs. It also includes the cost incurred in producing the oils, waxes, shatters, and clears sold by IVXX. Hydroponic Produce Cost of goods sold are for the plants grown and purchased and sold into the retail marketplace by Edible Garden. |
Loyalty Rewards Program | We offer a customer loyalty rewards program that allows members to earn discounts on future purchases. The amount of unused discounts earned by our loyalty rewards program members is included in accrued liabilities and recorded as a reduction of revenue at the time a qualifying purchase is made. Revenue is recognized when points are redeemed by the loyalty rewards program member. We began offering customers the loyalty rewards program during April 2015 and the value of points accrued as of September 30, 2016 was $25,097. |
Research and Development | Research and development costs are expensed as incurred. |
Income Taxes | We provide for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in our income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related Federal and state deferred tax asset for the nine months ended September 30, 2016. |
Loss Per Common Share | Net loss per share is computed in accordance with the provisions of ASC 260, Earnings Per Share, |
Fair Value of Financial Instruments | We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. We define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 Level 2 - Level 3 - Our valuation techniques used to measure the fair value of money market funds and certain marketable equity securities were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data. In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. We have not elected the fair value option for any eligible financial instruments. |
Recently Issued Accounting Standards | Leases In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires entities to recognize right-of-use assets and lease liabilities on the balance sheet for the rights and obligations created by all leases, including operating leases, with terms of more than 12 months. The new standard also requires additional disclosures on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. The new standard will be effective for the Company on January 1, 2019. Early adoption is permitted. The Company is in the process of evaluating the impact the adoption of this standard will have on its consolidated financial statements and related disclosures. Balance Sheet Classification of Deferred Taxes In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). ASU 2015-17 requires entities to present deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. The new standard is effective for public entities for annual periods beginning after December 15, 2016, with early adoption allowed on either a prospective or retrospective basis. The Company adopted ASU 2015-17, on a prospective basis, for its annual period ending December 31, 2015. Accordingly, the accompanying unaudited consolidated balance sheet at September 30, 2016 reflects the presentation of deferred tax assets and deferred tax liabilities in accordance with ASU 2015-17. Inventory Measurement In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (ASU 2015-11), which requires entities to measure inventory at the lower of cost and net realizable value (NRV). A SU 2015-11 defines NRV as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The ASU will not apply to inventories that are measured by using either the last-in, first-out method or the retail inventory method. The guidance in ASU 2015-11 is effective prospectively for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted. Upon transition, entities must disclose the nature of and reason for the accounting change. The Company does not expect that the adoption of this standard will have a material effect on its consolidated financial statements. Going Concern Disclosures In August 2014, the FASB issued ASU No. 2014-15: Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern (ASU 2014-15). ASU 2014-15 requires management to perform interim and annual assessments of an entitys ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entitys ability to continue as a going concern. ASU 2014-15 is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. We do not expect that the adoption of this standard will have a material effect on our consolidated financial statements. |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Acquisitions Tables | |
Summary of Acquisition | The following table summarizes the acquisition with a purchase price of $51,489,665: Current assets, (inclusive of cash of $163,566) $ 792,447 Property, plant and equipment 681,896 Customer relationships 7,480,800 Trade Name 4,280,000 Dispensary license 8,214,700 Liabilities (2,355,938 ) Total identifiable net assets 19,093,905 Goodwill 32,395,760 Net assets $ 51,489,665 |
Summary of Acquisition purchase price | The below chart outlines a summary of the purchase price: Purchase Price Detail Series B Preferred Stock Series Q Preferred Stock Series Z Preferred Stock Preferred Stock Converted Into Common Stock Total Consideration Closing Consideration 1,248,300 3,696 1,176 36,960,989 $ 9,683,779 Lockup Consideration 4,468,872 8,945 4,210 110,882,953 29,051,334 Holdback Consideration 2,951,528 8,739 2,781 87,392,202 11,324,969 Performance-based Cash Consideration - - - - 1,429,583 Totals 8,668,700 21,380 8,167 235,236,144 $ 51,489,665 |
INVENTORY (Tables)
INVENTORY (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Inventory Tables | |
Inventory | Inventory at September 30, 2016 and December 31, 2015 consisted of the following: September 30, December 31, 2016 2015 Raw Materials $ 576,508 $ 277,340 Work-In-Progress 419,432 542,530 Finished Goods 1,472,159 129,578 $ 2,468,099 $ 949,448 |
PROPERTY, EQUIPMENT AND LEASE28
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Property Equipment And Leasehold Improvements Tables | |
Property, equipment, and leasehold improvements | Property, equipment, and leasehold improvements, at cost, less accumulated depreciation, at September 30, 2016 and December 31, 2015 consisted of the following: September 30, December 31, 2016 2015 Land $ 702,020 $ 1,454,124 Furniture 507,182 70,786 Equipment 3,502,268 2,322,444 Leasehold improvements 7,236,177 3,893,330 Subtotal 11,947,647 7,740,684 Less accumulated depreciation (2,142,743 ) (1,045,709 ) Total $ 9,804,904 $ 6,694,975 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Intangible Assets Tables | |
Finite lives intangible assets | September 30, 2016 Useful Gross Life Carrying Accumulated Amortized intangible assets: in Years Amount Amortization Customer Relationships 5 to 15 $ 8,693,200 $ 495,208 Trade Name 5 to 15 $ 4,666,898 $ 181,356 Dispensary License 15 $ 8,214,700 $ 263,824 Total $ 21,574,798 $ 940,388 |
ACCOUNTS PAYABLE AND ACCRUED 30
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Accounts Payable And Accrued Expenses Tables | |
Accounts payable and accrued expenses | Accounts payable and accrued expenses consisted of the following: September 30, December 31, 2016 2015 Accounts payable $ 2,179,783 $ 1,105,994 Sales tax payable 226,319 - Accrued expenses 3,734,367 - Interest payable 246,390 103,465 $ 6,386,859 $ 1,119,459 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Notes Payable Tables | |
Notes payable | Notes payable are as follows: September 30, December 31, 2016 2015 Promissory note dated July 25, 2014 issued to an accredited investor, which matured July 24, 2015 and bore interest at a rate of 12% per annum. The holder of the note extended the maturity to July 25, 2017. Principal and interest may be converted into common stock based on the average trading price of the ten days prior to maturity at the holders option. $ 150,000 $ 150,000 Unsecured promissory demand notes issued to an accredited investor, which bears interest at a rate of 4% per annum. Holder may elect to convert into common stock at $0.75 per share. In 2015, the investor exchanged the notes from other accredited investors. 114,306 114,306 5% Original issue discount senior secured convertible promissory note dated May 5, 2014 issued to accredited investors, which matured November 5, 2015, and bore interest at a rate of 12% per annum. The fixed conversion price in effect was set at 90% of the 20-day volume weighted average price (VWAP) of our common stock on February 5, 2014, or $0.30753 per share. In 2015, the holder of the note converted some of the debt and accrued interest into common stock. The remaining balance of the note and accrued interest was converted into common stock in March 2016. - 96,491 Convertible promissory note dated April 7, 2015 issued to accredited investors, which matures October 7, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1303, subject to adjustment. The remaining balance of the note and accrued interest was converted into common stock in January 2016. - 170,856 Convertible promissory note dated May 13, 2015 issued to accredited investors, which matures November 13, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1211, subject to adjustment. The remaining balance of the note and accrued interest was converted into common stock in January 2016. - 170,783 Convertible promissory note dated December 14, 2015, issued to accredited investors, which matures December 13, 2016 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.1211, subject to adjustment. 439,381 214,927 Convertible promissory note dated March 10, 2016, issued to accredited investors, which matures September 10, 2017 and bears interest at a rate of 1% per annum. The conversion price in effect is 90% of the average of the lowest three (3) VWAPs for the five (5) consecutive trading days prior to the conversion date. 1,250,000 - Convertible promissory note dated May 27, 2016, and amended on July 25, 2016 issued to accredited investors, which matures May 27, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 699,341 - Convertible promissory note dated July 25, 2016, issued to accredited investors, which matures July 25, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 84,185 - Convertible promissory note dated August 12, 2016, issued to accredited investors, which matures August 12, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 39,137 - Convertible promissory note dated September 1, 2016, issued to accredited investors, which matures September 1, 2018 and bears interest at a rate of 12% per annum. The conversion price in effect is $0.35, subject to adjustment. 13,292 - Total Debt 2,789,642 917,363 Less short-term portion 1,953,687 917,363 Long-term portion $ 835,955 $ 0 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Measurements Tables | |
Fair value hierarchy financial assets measured | The following table represents the fair value hierarchy for those financial assets measured at fair value on a recurring basis: Fair Value at September 30, Fair Value Measurement Using 2016 Level 1 Level 2 Level 3 Derivative Liability - Conversion Feature $ 6,895,000 - - $ 6,895,000 $ 6,895,000 - - $ 6,895,000 Fair Value at December 31, Fair Value Measurement Using 2015 Level 1 Level 2 Level 3 Derivative Liability - Conversion Feature $ 743,400 - - $ 743,400 $ 743,400 - - $ 743,400 |
Liabilities measured at fair value on a recurring basis using significant unobservable inputs | Liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Balance at December 31, 2015 $ 743,400 Change in fair market value of conversion feature 595,700 Issuance of equity instruments with debt greater than debt carrying amount 1,355,000 Derivative debt converted into equity (570,100 ) Issuance of equity instruments with derivatives 4,771,000 Balance at September 30, 2016 $ 6,895,000 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Income Taxes Tables | |
Schedule of expense (benefit) for income taxes | The expense (benefit) for income taxes consists of the following: September 30, 2016 December 31, 2015 Current: Federal $ 742,300 $ - State - - 742,300 - Deferred: Federal 49,000 44,000 State - - Total $ 791,300 $ 44,000 |
Deferred tax assets and liabilities | The components of deferred tax assets and liabilities are as follows: September 30, 2016 December 31, 2015 Deferred income tax assets: Allowance for bad debt $ 70,000 $ 74,000 Warrants and interest expense 4,002,000 3,412,000 Derivatives expense 1,992,000 729,000 Net operating loss 9,353,000 7,029,000 15,417,000 11,244,000 Deferred income tax liabilities: Depreciation (194,900 ) (44,000 ) Total 15,222,100 11,200,000 Valuation allowance (15,417,000 ) (11,244,000 ) Net deferred tax assets (liabilities) $ (194,900 ) $ (44,000 ) |
WARRANTS (Tables)
WARRANTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Warrants Tables | |
Warrants outstanding | The Company has the following shares of common stock reserved for exercise of the warrants outstanding as of September 30, 2016: September 30, 2016 Shares Weighted Average Exercise Price Warrants outstanding beginning of year 32,426,008 $ 0.18 Warrants exercised (26,251,785 ) 0.17 Warrants granted 10,395,675 0.22 Warrants expired (523.333 ) (0.45 ) Warrants outstanding end of period 16,046,565 $ 0.18 |
Summarizes information about fixed-price warrants outstanding | The following table summarizes information about fixed-price warrants outstanding: Range of Number Outstanding at Average Remaining Weighted Exercise September 30, Contractual Average Prices 2016 Life Exercise Price $ 0.33 439,637 4 Months $ 0.33 $ 0.16 750,000 6 Months $ 0.16 $ 0.14 1,578,947 21 Months $ 0.14 $ 0.21 400,644 21 Months $ 0.21 $ 0.14 1,846,300 22 Months $ 0.14 $ 0.06 4,567,002 24 Months $ 0.06 $ 0.16 1,118,068 29 Months $ 0.16 $ 0.13 863,392 30 Months $ 0.13 $ 0.12 928,984 32 Months $ 0.12 $ 0.35 1,625,000 45 Months $ 0.35 $ 0.35 535,714 47 Months $ 0.35 $ 0.44 1,214,286 47 Months $ 0.44 $ 0.37 178,571 48 Months $ 0.37 16,046,545 |
COMMITMENTS (Tables)
COMMITMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Commitments Tables | |
Future minimum lease payments | Future minimum lease payments under non-cancelable operating leases having an initial or remaining term of more than one year are as follows: Scheduled Year Ending December 31: Payments 2016 $ 541,656 2017 487,518 2018 478,587 2019 342,336 2020 256,173 2021 and thereafter 2,021,484 Total minimum rental payments $ 4,127,754 |
SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Segment Information Tables | |
Summarized financial information | Summarized financial information concerning the Companys reportable segments is shown in the following tables. Total asset amounts at September 30, 2016 and 2015 exclude intercompany receivable balances eliminated in consolidation. Three Months Ended September 30, 2016 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 2,138,260 $ 4,769,912 $ 42,193 $ 6,950,365 Cost of Goods Sold 1,857,783 3,747,841 25,355 5,630,979 Gross Margin 280,477 1,022,071 16,838 1,319,386 Selling, general and administrative expenses 705,751 1,920,468 3,379,727 6,005,946 Loss from operations (425,274 ) (898,397 ) (3,362,889 ) (4,686,560 ) Other Income (Expenses) Amortization of debt discount - - (610,089 ) (610,089 ) Loss on extinguishment of debt - - - - Loss from derivatives issued with debt greater than debt carrying value - - (867,000 ) (867,000 ) Gain (Loss) on fair market valuation of derivatives - - 771,000 771,000 Interest Income (Expense) - (250 ) (159,383 ) (159,633 ) Total Other Income (Expense) - (250 ) (865,472 ) (865,722 ) Loss before Provision of Income Taxes $ (425,274 ) $ (898,647 ) $ (4,228,361 ) $ (5,552,282 ) Three Months Ended September 30, 2015 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 1,597,378 $ 420,973 $ - $ 2,018,351 Cost of Goods Sold 1,370,804 290,256 (12,515 ) 1,648,545 Gross Margin 226,574 130,717 12,515 369,806 Selling, general and administrative expenses 441,177 164,970 1,493,167 2,099,314 Loss from operations (214,603 ) (34,253 ) (1,480,652 ) (1,729,508 ) Other Income (Expenses) Amortization of debt discount - - (258,306 ) (258,306 ) Loss on extinguishment of debt - - (263,950 ) (263,950 ) Loss from derivatives issued with debt greater than debt carrying value - - - - Gain (Loss) on fair market valuation of derivatives - - 372,400 372,400 Interest Income (Expense) - - (108,563 ) (108,563 ) Total Other Income (Expense) - - (258,419 ) (258,419 ) Loss before Provision of Income Taxes $ (214,603 ) $ (34,253 ) $ (1,739,071 ) $ (1,987,927 ) Nine Months Ended September 30, 2016 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 9,413,121 $ 8,669,092 $ 116,228 $ 18,198,441 Cost of Goods Sold 8,472,797 6,557,137 65,203 15,095,137 Gross Margin 940,324 2,111,955 51,025 3,103,304 Selling, general and administrative expenses 2,083,778 3,772,056 7,663,781 13,519,615 Loss from operations (1,143,454 ) (1,660,101 ) (7,612,756 ) (10,416,311 ) Other Income (Expenses) Amortization of debt discount - - (922,621 ) (922,621 ) Loss on extinguishment of debt - - (920,797 ) (920,797 ) Loss from derivatives issued with debt greater than debt carrying value - - (1,355,000 ) (1,355,000 ) Gain (Loss) on fair market valuation of derivatives - - (595,700 ) (595,700 ) Interest Income (Expense) - - (276,193 ) (276,193 ) Total Other Income (Expense) - - (4,070,311 ) (4,070,311 ) Loss before Provision of Income Taxes $ (1,143,454 ) $ (1,660,101 ) $ (11,683,067 ) $ (14,486,622 ) Total assets at September 30, 2016 $ 6,725,967 $ 2,390,233 $ 60,849,033 $ 69,965,233 Nine Months Ended September 30, 2015 Hydroponic Cannabis Eliminations Produce Products and Other Total Total Revenues $ 6,832,805 $ 852,745 $ 120,444 $ 7,805,994 Cost of Goods Sold 6,266,858 569,417 108,584 6,944,859 Gross Margin 565,947 283,328 11,860 861,135 Selling, general and administrative expenses 1,373,976 721,104 5,697,365 7,792,445 Loss from operations (808,029 ) (437,776 ) (5,685,505 ) (6,931,310 ) Other Income (Expenses) Amortization of debt discount - - (524,161 ) (524,161 ) Loss on extinguishment of debt - - (263,950 ) (263,950 ) Loss from derivatives issued with debt greater than debt carrying value - - (561,000 ) (561,000 ) Gain (Loss) on fair market valuation of derivatives - - 1,779,600 1,779,600 Interest Income (Expense) - - (426,793 ) (426,793 ) Total Other Income (Expense) - - 3,696 3,696 Loss before Provision of Income Taxes $ (808,029 ) $ (437,776 ) $ (5,681,809 ) $ (6,927,614 ) Total assets at September 30, 2015 $ 5,645,677 $ 1,105,796 $ 1,887,156 $ 8,638,629 |
SUMMARY OF SIGNIFICANT ACCOUN37
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Dec. 31, 2015 | |
Allowance for account receivable | $ 159,169 | $ 184,642 |
Loyalty rewards program points accrued, Value | $ 25,097 | |
Dispensary license [Member] | ||
Useful Life (in Years) | 15 years | |
Minimum [Member] | ||
Estimated useful lives | 3 years | |
Minimum [Member] | Customer Relationships [Member] | ||
Useful Life (in Years) | 5 years | |
Minimum [Member] | Trade Name [Member] | ||
Useful Life (in Years) | 5 years | |
Maximum [Member] | ||
Estimated useful lives | 32 years | |
Maximum [Member] | Customer Relationships [Member] | ||
Useful Life (in Years) | 15 years | |
Maximum [Member] | Trade Name [Member] | ||
Useful Life (in Years) | 15 years |
GOING CONCERN (Details Narrativ
GOING CONCERN (Details Narrative) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Going Concern Details Narrative | ||
Accumulated Deficit | $ (60,600,170) | $ (45,952,109) |
ACQUISITIONS (Details)
ACQUISITIONS (Details) - Acquisitions [Member] | Sep. 30, 2016USD ($) |
Current assets, (inclusive of cash of $163,566) | $ 792,447 |
Property, plant and equipment | 681,896 |
Customer relationships | 7,480,800 |
Trade Name | 4,280,000 |
Dispensary license | 8,214,700 |
Liabilities | (2,355,938) |
Total identifiable net assets | 19,093,905 |
Goodwill | 32,395,760 |
Net assets | $ 51,489,665 |
ACQUISITIONS (Details 1)
ACQUISITIONS (Details 1) | Sep. 30, 2016shares |
Convertible Series B Preferred Stock | |
Closing Consideration | 1,248,300 |
Lockup Consideration | 4,468,872 |
Holdback Consideration | 2,951,528 |
Performance-based Cash Consideration | |
Totals | 8,668,700 |
Convertible Series Q Preferred Stock | |
Closing Consideration | 3,696 |
Lockup Consideration | 8,945 |
Holdback Consideration | 8,739 |
Performance-based Cash Consideration | |
Totals | 21,380 |
Convertible Series Z Preferred Stock | |
Closing Consideration | 1,176 |
Lockup Consideration | 4,210 |
Holdback Consideration | 2,781 |
Performance-based Cash Consideration | |
Totals | 8,167 |
Preferred Stock Converted Into Common Stock [Member] | |
Closing Consideration | 36,960,989 |
Lockup Consideration | 110,882,953 |
Holdback Consideration | 87,392,202 |
Performance-based Cash Consideration | |
Totals | 235,236,144 |
Total Consideration [Member] | |
Closing Consideration | 9,683,779 |
Lockup Consideration | 29,051,334 |
Holdback Consideration | 11,324,969 |
Performance-based Cash Consideration | 1,429,583 |
Totals | 51,489,665 |
INVENTORY (Details)
INVENTORY (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Inventory Tables | ||
Raw Materials | $ 576,508 | $ 277,340 |
Work-In-Progress | 419,432 | 542,530 |
Finished Goods | 1,472,159 | 129,578 |
Total | $ 2,468,099 | $ 949,448 |
PROPERTY, EQUIPMENT AND LEASE42
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Property Equipment And Leasehold Improvements Details | ||
Land | $ 702,020 | $ 1,454,124 |
Furniture | 507,182 | 70,786 |
Equipment | 3,502,268 | 2,322,444 |
Leasehold improvements | 7,236,177 | 3,893,330 |
Subtotal | 11,947,647 | 7,740,684 |
Less accumulated depreciation | (2,142,743) | (1,045,709) |
Total | $ 9,804,904 | $ 6,694,975 |
PROPERTY, EQUIPMENT AND LEASE43
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Property Equipment And Leasehold Improvements Details Narrative | ||
Depreciation expense | $ 827,391 | $ 602,814 |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Gross Carrying Amount | $ 21,574,798 |
Accumulated Amortization | 940,388 |
Customer Relationships [Member] | |
Gross Carrying Amount | 8,693,200 |
Accumulated Amortization | $ 495,208 |
Customer Relationships [Member] | Minimum [Member] | |
Useful Life (in Years) | 5 years |
Customer Relationships [Member] | Maximum [Member] | |
Useful Life (in Years) | 15 years |
Trade Name [Member] | |
Gross Carrying Amount | $ 4,666,898 |
Accumulated Amortization | $ 181,356 |
Trade Name [Member] | Minimum [Member] | |
Useful Life (in Years) | 5 years |
Trade Name [Member] | Maximum [Member] | |
Useful Life (in Years) | 15 years |
Dispensary license [Member] | |
Gross Carrying Amount | $ 8,214,700 |
Accumulated Amortization | $ 263,824 |
Useful Life (in Years) | 15 years |
INTANGIBLE ASSETS (Details Narr
INTANGIBLE ASSETS (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Intangible Assets Details Narrative | ||
Amortization expense | $ 826,400 | $ 42,480 |
Estimate amortization expense in 2016 | 1,239,290 | |
Estimate amortization expense in 2017 | 1,651,560 | |
Estimate amortization expense in 2018 | 1,622,532 | |
Estimate amortization expense in 2019 | 1,609,080 | |
Estimate amortization expense in 2020 | 1,609,080 | |
Estimate amortization expense after 2020 | $ 13,719,270 |
ACCOUNTS PAYABLE AND ACCRUED 46
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Accounts Payable And Accrued Expenses Details | ||
Accounts payable | $ 2,179,783 | $ 1,105,994 |
Sales tax payable | 226,319 | |
Accrued expenses | 3,734,367 | |
Interest payable | 246,390 | 103,465 |
Accounts payable and accrued expenses | $ 6,386,859 | $ 1,119,459 |
NOTES PAYABLE (Details)
NOTES PAYABLE (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Total Debt | $ 2,789,642 | $ 917,363 |
Less short-term portion | 1,953,687 | 917,363 |
Long-term portion | 835,955 | |
Promissory Demand Note [Member] | ||
Total Debt | 150,000 | 150,000 |
Unsecured Promissory Demand Note [Member] | ||
Total Debt | 114,306 | 114,306 |
Original issue discount senior secured convertible promissory note [Member] | ||
Total Debt | 96,491 | |
Convertible promissory note [Member] | ||
Total Debt | 170,856 | |
Convertible promissory note one [Member] | ||
Total Debt | 170,783 | |
Convertible promissory note two [Member] | ||
Total Debt | 439,381 | 214,927 |
Convertible promissory note three [Member] | ||
Total Debt | 1,250,000 | |
Convertible promissory note four [Member] | ||
Total Debt | 699,341 | |
Convertible promissory note five [Member] | ||
Total Debt | 84,185 | |
Convertible promissory note six [Member] | ||
Total Debt | 39,137 | |
Convertible promissory note seven [Member] | ||
Total Debt | $ 13,292 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Notes Payable Details Narrative | ||
Total Debt | $ 2,789,642 | $ 917,363 |
Unamortized debt discount | 4,474,664 | $ 693,435 |
Accrued interest | $ 91,527 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Derivative liability - Conversion Feature | $ 6,895,000 | $ 743,400 |
Derivative liability | 6,895,000 | 743,400 |
Fair Value Measurement Using, Level 1 [Member] | ||
Derivative liability - Conversion Feature | ||
Derivative liability | ||
Fair Value Measurement Using, Level 2 [Member] | ||
Derivative liability - Conversion Feature | ||
Derivative liability | ||
Fair Value Measurement Using, Level 3 [Member] | ||
Derivative liability - Conversion Feature | 6,895,000 | 743,400 |
Derivative liability | $ 6,895,000 | $ 743,400 |
FAIR VALUE MEASUREMENTS (Deta50
FAIR VALUE MEASUREMENTS (Details 1) | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Fair Value Measurements Details 1 | |
Liabilities measured at fair value Beginning Balance | $ 743,400 |
Change in fair market value of Conversion Feature | 595,700 |
Issuance of equity instruments with debt greater than debt carrying amount | 1,355,000 |
Derivative debt converted into equity | (570,100) |
Issuance of equity instruments with derivatives | 4,771,000 |
Liabilities measured at fair value Ending Balance | $ 6,895,000 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Current: | ||
Federal | $ 742,300 | |
State | ||
Total | 742,300 | |
Deferred: | ||
Federal | 49,000 | 44,000 |
State | ||
Total | $ 791,300 | $ 44,000 |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Deferred income tax assets: | ||
Allowance for bad debt | $ 70,000 | $ 74,000 |
Warrants and interest expense | 4,002,000 | 3,412,000 |
Derivatives expense | 1,992,000 | 729,000 |
Net operating losses | 9,353,000 | 7,029,000 |
Total | 15,417,000 | 11,244,000 |
Deferred income tax liabilities: | ||
Depreciation | (194,900) | (44,000) |
Total | 15,222,100 | 11,200,000 |
Valuation allowance | (15,417,000) | (11,244,000) |
Net deferred tax asset (liability) | $ (194,900) | $ (44,000) |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Dec. 31, 2015 | |
Income Taxes Details Narrative | ||
Net operating loss carryforwards | $ 26,700,000 | $ 18,000,000 |
Net operating loss carryforwards expiring from | 2,034 |
CAPITAL STOCK (Details Narrativ
CAPITAL STOCK (Details Narrative) - $ / shares | Sep. 30, 2016 | Dec. 31, 2015 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, Authorized | 990,000,000 | 350,000,000 |
Common stock, Issued | 473,917,277 | 303,023,744 |
Common stock, Outstanding | 473,917,277 | 303,023,744 |
Convertible Series A Preferred Stock | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 100 | 100 |
Preferred stock, Outstanding | 100 | |
Convertible Series B Preferred Stock | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 49,999,900 | 24,999,900 |
Preferred stock, Outstanding | 40,382,962 | 16,300,000 |
WARRANTS (Details)
WARRANTS (Details) | 9 Months Ended |
Sep. 30, 2016$ / sharesshares | |
Shares | |
Warrants outstanding - beginning of year | shares | 32,426,008 |
Warrants exercised | shares | (26,251,785) |
Warrants granted | shares | 10,395,675 |
Warrants expired | shares | (523,333) |
Warrants outstanding - end of period | shares | 16,046,565 |
Weighted Average Exercise Price | |
Warrants outstanding - beginning of year | $ / shares | $ 0.18 |
Warrants exercised | $ / shares | 0.17 |
Warrants granted | $ / shares | 0.22 |
Warrants expired | $ / shares | (0.45) |
Warrants outstanding - end of period | $ / shares | $ 0.18 |
WARRANTS (Details 1)
WARRANTS (Details 1) | 9 Months Ended |
Sep. 30, 2016USD ($)$ / shares | |
Number of warrants Outstanding | $ | $ 16,046,545 |
Exercise Price Range One [Member] | |
Range of Exercise Prices | $ 0.33 |
Number of warrants Outstanding | $ | $ 439,637 |
Average Remaining Contractual Life | 4 months |
Weighted Average Exercise Price | $ 0.33 |
Exercise Price Range Two [Member] | |
Range of Exercise Prices | $ 0.16 |
Number of warrants Outstanding | $ | $ 750,000 |
Average Remaining Contractual Life | 6 months |
Weighted Average Exercise Price | $ 0.16 |
Exercise Price Range Three [Member] | |
Range of Exercise Prices | $ 0.14 |
Number of warrants Outstanding | $ | $ 1,578,947 |
Average Remaining Contractual Life | 21 months |
Weighted Average Exercise Price | $ 0.14 |
Exercise Price Range Four [Member] | |
Range of Exercise Prices | $ 0.21 |
Number of warrants Outstanding | $ | $ 400,644 |
Average Remaining Contractual Life | 21 months |
Weighted Average Exercise Price | $ 0.21 |
Exercise Price Range Five [Member] | |
Range of Exercise Prices | $ 0.14 |
Number of warrants Outstanding | $ | $ 1,846,300 |
Average Remaining Contractual Life | 22 months |
Weighted Average Exercise Price | $ 0.14 |
Exercise Price Range Six [Member] | |
Range of Exercise Prices | $ 0.06 |
Number of warrants Outstanding | $ | $ 4,567,002 |
Average Remaining Contractual Life | 24 months |
Weighted Average Exercise Price | $ 0.06 |
Exercise Price Range Seven [Member] | |
Range of Exercise Prices | $ 0.16 |
Number of warrants Outstanding | $ | $ 1,118,068 |
Average Remaining Contractual Life | 29 months |
Weighted Average Exercise Price | $ 0.16 |
Exercise Price Range Eight [Member] | |
Range of Exercise Prices | $ 0.13 |
Number of warrants Outstanding | $ | $ 863,392 |
Average Remaining Contractual Life | 30 months |
Weighted Average Exercise Price | $ 0.13 |
Exercise Price Range Nine [Member] | |
Range of Exercise Prices | $ 0.12 |
Number of warrants Outstanding | $ | $ 928,984 |
Average Remaining Contractual Life | 32 months |
Weighted Average Exercise Price | $ 0.12 |
Exercise Price Range Ten [Member] | |
Range of Exercise Prices | $ 0.35 |
Number of warrants Outstanding | $ | $ 1,625,000 |
Average Remaining Contractual Life | 45 months |
Weighted Average Exercise Price | $ 0.35 |
Exercise Price Range Eleven [Member] | |
Range of Exercise Prices | $ 0.35 |
Number of warrants Outstanding | $ | $ 535,714 |
Average Remaining Contractual Life | 47 months |
Weighted Average Exercise Price | $ 0.35 |
Exercise Price Range Twelve [Member] | |
Range of Exercise Prices | $ 0.44 |
Number of warrants Outstanding | $ | $ 1,214,286 |
Average Remaining Contractual Life | 47 months |
Weighted Average Exercise Price | $ 0.44 |
Exercise Price Range Thirteen [Member] | |
Range of Exercise Prices | $ 0.37 |
Number of warrants Outstanding | $ | $ 178,571 |
Average Remaining Contractual Life | 48 months |
Weighted Average Exercise Price | $ 0.37 |
COMMITMENTS (Details)
COMMITMENTS (Details) | Sep. 30, 2016USD ($) |
Year Ending December 31: | |
2,016 | $ 541,656 |
2,017 | 487,518 |
2,018 | 478,587 |
2,019 | 342,336 |
2,020 | 256,173 |
2021 and thereafter | 2,021,484 |
Total minimum rental payments | $ 4,127,754 |
COMMITMENTS (Details Narrative)
COMMITMENTS (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Commitments Details Narrative | ||
Net rent expense | $ 431,959 | $ 379,166 |
SEGMENT INFORMATION (Details)
SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Cost of Goods Sold | $ 5,630,979 | $ 1,648,545 | $ 15,095,137 | $ 6,944,859 |
Gross Margin | 6,950,365 | 2,018,351 | 18,198,441 | 7,805,994 |
Selling, general and administrative expenses | 6,005,946 | 2,099,314 | 13,519,615 | 7,792,445 |
Loss from operations | (4,686,560) | (1,729,508) | (10,416,311) | (6,931,310) |
Other Income (Expenses) | ||||
Amortization of debt discount | (610,089) | (258,306) | (922,621) | (524,161) |
Loss from derivatives issued with debt greater than debt carrying value | (867,000) | (1,355,000) | (561,000) | |
Gain (Loss) on fair market valuation of derivatives | 595,700 | (1,779,600) | ||
Interest Income (Expense) | (159,633) | (108,563) | (276,193) | (426,793) |
Total Other Income (Expense) | (865,722) | (258,419) | (4,070,311) | 3,696 |
Loss before Provision of Income Taxes | (5,552,282) | (1,987,927) | (14,486,622) | (6,927,614) |
Hydroponic Produce [Member] | ||||
Total Revenues | 2,138,260 | 1,597,378 | 9,413,121 | 6,832,805 |
Cost of Goods Sold | 1,857,783 | 1,370,804 | 8,472,797 | 6,266,858 |
Gross Margin | 280,477 | 226,574 | 940,324 | 565,947 |
Selling, general and administrative expenses | 705,751 | 441,177 | 2,083,778 | 1,373,976 |
Loss from operations | (425,274) | (214,603) | (1,143,454) | (808,029) |
Other Income (Expenses) | ||||
Amortization of debt discount | ||||
Loss on extinguishment of debt | ||||
Loss from derivatives issued with debt greater than debt carrying value | ||||
Gain (Loss) on fair market valuation of derivatives | ||||
Interest Income (Expense) | ||||
Total Other Income (Expense) | ||||
Loss before Provision of Income Taxes | (425,274) | (214,603) | (1,143,454) | (808,029) |
Total assets | 6,725,967 | 5,645,677 | ||
Cannabis Products [Member] | ||||
Total Revenues | 4,769,912 | 420,973 | 8,669,092 | 852,745 |
Cost of Goods Sold | 3,747,841 | 290,256 | 6,557,137 | 569,417 |
Gross Margin | 1,022,071 | 130,717 | 2,111,955 | 283,328 |
Selling, general and administrative expenses | 1,920,468 | 164,970 | 3,772,056 | 721,104 |
Loss from operations | (898,397) | (34,253) | (1,660,101) | (437,776) |
Other Income (Expenses) | ||||
Amortization of debt discount | ||||
Loss on extinguishment of debt | ||||
Loss from derivatives issued with debt greater than debt carrying value | ||||
Gain (Loss) on fair market valuation of derivatives | ||||
Interest Income (Expense) | (250) | |||
Total Other Income (Expense) | (250) | |||
Loss before Provision of Income Taxes | (898,647) | (34,253) | (1,660,101) | (437,776) |
Total assets | 2,390,233 | 1,105,796 | ||
Eliminations And Other [Member] | ||||
Total Revenues | 42,193 | 116,228 | 120,444 | |
Cost of Goods Sold | 25,355 | (12,515) | 65,203 | 108,584 |
Gross Margin | 16,838 | 12,515 | 51,025 | 11,860 |
Selling, general and administrative expenses | 3,379,727 | 1,493,167 | 7,663,781 | 5,697,365 |
Loss from operations | (3,362,889) | (1,480,652) | (7,612,756) | (5,685,505) |
Other Income (Expenses) | ||||
Amortization of debt discount | (610,089) | (258,306) | (922,621) | (524,161) |
Loss on extinguishment of debt | (263,950) | (920,797) | (263,950) | |
Loss from derivatives issued with debt greater than debt carrying value | (867,000) | (1,355,000) | (561,000) | |
Gain (Loss) on fair market valuation of derivatives | 771,000 | 372,400 | (595,700) | 1,779,600 |
Interest Income (Expense) | (159,383) | (108,563) | (276,193) | (426,793) |
Total Other Income (Expense) | (865,472) | (258,419) | (4,070,311) | 3,696 |
Loss before Provision of Income Taxes | (4,228,361) | (1,739,071) | (11,683,067) | (5,681,809) |
Total assets | 60,849,033 | 1,887,156 | ||
Segment Information [Member] | ||||
Total Revenues | 6,950,365 | 2,018,351 | 18,198,441 | 7,805,994 |
Cost of Goods Sold | 5,630,979 | 1,648,545 | 15,095,137 | 6,944,859 |
Gross Margin | 1,319,386 | 369,806 | 3,103,304 | 861,135 |
Selling, general and administrative expenses | 6,005,946 | 2,099,314 | 13,519,615 | 7,792,445 |
Loss from operations | (4,686,560) | (1,729,508) | (10,416,311) | (6,931,310) |
Other Income (Expenses) | ||||
Amortization of debt discount | (610,089) | (258,306) | (922,621) | (524,161) |
Loss on extinguishment of debt | (263,950) | (920,797) | (263,950) | |
Loss from derivatives issued with debt greater than debt carrying value | (867,000) | (1,355,000) | (561,000) | |
Gain (Loss) on fair market valuation of derivatives | 771,000 | 372,400 | (595,700) | 1,779,600 |
Interest Income (Expense) | (159,633) | (108,563) | (276,193) | (426,793) |
Total Other Income (Expense) | (865,722) | (258,419) | (4,070,311) | 3,696 |
Loss before Provision of Income Taxes | $ (5,552,282) | $ (1,987,927) | (14,486,622) | (6,927,614) |
Total assets | $ 69,965,233 | $ 8,638,629 |