Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2017 | Aug. 04, 2017 | |
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 | Jun. 30, 2017 | |
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 | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 640,043,036 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2,017 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Current Assets: | ||
Cash | $ 9,131,306 | $ 9,749,572 |
Accounts Receivable | 784,071 | 747,792 |
Inventory | 3,233,072 | 1,909,330 |
Prepaid Expenses | 1,238,529 | 704,721 |
Total Current Assets | 14,386,978 | 13,111,415 |
Property, Equipment and Leasehold Improvements, Net | 10,581,265 | 10,464,764 |
Intangible Assets, Net | 22,768,048 | 23,627,098 |
Goodwill | 28,921,260 | 28,921,260 |
Other Assets | 221,118 | 54,193 |
TOTAL ASSETS | 76,878,669 | 76,178,730 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 3,526,498 | 2,417,400 |
Derivative Liabilities | 3,163,000 | 6,987,000 |
Short-Term Debt | 575,705 | 564,324 |
Income Taxes Payable | 615,830 | 615,830 |
Contingent Consideration | 12,085,859 | |
Total Current Liabilities | 7,881,033 | 22,670,413 |
Long-Term Liabilities: | ||
Long-Term Debt | 736,290 | 1,354,352 |
Total Long-Term Liabilities | 736,290 | 1,354,352 |
Total Liabilities | 8,617,323 | 24,024,765 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' EQUITY: | ||
Common Stock, Par Value $0.001: 990,000,000 Shares Authorized as of June 30, 2017 and December 31, 2016; 618,667,265 and 553,863,812 Shares Issued and Outstanding as of June 30, 2017 and December 31, 2016, respectively | 618,667 | 553,864 |
Additional Paid-In Capital | 152,354,775 | 124,915,182 |
Accumulated Deficit | (83,436,756) | (72,870,999) |
Total Terra Tech Corp. Stockholders' Equity | 69,569,832 | 52,634,873 |
Non-Controlling Interest | (1,308,486) | (480,908) |
Total Stockholders' Equity | 68,261,346 | 52,153,965 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 76,878,669 | 76,178,730 |
Series A Preferred Stock [Member] | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value | ||
Series B Preferred Stock [Member] | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value | $ 33,146 | $ 36,826 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2017 | Dec. 31, 2016 |
Stockholders' Equity | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, Authorized | 990,000,000 | 990,000,000 |
Common stock, Issued | 618,667,265 | 553,863,812 |
Common stock, Outstanding | 618,667,265 | 553,863,812 |
Series A Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 100 | 100 |
Preferred stock, Issued | 100 | 100 |
Preferred stock, Outstanding | 100 | 100 |
Series B Preferred Stock [Member] | ||
Stockholders' Equity | ||
Preferred stock, Par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 49,999,900 | 49,999,900 |
Preferred stock, Issued | 33,146,112 | 36,825,953 |
Preferred stock, Outstanding | 33,146,112 | 36,825,953 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Consolidated Statements Of Operations | ||||
Total Revenues | $ 7,842,873 | $ 9,699,909 | $ 14,667,329 | $ 11,248,076 |
Cost of Goods Sold | 6,336,500 | 8,152,935 | 12,801,893 | 9,686,575 |
Gross Profit | 1,506,373 | 1,546,974 | 1,865,436 | 1,561,501 |
Selling, General and Administrative Expenses | 6,029,287 | 5,364,351 | 12,415,587 | 7,291,252 |
Loss from Operations | (4,522,914) | (3,817,377) | (10,550,151) | (5,729,751) |
Other Income (Expense): | ||||
Amortization of Debt Discount | (515,654) | (218,126) | (1,126,270) | (312,532) |
Loss on Extinguishment of Debt | (1,639,137) | (2,678,595) | (920,797) | |
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | (488,000) | (488,000) | ||
Gain (Loss) on Fair Market Valuation of Derivatives | 987,200 | (206,000) | 2,597,950 | (1,366,700) |
Interest Expense | (130,510) | (60,565) | (288,343) | (116,560) |
Loss on Fair Market Valuation of Contingent Consideration | (77,286) | (4,426,047) | ||
Gain on Settlement of Contingent Consideration | 4,991,571 | 4,991,571 | ||
Total Other Income (Expense) | 3,616,184 | (972,691) | (929,734) | (3,204,589) |
Loss Before Provision for Income Taxes | (906,730) | (4,790,068) | (11,479,885) | (8,934,340) |
Provision for Income Taxes | 381,000 | 381,000 | ||
Net Loss | (906,730) | (5,171,068) | (11,479,885) | (9,315,340) |
Net Loss Attributable to Non-Controlling Interests | 452,961 | 236,830 | 914,128 | 255,038 |
NET LOSS ATTRIBUTABLE TO TERRA TECH CORP. | $ (453,769) | $ (4,934,238) | $ (10,565,757) | $ (9,060,302) |
Net Loss Per Common Share Attributable to Terra Tech Corp. Common Stockholders - Basic and Diluted | $ (0.01) | $ (0.02) | $ (0.03) | |
Weighted-Average Number of Common Shares Outstanding - Basic and Diluted | 583,096,376 | 349,893,516 | 575,249,192 | 338,187,946 |
CONSOLIDATED STATEMENT OF CASH
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) | 3 Months Ended | 6 Months Ended | |
Jun. 30, 2017 | Jun. 30, 2017 | Jun. 30, 2016 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |||
Net Loss | $ (906,730) | $ (11,479,885) | $ (9,315,340) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | |||
(Gain) Loss on Fair Market Valuation of Derivatives | (987,200) | (2,597,950) | 1,366,700 |
Loss on Fair Market Valuation of Contingent Consideration | 77,286 | 4,426,047 | |
Gain on Settlement of Contingent Consideration | (4,991,571) | (4,991,571) | |
Loss on Extinguishment of Debt | 1,639,137 | 2,678,595 | 920,797 |
Amortization of Debt Discount | 515,654 | 1,126,270 | 312,532 |
Deferred Tax Expense | 49,000 | ||
Depreciation and Amortization | 1,778,782 | 787,178 | |
Warrants Issued with Common Stock and Debt | 211,534 | ||
Stock Issued for Compensation | 1,356,138 | ||
Stock Issued for Director Fees | 221,973 | 60,550 | |
Stock Issued for Services | 591,359 | 20,727 | |
Stock Option Expense | 205,019 | 95,177 | |
Equity Instruments Issued with Debt Greater than Debt Carrying Value | 488,000 | ||
Change in Allowance for Doubtful Accounts | 102,253 | ||
Changes in Operating Assets and Liabilities: | |||
Accounts Receivable | (36,279) | (369,557) | |
Inventory | (1,323,742) | (472,970) | |
Prepaid Expenses | (533,808) | 257,238 | |
Other Assets | (166,925) | ||
Accounts Payable and Accrued Expenses | 1,383,860 | 2,393,183 | |
NET CASH USED IN OPERATING ACTIVITIES | (7,150,583) | (3,304,532) | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |||
Cash Assumed in Acquisition | 163,566 | ||
Purchase of Property, Equipment and Leasehold Improvements | (1,036,233) | (1,988,587) | |
Purchase of Intangible Assets - Domain Names | (75,000) | ||
NET CASH USED IN INVESTING ACTIVITIES | (1,036,233) | (1,900,021) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |||
Proceeds from Issuance of Notes Payable | 6,000,000 | 3,250,000 | |
Cash Paid for Debt Discount | (180,000) | ||
Proceeds from Issuance of Common Stock | 3,750,000 | 3,208,134 | |
Payment of Contingent Consideration | (2,088,000) | ||
Cash Contribution from Non-Controlling Interest | 86,550 | ||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 7,568,550 | 6,458,134 | |
NET CHANGE IN CASH | (618,266) | 1,253,581 | |
Cash at Beginning of Period | 9,749,572 | 418,082 | |
CASH AT END OF PERIOD | 9,131,306 | 9,131,306 | 1,671,663 |
SUPPLEMENTAL DISCLOSURE FOR OPERATING ACTIVITIES: | |||
Cash Paid for Interest | 10,100 | ||
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |||
Settlement of Contingent Consideration | 4,739,638 | 4,739,638 | |
Gain on Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital | $ 4,692,697 | 4,692,697 | |
Fair Value of Debt Discount Recorded | 4,446,000 | 2,824,000 | |
Issuance of Common Stock for Debt and Interest Expense | $ 8,564,324 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 1. DESCRIPTION OF BUSINESS | Organization References in the Notes to Unaudited Consolidated Financial Statements to “the Company”, “Terra Tech”, “we”, “us”, or “our” are intended to mean Terra Tech Corp., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis. Through MediFarm, LLC, a Nevada limited liability company (“MediFarm”), MediFarm I, LLC, a Nevada limited liability company (“MediFarm I”), and MediFarm II, LLC, a Nevada limited liability company (“MediFarm II”), subsidiaries in which the Company owns interests, the Company operates and/or plans to operate medical marijuana dispensary facilities, cultivation, and production facilities in Nevada. Through IVXX, LLC, a Nevada limited liability company (“IVXX LLC”), and IVXX, Inc., a California corporation (“IVXX Inc.”; together with IVXX LLC, “IVXX”), the Company’s wholly-owned subsidiary, the Company produces and sells a line of cannabis flowers, as well as a line of cannabis pure concentrates. Most recently, the Company formed another subsidiary, MediFarm I Real Estate, LLC, a Nevada limited liability company (“MediFarm I RE”), which owns the real property on which a medical marijuana dispensary will be constructed. The dispensary will be operated by MediFarm I. Through Black Oak Gallery, a California corporation (“Black Oak”), we operate a medical marijuana retail dispensary, a medical marijuana cultivation facility, and have a second medical marijuana cultivation facility in the early stages of construction, all in Oakland, California. The Company is a wholesale seller of locally grown hydroponic produce, herbs and floral products through its wholly-owned subsidiary, Edible Garden Corp., a Nevada corporation (“Edible Garden”). On April 1, 2016, the Company acquired Black Oak. Black Oak operates a medical marijuana retail 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, and Black Oak. Since the Merger was completed on April 1, 2016, Black Oak’s financial results are included in our unaudited consolidated financial statements subsequent to that date. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Terra Tech’s annual report on Form 10-K for the year ended December 31, 2016. Non-Controlling Interest Non-controlling interest is shown as a component of shareholders’ equity on the consolidated balance sheets and the share of income (loss) attributable to non-controlling interest is shown as a component of income (loss) in the consolidated statements of operations. Use of Estimates The preparation of financial statements in conformity with United States generally accepted accounting principles 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. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss and shareholders’ equity. Inventory We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its current estimated net realizable value (“NRV”). ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, Prepaid Expenses Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance and service contracts requiring up-front payments. 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. The approximate useful lives for depreciation of our property, equipment and leasehold improvements are as follows: 32 years for buildings; three to eight years for furniture and equipment; and the shorter of the estimated useful life or the underlying lease term for leasehold improvements. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. Goodwill Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired and liabilities assumed in a business acquisition. Goodwill is not amortized for accounting purposes. We review the goodwill allocated to each of our reporting units for possible impairment annually as of August 1 and whenever events or changes in circumstances indicate its carrying amount may not be recoverable. When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform a two-step impairment test. If we conclude otherwise, then no further action is taken. We also have the option to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step impairment test. In the two-step impairment test, we measure the recoverability of goodwill by comparing a reporting unit’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. 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 5 to 12 Years Trade Names 2 to 8 Years Dispensary License 14 Years Patent 2 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. Intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the reporting unit exceeds its fair value. Impairment of Long-Lived Assets We have adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification (“ASC”) 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. Other Assets Other assets are comprised primarily of security deposits for leased properties in California, Nevada and New Jersey. The deposits will be returned at the end of the lease term. Revenue Recognition We recognize revenue in accordance with ASC 605, “Revenue Recognition”, Cannabis Dispensary, Cultivation and Production We recognize revenue from manufacturing and distribution product sales and upon transfer of title and risk to the customer, which occurs either at shipping (F.O.B. terms), or upon sell through, depending on the arrangement. Revenue from our retail dispensaries 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 dispensaries. 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 end-customers. We recognize revenue from the sale of consignment inventory on a gross basis, as we have determined that: 1) we are the primary obligor to the customer; 2) we have latitude in establishing the sales prices and profit margins of our products; 3) we have discretion in selecting our suppliers; 4) we are responsible for loss or damage to consigned inventory; and 5) our 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. Herbs and Produce Products 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. Cost of Goods Sold Cannabis Dispensary, Cultivation and Production 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. Herbs and Produce Products Cost of goods sold are for the plants grown, packaging, other supplies and purchased plants that are sold into the retail marketplace by Edible Garden. Other expenses include freight, allocations of rent, repairs and maintenance, and utilities. Stock-Based Compensation The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation”, Warrants ASC 815-40, “Contracts in Entity’s Own Equity” ASC 815, “Derivatives and Hedging” 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 expense 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. We have incurred net operating losses for financial-reporting and tax-reporting purposes. At June 30, 2017 and December 31, 2016, such net operating losses were offset entirely by a valuation allowance. The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations. Loss Per Common Share In accordance with the provisions of ASC 260, “Earnings Per Share”, Fair Value of Financial Instruments 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 that 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 – 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 FASB ASU 2017-04 (Topic 350), “Intangibles - Goodwill and Others” FASB ASU 2017-01 (Topic 805), “Business Combinations: Clarifying the Definition of a Business” FASB ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” “Statement of Cash Flows” FASB ASU No. 2016-02 (Topic 842), “Leases” FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers” “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” “Principal versus Agent Considerations (Reporting Gross versus Net)”, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” “Narrow-Scope Improvements and Practical Expedients” |
CONCENTRATIONS OF BUSINESS AND
CONCENTRATIONS OF BUSINESS AND CREDIT RISK | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK | The Company maintains cash balances in several financial institutions that are insured by the Federal Deposit Insurance Corporation up to certain federal limitations. At times, the CompanyÂ’s cash balance exceeds these federal limitations. The Company provides credit in the normal course of business to customers located throughout the U.S. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. |
INVENTORY
INVENTORY | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 4. INVENTORY | Raw materials consist of Edible GardenÂ’s herb product lines and material for IVXXÂ’s line of cannabis pure concentrates. Work-in-progress consists of live plants grown for Edible GardenÂ’s herb product lines and live plants grown at Black Oak. Finished goods consists of IVXXÂ’s line of cannabis packaged products to be sold into dispensaries, and Edible GardenÂ’s products to be sold via food, drug, and mass channels. Cost of goods sold is calculated using the average costing method. The Company reviews its inventory periodically to determine NRV. 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. As of June 30, 2017 and December 31, 2016, inventory consisted of the following: June 30, 2017 December 31, 2016 Raw Materials $ 1,010,401 $ 486,119 Work-in-Progress 1,179,647 570,145 Finished Goods 1,043,024 853,066 Total Inventory $ 3,233,072 $ 1,909,330 |
PROPERTY, EQUIPMENT AND LEASEHO
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 5. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS | As of June 30, 2017 and December 31, 2016, property, equipment and leasehold improvements at cost, less accumulated depreciation, consisted of the following: June 30, 2017 December 31, 2016 Land and Building $ 1,454,124 $ 1,454,124 Furniture and Equipment 3,376,758 3,141,244 Computer Hardware and Software 438,210 396,479 Leasehold Improvements 8,458,734 7,568,465 Construction in Progress 297,041 459,327 Subtotal 14,024,867 13,019,639 Less Accumulated Depreciation (3,443,602 ) (2,554,875 ) Property, Equipment and Leasehold Improvements, Net $ 10,581,265 $ 10,464,764 Depreciation expense related to property, equipment and leasehold improvements for the three months ended June 30, 2017 and 2016 was $456,659 and $222,939, respectively, and for the six months ended June 30, 2017 and 2016 was $919,732 and $373,668, respectively. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 6. INTANGIBLE ASSETS | As of June 30, 2017 and December 31, 2016, intangible assets consisted of the following: June 30, 2017 December 31, 2016 Estimated Useful Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Amortized Intangible Assets: Customer Relationships 5 to 12 $ 8,960,700 $ (1,218,528 ) $ 7,742,172 $ 8,960,700 $ (780,960 ) $ 8,179,740 Trade Brands and Patent 2 to 8 498,598 (145,757 ) 352,841 498,598 (91,061 ) 407,537 Dispensary License 14 10,270,000 (916,965 ) 9,353,035 10,270,000 (550,179 ) 9,719,821 Total Amortized Intangible Assets 19,729,298 (2,281,250 ) 17,448,048 19,729,298 (1,422,200 ) 18,307,098 Unamortized Intangible Assets: Trade Name Indefinite 5,320,000 – 5,320,000 5,320,000 – 5,320,000 Total Unamortized Intangible Assets 5,320,000 – 5,320,000 5,320,000 – 5,320,000 Total Intangible Assets $ 25,049,298 $ (2,281,250 ) $ 22,768,048 $ 25,049,298 $ (1,422,200 ) $ 23,627,098 Intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $429,525 and $516,878 for the three months ended June 30, 2017 and 2016, respectively, and $859,050 and $527,498 for the six months ended June 30, 2017 and 2016, respectively. |
ACCOUNTS PAYABLE AND ACCRUED EX
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES | As of June 30, 2017 and December 31, 2016, accounts payable and accrued expenses consisted of the following: June 30, 2017 December 31, 2016 Accounts Payable $ 1,742,666 $ 1,986,907 Sales Tax Payable 360,176 122,470 Accrued Interest Payable 110,217 96,633 Accrued Expenses 1,313,439 211,390 Total Accounts Payable and Accrued Expenses $ 3,526,498 $ 2,417,400 |
NOTES PAYABLE
NOTES PAYABLE | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 8. NOTES PAYABLE | As of June 30, 2017 and December 31, 2016, notes payable consisted of the following: June 30, 2017 December 31, 2016 Unsecured promissory demand notes issued to an accredited investor, which bear interest at a rate of 4% per annum. Holder may elect to convert into common stock at $0.75 per share. The remaining balance of the note and accrued interest was converted into common stock in April 2017. $ – $ 64,324 Convertible promissory note dated December 14, 2015, issued to accredited investors, which matured December 13, 2016 and bears interest at a rate of 12% per annum. The holder of the note extended the maturity to December 13, 2017. The conversion price is $0.1211, subject to adjustment. 500,000 500,000 Senior convertible promissory note dated October 28, 2016, issued to accredited investors, which matures April 28, 2018 and bears interest at a rate of 1% per annum. The conversion price is 90% of the average of the lowest three (3) VWAPs for the five (5) consecutive trading days prior to the conversion date. The remaining balance of the note and accrued interest was converted into common stock in January 2017. – 102,582 Senior convertible promissory note dated November 1, 2016, issued to accredited investors, which matures May 1, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.35, subject to adjustment. 75,705 31,615 Senior convertible promissory note dated December 16, 2016, issued to accredited investors, which matures June 16, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.27, subject to adjustment. – 1,220,155 Senior convertible promissory note dated June 23, 2017, issued to accredited investors, which matures December 23, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.1362, subject to adjustment. 736,290 – Total Debt 1,311,995 1,918,676 Less Short-Term Portion 575,705 564,324 Long-Term Portion $ 736,290 $ 1,354,352 As of June 30, 2017 and December 31, 2016, total debt was $1,311,995 and $1,918,676, respectively, which included unamortized debt discount of $2,338,005 and $4,295,648, respectively. Senior secured promissory notes are secured by shares of common stock. There was accrued interest payable of $110,217 and $96,633 as of June 30, 2017 and December 31, 2016, respectively. See “Note 16 – Subsequent Events” Securities Purchase Agreement Dated June 23, 2017 and 12% Senior Convertible Promissory Note Due December 23, 2018 On June 23, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sold to the accredited investor a 12% Senior Convertible Promissory Note due December 23, 2018 (“Note A”) in the principal amount of $3,000,000 for a purchase price of $3,000,000 (“Offering A”). There were no fees or expenses deducted from the net proceeds received by the Company in Offering A. Note A and the shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) issuable upon conversion of Note A are collectively referred to herein as the “Securities.” All principal and interest due and owing under Note A 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) $0.1362 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price A”), which Conversion Price A 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 Note A 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) day’s notice, that the holder convert Note A at Conversion Price A. The Company may prepay in cash any portion of the outstanding principal amount of Note A 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 Note A plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of Note A; (ii) 115% of the sum of the then-outstanding principal amount of Note A plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of Note A; or (iii) 125% of the sum of the then-outstanding principal amount of Note A plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of Note A. Securities Purchase Agreement Dated February 22, 2017 and 12% Senior Convertible Promissory Note Due August 22, 2018 On February 22, 2017, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sold to the accredited investor a 12% Senior Convertible Promissory Note due August 22, 2018 (“Note B”) in the principal amount of $3,000,000 for a purchase price of $3,000,000 (“Offering B”). There were no fees or expenses deducted from the net proceeds received by the Company in Offering B. Note B and the shares of the Common Stock issuable upon conversion of Note B are collectively referred to herein as the “Securities.” All principal and interest due and owing under Note B 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) $0.2495 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price B”), which Conversion Price B 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 Note B 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. All interest payments under the Note are payable, at the Company’s option, in cash or shares of Common Stock. 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) day’s notice, that the holder convert Note B at Conversion Price B. The Company may prepay in cash any portion of the outstanding principal amount of Note B 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 Note B plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of Note B; (ii) 115% of the sum of the then-outstanding principal amount of Note B plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of Note B; or (iii) 125% of the sum of the then-outstanding principal amount of Note B plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of Note B. |
CONTINGENT CONSIDERATION LIABIL
CONTINGENT CONSIDERATION LIABILITY | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 9. CONTINGENT CONSIDERATION LIABILITY | The Company accounts for “contingent consideration” according to FASB ASC 805, “Business Combinations” In the acquisition of Black Oak, the Company valued 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. On April 1, 2017, the anniversary date of the acquisition and the settlement date of the contingent consideration, the final contingent consideration was approximately $16.5 million. A summary of the changes in the contingent consideration as well as the detail is below: Amount Contingent Consideration Summary Balance at December 31, 2016 $ 12,085,859 Change in Fair Market Valuation of Contingent Consideration 4,348,761 Balance at March 31, 2017 and April 1, 2017 $ 16,434,620 Contingent Consideration Detail Performance-Based Cash Contingent Consideration $ 2,088,000 Market-Based Stock Contingent Consideration 14,346,620 $ 16,434,620 Changes in the fair market valuation of the contingent consideration are recognized in the consolidated statements of operations. For the three and six months ended June 30, 2017, the loss on fair market valuation of contingent consideration was $77,286, and $4,426,047, respectively. During April 2017, in final settlement of the contingent consideration, the Company issued approximately $4.7 million in shares of its common stock, or common stock equivalent of approximately 18.1 million shares of its common stock, and made a cash payment of approximately $2.1 million. A summary is as follows: Contingent Consideration Balance at March 31, 2017 $ 16,434,620 Change in Fair Market Valuation of Contingent Consideration 77,286 Payment of Contingent Consideration in Cash (2,088,000 ) Settlement of Contingent Consideration (4,739,638 ) Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital (4,692,697 ) Gain on Settlement of Contingent Consideration (4,991,571 ) Contingent Consideration Balance at June 30, 2017 $ – Pursuant to the terms of the contingent consideration as outlined in the Merger Agreement, the Company was required to release from escrow shares worth approximately $14.4 million. Of those shares, 18.1 million shares, with a value of $4,789,638, were issued in final settlement of the Market-Based Contingent Consideration, and approximately 34.2 million shares were additionally clawed-back. The Market-Based Clawback associated with common stock equivalent of approximately 35.1 million shares were clawed-back pursuant to the appreciation of the quoted price of the Company’s stock underlying the market-based component of the contingent consideration. An additional common stock equivalent of approximately 34.2 million shares, with a value of $9,684,268, were clawed-back pursuant to disputes between the sellers of Black Oak and the Company with respect to certain operational and performance goals that would have impacted the appreciation of the quoted price of the Company’s common stock underlying the market-based component of the contingent consideration and, in effect, increasing the number of clawback shares. For the three and six months ended June 30, 2017, the Company recognized a gain on settlement of contingent consideration of $4,991,571. The balance attributable to related parties was recorded in additional paid in capital. See “Note 10 – Fair Value Measurements” |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 10. FAIR VALUE MEASUREMENTS | Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of the dates indicated: Fair Value at June 30, Fair Value Measurement Using Description 2017 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature $ 3,163,000 $ – $ – $ 3,163,000 $ 3,163,000 $ – $ – $ 3,163,000 Fair Value at December 31, Fair Value Measurement Using Description 2016 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature $ 6,987,000 $ – $ – $ 6,987,000 Liability – Contingent Consideration $ 12,085,859 – – 12,085,859 $ 19,072,859 $ – $ – $ 19,072,859 No financial assets were measured on a recurring basis as of June 30, 2017 and December 31, 2016. The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2017: Balance at December 31, 2016 $ 6,987,000 Change in Fair Market Value of Conversion Feature (2,597,950 ) Derivative Debt Converted into Equity (5,672,050 ) Issuance of Debt Instruments with Derivatives 4,446,000 Balance at June 30, 2017 $ 3,163,000 The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2017: Balance at December 31, 2016 $ 12,085,859 Change in Fair Market Valuation of Contingent Consideration 4,426,047 Payment of Contingent Consideration in Cash (2,088,000 ) Settlement of Contingent Consideration (4,739,638 ) Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital (4,692,697 ) Gain on Settlement of Contingent Consideration (4,991,571 ) Balance at June 30, 2017 $ – Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis Non-financial assets, such as property, equipment and leasehold improvements, goodwill, and intangible assets, are required to be measured at fair value only when an impairment loss is recognized. The Company did not record an impairment charge related to these assets during the three and six months ended June 30, 2017 and 2016. |
INCOME TAXES
INCOME TAXES | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 11. INCOME TAXES | For the three and six months ended June 30, 2017 and 2016, the Company had no income tax expense (benefit). As of June 30, 2017 and December 31, 2016, the components of deferred income tax assets and deferred income tax liabilities consisted of the following: June 30, 2017 December 31, 2016 Deferred Income Tax Assets: Warrants Expense $ 4,832,000 $ 4,186,000 Derivatives Expense 6,443,000 4,067,000 Net Operating Losses 19,105,000 15,242,000 Deferred Income Tax Liabilities: Depreciation (1,818,000 ) (1,334,000 ) Total 28,562,000 22,161,000 Valuation Allowance (28,562,000 ) (22,161,000 ) Net Deferred Tax Liabilities $ – $ – For the three and six months ended June 30, 2017 and 2016, certain of the Company’s subsidiaries produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of IRC Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. Permanent differences include ordinary and necessary business expenses deemed by the Company as a non-allowable deduction under IRC Section 280E, and tax deductions related to equity compensation that are less than the compensation recognized for financial reporting. As of June 30, 2017 and December 31, 2016, the Company had net operating loss carryforwards of $42,623,000 and $34,940,000, respectively, which, if unused, will expire beginning in the year 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 (“IRC”) 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. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years from 2012 to 2015 are subject to examination. 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 June 30, 2017. 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 June 30, 2017, a valuation allowance 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. |
EQUITY
EQUITY | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 12. EQUITY | Preferred Stock Series A Preferred Stock is convertible on a one-for-one basis into common stock and has all of the voting rights of the Company’s common stock. Each share of Series B Preferred Stock: (i) is entitled to 100 votes for each share of common stock into which a share 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 Company’s common stock. See “Note 16 – Subsequent Events” During the six months ended June 30, 2017, the Company issued 600,000 shares of Series B Preferred Stock for compensation in the amount of $1,035,406. During the six months ended June 30, 2017, the Company cancelled 4,279,841 shares of Series B Preferred Stock that had been previously issued and held in escrow in connection with the contingent consideration related to the Black Oak acquisition. See “Note 9 – Contingent Consideration Liability” Common Stock During the six months ended June 30, 2017, senior secured convertible promissory notes and accrued interest in the amount of $8,839,084 were converted into 50,710,473 shares of common stock. During the six months ended June 30, 2017, the Company issued 17,674,027 shares of common stock for cash in the amount of $3,750,000 pursuant to an equity financing facility with an accredited investor. During the six months ended June 30, 2017, the Company issued 1,215,909 shares of common stock for director fees in the amount of $221,973, issued 2,859,005 shares of common stock for services performed in the amount of $591,359 and issued 1,635,780 shares of common stock for compensation in the amount of $320,732. During the six months ended June 30, 2017, the Company cancelled 9,291,744 shares of common stock that had been previously issued and held in escrow in connection with the contingent consideration related to the Black Oak acquisition. See “Note 9 – Contingent Consideration Liability” During the six months ended June 30, 2016, senior secured convertible promissory notes and accrued interest in the amount of $961,740 were converted into 13,906,149 shares of common stock. During the six months ended June 30, 2016, the Company sold 25,715,674 shares of common stock for the net amount of $3,208,134 pursuant to an equity financing facility with an accredited investor. Stock-Based Compensation Expense A summary of stock-based compensation for the three months ended June 30, 2017 and 2016 is as follows: For the Three Months Ended June 30, 2017 June 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options 8,250,000 $ 157,430 – $ 47,589 Stock Grants: Employees (Common Stock) 1,535,780 294,632 – – Employees (Series B Preferred Stock) – – – – Directors (Common Stock) 1,090,909 184,473 – – Non–Employee Consultants (Common Stock) 2,391,358 446,348 – – Total Stock-Based Compensation 13,268,047 $ 1,082,883 – $ 47,589 A summary of stock-based compensation for the six months ended June 30, 2017 and 2016 is as follows: For the Six Months Ended June 30, 2017 June 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options 8,250,000 $ 205,019 6,700,000 $ 95,178 Stock Grants: Employees (Common Stock) 1,635,780 320,732 – – Employees (Series B Preferred Stock) 600,000 1,035,406 – – Directors (Common Stock) 1,215,909 221,973 350,000 60,550 Non–Employee Consultants (Common Stock) 2,859,005 591,359 70,000 20,727 Total Stock–Based Compensation 14,560,694 $ 2,374,489 7,120,000 $ 176,455 |
COMMITMENTS
COMMITMENTS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 13. COMMITMENTS | Operating Lease Commitments The Company leases certain business facilities under operating lease agreements that specify minimum rentals. Many of these have renewal provisions. The CompanyÂ’s net rent expense for the three months ended June 30, 2017 and 2016 was $312,254 and $298,092, respectively, and for the six months ended June 30, 2017 and 2016 was $627,067 and $431,959, respectively. Production Operating Agreement On May 23, 2017, the Company entered into a one-year operating agreement with Panther Gap Farms pursuant to which Panther Gap Farms will grow up to approximately one metric ton of the CompanyÂ’s IVXX cannabis annually. The operating agreement is renewable for up to three additional terms of one year each. The agreement also requires the Company to issue common stock, with a value of $1,150,000, upon execution of the agreement, which the Company had not issued as of June 30, 2017. In addition to the common stock, the Company is required to issue common stock for the profit share of the cannabis ultimately sold by the Company upon execution of the agreement. The shares to be received by Panther Gap Farms under the profit share agreement are dependent on the ultimate profit recognized by the Company when the cannabis product is sold. As of June 30, 2017, the Company has not issued the required shares. The Company and Panther Gap Farms also entered into a lease agreement pursuant to which the Company leases the property on which the cannabis is grown. The lease agreement requires monthly payments of $30,000 for eight months and is also renewable for up to three additional terms of one year each. |
SEGMENT INFORMATION
SEGMENT INFORMATION | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 14. SEGMENT INFORMATION | The Company’s operating and reportable segments are currently organized around the following products that it offers as part of its core business strategy: · Herbs and Produce Products · Cannabis Dispensary, Cultivation and Production 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 few years 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 Company’s Chief Operating Decision Maker (“CODM”), reviews results, manages and allocates resources between these two strategic business groupings, and budgets using these business segments. The Company’s 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 goods sold 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 Company’s 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 2 - Summary of Significant Accounting Policies” Herbs and Produce Products Either independently or in conjunction with third parties, we are a retail seller of locally grown hydroponic herbs, produce, and floral products, which are distributed through major grocery stores throughout the East and Midwest regions of the U.S. Cannabis Dispensary, Cultivation and Production Either independently or in conjunction with third parties, we operate medical marijuana retail dispensaries, medical marijuana cultivation and production facilities in California and Nevada. We own real property in Nevada on which we plan to build a medical marijuana dispensary. All of our retail dispensaries in California and Nevada offer a broad selection of medical cannabis products including flowers, concentrates and edibles. We also produce and sell a line of medical cannabis flowers, as well as a line of medical cannabis-extracted products, which include concentrates, cartridges, vape pens and wax products. Summarized financial information concerning the Company’s reportable segments is shown in the following tables. Total assets at June 30, 2017 and 2016 exclude intercompany receivable balances eliminated in consolidation. For the Three Months Ended June 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 1,777,067 $ 6,049,319 $ 16,487 $ 7,842,873 Cost of Goods Sold 1,325,729 5,010,771 – 6,336,500 Gross Profit 451,338 1,038,548 16,487 1,506,373 Selling, General and Administrative Expenses 855,999 2,210,475 2,962,813 6,029,287 Loss from Operations (404,661 ) (1,171,927 ) (2,946,326 ) (4,522,914 ) Other Income (Expense): Amortization of Debt Discount – – (515,654 ) (515,654 ) Loss on Extinguishment of Debt – – (1,639,137 ) (1,639,137 ) Gain on Fair Market Valuation of Derivatives – – 987,200 987,200 Interest Expense – – (130,510 ) (130,510 ) Loss on Fair Market Valuation of Contingent Consideration – (77,286 ) – (77,286 ) Gain on Settlement of Contingent Consideration – 4,991,571 – 4,991,571 Total Other Income (Expense) – 4,914,285 (1,298,101 ) 3,616,184 Loss Before Provision for Income Taxes $ (404,661 ) $ 3,742,358 $ (4,244,427 ) $ (906,730 ) Total Assets at June 30, 2017 $ 7,104,469 $ 60,224,138 $ 9,550,062 $ 76,878,669 For the Three Months Ended June 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 5,873,418 $ 3,768,977 $ 57,514 $ 9,699,909 Cost of Goods Sold 5,517,052 2,596,035 39,848 8,152,935 Gross Profit 356,366 1,172,942 17,666 1,546,974 Selling, General and Administrative Expenses 756,405 1,649,452 2,958,494 5,364,351 Loss from Operations (400,039 ) (476,510 ) (2,940,828 ) (3,817,377 ) Other Income (Expense): Amortization of Debt Discount – – (218,126 ) (218,126 ) Loss from Derivatives Issued with Debt Greater than Debt Carrying Value – – (488,000 ) (488,000 ) Loss on Fair Market Valuation of Derivatives – – (206,000 ) (206,000 ) Interest Income (Expense) – 250 (60,815 ) (60,565 ) Total Other Income (Expense) – 250 (972,941 ) (972,691 ) Loss Before Provision for Income Taxes $ (400,039 ) $ (476,260 ) $ (3,913,769 ) $ (4,790,068 ) Total Assets at June 30, 2016 $ 6,834,863 $ 57,142,755 $ 2,784,814 $ 66,762,432 For the Six Months Ended June 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 2,694,210 $ 11,936,357 $ 36,762 $ 14,667,329 Cost of Goods Sold 2,295,544 10,506,349 – 12,801,893 Gross Profit 398,666 1,430,008 36,762 1,865,436 Selling, General and Administrative Expenses 1,515,062 4,837,480 6,063,045 12,415,587 Loss from Operations (1,116,396 ) (3,407,472 ) (6,026,283 ) (10,550,151 ) Other Income (Expense): Amortization of Debt Discount – – (1,126,270 ) (1,126,270 ) Loss on Extinguishment of Debt – – (2,678,595 ) (2,678,595 ) Gain on Fair Market Valuation of Derivatives – – 2,597,950 2,597,950 Interest Expense – – (288,343 ) (288,343 ) Loss on Fair Market Valuation of Contingent Consideration – (4,426,047 ) – (4,426,047 ) Gain on Settlement of Contingent Consideration – 4,991,571 – 4,991,571 Total Other Income (Expense) – 565,524 (1,495,258 ) (929,734 ) Loss Before Provision for Income Taxes $ (1,116,396 ) $ (2,841,948 ) $ (7,521,541 ) $ (11,479,885 ) Total Assets at June 30, 2017 $ 7,104,469 $ 60,224,138 $ 9,550,062 $ 76,878,669 For the Six Months Ended June 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 7,274,861 $ 3,899,180 $ 74,035 $ 11,248,076 Cost of Goods Sold 6,837,431 2,809,296 39,848 9,686,575 Gross Profit 437,430 1,089,884 34,187 1,561,501 Selling, General and Administrative Expenses 1,155,610 1,851,588 4,284,054 7,291,252 Loss from Operations (718,180 ) (761,704 ) (4,249,867 ) (5,729,751 ) Other Income (Expense): Amortization of Debt Discount – – (312,532 ) (312,532 ) Loss on Extinguishment of Debt – – (920,797 ) (920,797 ) Loss from Derivatives Issued with Debt Greater than Debt Carrying Value – – (488,000 ) (488,000 ) Loss on Fair Market Valuation of Derivatives – – (1,366,700 ) (1,366,700 ) Interest Income (Expense) – 250 (116,810 ) (116,560 ) Total Other Income (Expense) – 250 (3,204,839 ) (3,204,589 ) Loss Before Provision for Income Taxes $ (718,180 ) $ (761,454 ) $ (7,454,706 ) $ (8,934,340 ) Total Assets at June 30, 2016 $ 6,834,863 $ 57,142,755 $ 2,784,814 $ 66,762,432 |
LITIGATION AND CLAIMS
LITIGATION AND CLAIMS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 15. 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 follows 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 CompanyÂ’s 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 June 30, 2017, nor were there any asserted or unasserted material claims for which material losses are reasonably possible. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
Note 16. SUBSEQUENT EVENTS | Certificate of Amendment to the Certificate of Designation of the Company’s Series B Preferred Stock On July 26, 2017, the Company filed a Certificate of Amendment to the Certificate of Designation of the Company’s Series B Preferred Stock (the “Amendment”) with the Secretary of State of the State of Nevada to provide for an adjustment of the Conversion Rate of the Company’s Series B Preferred Stock in the event of a reverse stock split or combination in the same ratio as the Company’s common stock. A copy of the Amendment was filed as Exhibit 3.14 to the Company’s Current Report on Form 8-K dated July 26, 2017. Put on Equity Financing Facility Subsequent to June 30, 2017, the Company sold 5,519,660 shares of common stock for the net amount of $1,250,000 pursuant to an equity financing facility with an accredited investor. Debt and Interest Converted into Equity Subsequent to June 30, 2017, senior convertible promissory notes and accrued interest in the amount of $2,092,492 were converted into 15,738,463 shares of common stock. Employee Stock-Based Compensation Subsequent to June 30, 2017, the Company issued 117,648 shares of common stock for employee stock-based compensation. |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 6 Months Ended |
Jun. 30, 2017 | |
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation | The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The consolidated balance sheet at December 31, 2016 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Terra TechÂ’s annual report on Form 10-K for the year ended December 31, 2016. |
Non-Controlling Interest | Non-controlling interest is shown as a component of shareholdersÂ’ equity on the consolidated balance sheets and the share of income (loss) attributable to non-controlling interest is shown as a component of income (loss) in the consolidated statements of operations. |
Use of Estimates | The preparation of financial statements in conformity with United States generally accepted accounting principles 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. |
Reclassifications | Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss and shareholdersÂ’ equity. |
Inventory | We value our inventory at the lower of the actual cost of our inventory, as determined using the first-in, first-out method, or its current estimated net realizable value (“NRV”). ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”, |
Prepaid Expenses | Prepaid expenses consist of various payments that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include advertising, insurance and service contracts requiring up-front payments. |
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. The approximate useful lives for depreciation of our property, equipment and leasehold improvements are as follows: 32 years for buildings; three to eight years for furniture and equipment; and the shorter of the estimated useful life or the underlying lease term for leasehold improvements. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. |
Goodwill | Goodwill is measured as the excess of consideration transferred and the net of the acquisition date fair value of assets acquired and liabilities assumed in a business acquisition. Goodwill is not amortized for accounting purposes. We review the goodwill allocated to each of our reporting units for possible impairment annually on August 1 and whenever events or changes in circumstances indicate its carrying amount may not be recoverable. When assessing goodwill for impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then we perform a two-step impairment test. If we conclude otherwise, then no further action is taken. We also have the option to bypass the qualitative assessment and only perform a quantitative assessment, which is the first step of the two-step impairment test. In the two-step impairment test, we measure the recoverability of goodwill by comparing a reporting unitÂ’s carrying amount, including goodwill, to the estimated fair value of the reporting unit. |
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 5 to 12 Years Trade Names 2 to 8 Years Dispensary License 14 Years Patent 2 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. Intangible assets that have indefinite useful lives are tested annually for impairment, and are tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount of the reporting unit exceeds its fair value. |
Impairment of Long-Lived Assets | We have adopted paragraph 360-10-35-17 of FASB Accounting Standards Codification (“ASC”) 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. |
Other Assets | Other assets are comprised primarily of security deposits for leased properties in California, Nevada and New Jersey. The deposits will be returned at the end of the lease term. |
Revenue Recognition | We recognize revenue in accordance with ASC 605, “Revenue Recognition”, Cannabis Dispensary, Cultivation and Production We recognize revenue from manufacturing and distribution product sales and upon transfer of title and risk to the customer, which occurs either at shipping (F.O.B. terms), or upon sell through, depending on the arrangement. Revenue from our retail dispensaries 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 dispensaries. 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 end-customers. We recognize revenue from the sale of consignment inventory on a gross basis, as we have determined that: 1) we are the primary obligor to the customer; 2) we have latitude in establishing the sales prices and profit margins of our products; 3) we have discretion in selecting our suppliers; 4) we are responsible for loss or damage to consigned inventory; and 5) our 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. Herbs and Produce Products 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. |
Cost of Goods Sold | Cannabis Dispensary, Cultivation and Production 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. Herbs and Produce Products Cost of goods sold are for the plants grown, packaging, other supplies and purchased plants that are sold into the retail marketplace by Edible Garden. Other expenses include freight, allocations of rent, repairs and maintenance, and utilities. |
Stock-Based Compensation | The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation”, |
Warrants | ASC 815-40, “Contracts in Entity’s Own Equity” ASC 815, “Derivatives and Hedging” |
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 expense 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. We have incurred net operating losses for financial-reporting and tax-reporting purposes. At June 30, 2017 and December 31, 2016, such net operating losses were offset entirely by a valuation allowance. The Company recognizes uncertain tax positions based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. The tax position is derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations. |
Loss Per Common Share | In accordance with the provisions of ASC 260, “Earnings Per Share”, |
Fair Value of Financial Instruments | 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 that 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 – 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 | FASB ASU 2017-04 (Topic 350), “Intangibles - Goodwill and Others” FASB ASU 2017-01 (Topic 805), “Business Combinations: Clarifying the Definition of a Business” FASB ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)” “Statement of Cash Flows” FASB ASU No. 2016-02 (Topic 842), “Leases” FASB ASU No. 2014-09 (Topic 606), “Revenue from Contracts with Customers” “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” “Principal versus Agent Considerations (Reporting Gross versus Net)”, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” “Narrow-Scope Improvements and Practical Expedients” |
SUMMARY OF SIGNIFICANT ACCOUN23
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Summary Of Significant Accounting Policies Tables | |
Useful Lives for amortization of our Intangible assets | Customer Relationships 5 to 12 Years Trade Names 2 to 8 Years Dispensary License 14 Years Patent 2 Years |
INVENTORY (Tables)
INVENTORY (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Inventory Tables | |
Inventory | As of June 30, 2017 and December 31, 2016, inventory consisted of the following: June 30, 2017 December 31, 2016 Raw Materials $ 1,010,401 $ 486,119 Work-in-Progress 1,179,647 570,145 Finished Goods 1,043,024 853,066 Total Inventory $ 3,233,072 $ 1,909,330 |
PROPERTY, EQUIPMENT AND LEASE25
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Property Equipment And Leasehold Improvements Tables | |
Property, equipment, and leasehold improvements | As of June 30, 2017 and December 31, 2016, property, equipment and leasehold improvements at cost, less accumulated depreciation, consisted of the following: June 30, 2017 December 31, 2016 Land and Building $ 1,454,124 $ 1,454,124 Furniture and Equipment 3,376,758 3,141,244 Computer Hardware and Software 438,210 396,479 Leasehold Improvements 8,458,734 7,568,465 Construction in Progress 297,041 459,327 Subtotal 14,024,867 13,019,639 Less Accumulated Depreciation (3,443,602 ) (2,554,875 ) Property, Equipment and Leasehold Improvements, Net $ 10,581,265 $ 10,464,764 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Intangible Assets Tables | |
Intangible assets | As of June 30, 2017 and December 31, 2016, intangible assets consisted of the following: June 30, 2017 December 31, 2016 Estimated Useful Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Amortized Intangible Assets: Customer Relationships 5 to 12 $ 8,960,700 $ (1,218,528 ) $ 7,742,172 $ 8,960,700 $ (780,960 ) $ 8,179,740 Trade Brands and Patent 2 to 8 498,598 (145,757 ) 352,841 498,598 (91,061 ) 407,537 Dispensary License 14 10,270,000 (916,965 ) 9,353,035 10,270,000 (550,179 ) 9,719,821 Total Amortized Intangible Assets 19,729,298 (2,281,250 ) 17,448,048 19,729,298 (1,422,200 ) 18,307,098 Unamortized Intangible Assets: Trade Name Indefinite 5,320,000 – 5,320,000 5,320,000 – 5,320,000 Total Unamortized Intangible Assets 5,320,000 – 5,320,000 5,320,000 – 5,320,000 Total Intangible Assets $ 25,049,298 $ (2,281,250 ) $ 22,768,048 $ 25,049,298 $ (1,422,200 ) $ 23,627,098 |
ACCOUNTS PAYABLE AND ACCRUED 27
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Accounts Payable And Accrued Expenses Tables | |
Accounts payable and accrued expenses | As of June 30, 2017 and December 31, 2016, accounts payable and accrued expenses consisted of the following: June 30, 2017 December 31, 2016 Accounts Payable $ 1,742,666 $ 1,986,907 Sales Tax Payable 360,176 122,470 Accrued Interest Payable 110,217 96,633 Accrued Expenses 1,313,439 211,390 Total Accounts Payable and Accrued Expenses $ 3,526,498 $ 2,417,400 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Notes Payable Tables | |
Notes payable | As of June 30, 2017 and December 31, 2016, notes payable consisted of the following: June 30, 2017 December 31, 2016 Unsecured promissory demand notes issued to an accredited investor, which bear interest at a rate of 4% per annum. Holder may elect to convert into common stock at $0.75 per share. The remaining balance of the note and accrued interest was converted into common stock in April 2017. $ – $ 64,324 Convertible promissory note dated December 14, 2015, issued to accredited investors, which matured December 13, 2016 and bears interest at a rate of 12% per annum. The holder of the note extended the maturity to December 13, 2017. The conversion price is $0.1211, subject to adjustment. 500,000 500,000 Senior convertible promissory note dated October 28, 2016, issued to accredited investors, which matures April 28, 2018 and bears interest at a rate of 1% per annum. The conversion price is 90% of the average of the lowest three (3) VWAPs for the five (5) consecutive trading days prior to the conversion date. The remaining balance of the note and accrued interest was converted into common stock in January 2017. – 102,582 Senior convertible promissory note dated November 1, 2016, issued to accredited investors, which matures May 1, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.35, subject to adjustment. 75,705 31,615 Senior convertible promissory note dated December 16, 2016, issued to accredited investors, which matures June 16, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.27, subject to adjustment. – 1,220,155 Senior convertible promissory note dated June 23, 2017, issued to accredited investors, which matures December 23, 2018 and bears interest at a rate of 12% per annum. The conversion price is $0.1362, subject to adjustment. 736,290 – Total Debt 1,311,995 1,918,676 Less Short-Term Portion 575,705 564,324 Long-Term Portion $ 736,290 $ 1,354,352 |
CONTINGENT CONSIDERATION LIAB29
CONTINGENT CONSIDERATION LIABILITY (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Notes to Financial Statements | |
The summary of contingent consideration | During April 2017, in final settlement of the contingent consideration, the Company issued approximately $4.7 million in shares of its common stock, or common stock equivalent of approximately 18.1 million shares of its common stock, and made a cash payment of approximately $2.1 million. A summary is as follows: Contingent Consideration Balance at March 31, 2017 $ 16,434,620 Change in Fair Market Valuation of Contingent Consideration 77,286 Payment of Contingent Consideration in Cash (2,088,000 ) Settlement of Contingent Consideration (4,739,638 ) Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital (4,692,697 ) Gain on Settlement of Contingent Consideration (4,991,571 ) Contingent Consideration Balance at June 30, 2017 $ – |
The summary of additional market-based contingent consideration clawbacks | Amount Contingent Consideration Summary Balance at December 31, 2016 $ 12,085,859 Change in Fair Market Valuation of Contingent Consideration 4,348,761 Balance at March 31, 2017 and April 1, 2017 $ 16,434,620 Contingent Consideration Detail Performance-Based Cash Contingent Consideration $ 2,088,000 Market-Based Stock Contingent Consideration 14,346,620 $ 16,434,620 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Fair Value Measurements Tables | |
Fair value hierarchy financial assets measured | The following tables set forth the financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of the dates indicated: Fair Value at June 30, Fair Value Measurement Using Description 2017 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature $ 3,163,000 $ – $ – $ 3,163,000 $ 3,163,000 $ – $ – $ 3,163,000 Fair Value at December 31, Fair Value Measurement Using Description 2016 Level 1 Level 2 Level 3 Derivative Liabilities – Conversion Feature $ 6,987,000 $ – $ – $ 6,987,000 Liability – Contingent Consideration $ 12,085,859 – – 12,085,859 $ 19,072,859 $ – $ – $ 19,072,859 |
Reconciliation of the Derivative Liabilities measured | Balance at December 31, 2016 $ 6,987,000 Change in Fair Market Value of Conversion Feature (2,597,950 ) Derivative Debt Converted into Equity (5,672,050 ) Issuance of Debt Instruments with Derivatives 4,446,000 Balance at June 30, 2017 $ 3,163,000 |
Reconciliation of the Contingent Consideration Liability | Balance at December 31, 2016 $ 12,085,859 Change in Fair Market Valuation of Contingent Consideration 4,426,047 Payment of Contingent Consideration in Cash (2,088,000 ) Settlement of Contingent Consideration (4,739,638 ) Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital (4,692,697 ) Gain on Settlement of Contingent Consideration (4,991,571 ) Balance at June 30, 2017 $ – |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Income Taxes Tables | |
Deferred tax assets and liabilities | As of June 30, 2017 and December 31, 2016, the components of deferred income tax assets and deferred income tax liabilities consisted of the following: June 30, 2017 December 31, 2016 Deferred Income Tax Assets: Warrants Expense $ 4,832,000 $ 4,186,000 Derivatives Expense 6,443,000 4,067,000 Net Operating Losses 19,105,000 15,242,000 Deferred Income Tax Liabilities: Depreciation (1,818,000 ) (1,334,000 ) Total 28,562,000 22,161,000 Valuation Allowance (28,562,000 ) (22,161,000 ) Net Deferred Tax Liabilities $ – $ – |
EQUITY (Tables)
EQUITY (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Equity Tables | |
Stock-Based Compensation Expense | A summary of stock-based compensation for the three months ended June 30, 2017 and 2016 is as follows: For the Three Months Ended June 30, 2017 June 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options 8,250,000 $ 157,430 – $ 47,589 Stock Grants: Employees (Common Stock) 1,535,780 294,632 – – Employees (Series B Preferred Stock) – – – – Directors (Common Stock) 1,090,909 184,473 – – Non–Employee Consultants (Common Stock) 2,391,358 446,348 – – Total Stock-Based Compensation 13,268,047 $ 1,082,883 – $ 47,589 A summary of stock-based compensation for the six months ended June 30, 2017 and 2016 is as follows: For the Six Months Ended June 30, 2017 June 30, 2016 Type of Award Number of Shares or Options Granted Stock-Based Compensation Expense Number of Shares or Options Granted Stock-Based Compensation Expense Stock Options 8,250,000 $ 205,019 6,700,000 $ 95,178 Stock Grants: Employees (Common Stock) 1,635,780 320,732 – – Employees (Series B Preferred Stock) 600,000 1,035,406 – – Directors (Common Stock) 1,215,909 221,973 350,000 60,550 Non–Employee Consultants (Common Stock) 2,859,005 591,359 70,000 20,727 Total Stock–Based Compensation 14,560,694 $ 2,374,489 7,120,000 $ 176,455 |
SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION (Tables) | 6 Months Ended |
Jun. 30, 2017 | |
Segment Information Tables | |
Summarized financial information | Summarized financial information concerning the Company’s reportable segments is shown in the following tables. Total assets at June 30, 2017 and 2016 exclude intercompany receivable balances eliminated in consolidation. For the Three Months Ended June 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 1,777,067 $ 6,049,319 $ 16,487 $ 7,842,873 Cost of Goods Sold 1,325,729 5,010,771 – 6,336,500 Gross Profit 451,338 1,038,548 16,487 1,506,373 Selling, General and Administrative Expenses 855,999 2,210,475 2,962,813 6,029,287 Loss from Operations (404,661 ) (1,171,927 ) (2,946,326 ) (4,522,914 ) Other Income (Expense): Amortization of Debt Discount – – (515,654 ) (515,654 ) Loss on Extinguishment of Debt – – (1,639,137 ) (1,639,137 ) Gain on Fair Market Valuation of Derivatives – – 987,200 987,200 Interest Expense – – (130,510 ) (130,510 ) Loss on Fair Market Valuation of Contingent Consideration – (77,286 ) – (77,286 ) Gain on Settlement of Contingent Consideration – 4,991,571 – 4,991,571 Total Other Income (Expense) – 4,914,285 (1,298,101 ) 3,616,184 Loss Before Provision for Income Taxes $ (404,661 ) $ 3,742,358 $ (4,244,427 ) $ (906,730 ) Total Assets at June 30, 2017 $ 7,104,469 $ 60,224,138 $ 9,550,062 $ 76,878,669 For the Three Months Ended June 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 5,873,418 $ 3,768,977 $ 57,514 $ 9,699,909 Cost of Goods Sold 5,517,052 2,596,035 39,848 8,152,935 Gross Profit 356,366 1,172,942 17,666 1,546,974 Selling, General and Administrative Expenses 756,405 1,649,452 2,958,494 5,364,351 Loss from Operations (400,039 ) (476,510 ) (2,940,828 ) (3,817,377 ) Other Income (Expense): Amortization of Debt Discount – – (218,126 ) (218,126 ) Loss from Derivatives Issued with Debt Greater than Debt Carrying Value – – (488,000 ) (488,000 ) Loss on Fair Market Valuation of Derivatives – – (206,000 ) (206,000 ) Interest Income (Expense) – 250 (60,815 ) (60,565 ) Total Other Income (Expense) – 250 (972,941 ) (972,691 ) Loss Before Provision for Income Taxes $ (400,039 ) $ (476,260 ) $ (3,913,769 ) $ (4,790,068 ) Total Assets at June 30, 2016 $ 6,834,863 $ 57,142,755 $ 2,784,814 $ 66,762,432 For the Six Months Ended June 30, 2017 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 2,694,210 $ 11,936,357 $ 36,762 $ 14,667,329 Cost of Goods Sold 2,295,544 10,506,349 – 12,801,893 Gross Profit 398,666 1,430,008 36,762 1,865,436 Selling, General and Administrative Expenses 1,515,062 4,837,480 6,063,045 12,415,587 Loss from Operations (1,116,396 ) (3,407,472 ) (6,026,283 ) (10,550,151 ) Other Income (Expense): Amortization of Debt Discount – – (1,126,270 ) (1,126,270 ) Loss on Extinguishment of Debt – – (2,678,595 ) (2,678,595 ) Gain on Fair Market Valuation of Derivatives – – 2,597,950 2,597,950 Interest Expense – – (288,343 ) (288,343 ) Loss on Fair Market Valuation of Contingent Consideration – (4,426,047 ) – (4,426,047 ) Gain on Settlement of Contingent Consideration – 4,991,571 – 4,991,571 Total Other Income (Expense) – 565,524 (1,495,258 ) (929,734 ) Loss Before Provision for Income Taxes $ (1,116,396 ) $ (2,841,948 ) $ (7,521,541 ) $ (11,479,885 ) Total Assets at June 30, 2017 $ 7,104,469 $ 60,224,138 $ 9,550,062 $ 76,878,669 For the Six Months Ended June 30, 2016 Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 7,274,861 $ 3,899,180 $ 74,035 $ 11,248,076 Cost of Goods Sold 6,837,431 2,809,296 39,848 9,686,575 Gross Profit 437,430 1,089,884 34,187 1,561,501 Selling, General and Administrative Expenses 1,155,610 1,851,588 4,284,054 7,291,252 Loss from Operations (718,180 ) (761,704 ) (4,249,867 ) (5,729,751 ) Other Income (Expense): Amortization of Debt Discount – – (312,532 ) (312,532 ) Loss on Extinguishment of Debt – – (920,797 ) (920,797 ) Loss from Derivatives Issued with Debt Greater than Debt Carrying Value – – (488,000 ) (488,000 ) Loss on Fair Market Valuation of Derivatives – – (1,366,700 ) (1,366,700 ) Interest Income (Expense) – 250 (116,810 ) (116,560 ) Total Other Income (Expense) – 250 (3,204,839 ) (3,204,589 ) Loss Before Provision for Income Taxes $ (718,180 ) $ (761,454 ) $ (7,454,706 ) $ (8,934,340 ) Total Assets at June 30, 2016 $ 6,834,863 $ 57,142,755 $ 2,784,814 $ 66,762,432 |
DESCRIPTION OF BUSINESS (Detail
DESCRIPTION OF BUSINESS (Details Narrative) | 6 Months Ended |
Jun. 30, 2017 | |
Description Of Business Details Narrative | |
State of Incorporation | Nevada |
SUMMARY OF SIGNIFICANT ACCOUN35
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) | 6 Months Ended |
Jun. 30, 2017 | |
Customer Relationships [Member] | Minimum [Member] | |
Useful Life (in Years) | 5 years |
Customer Relationships [Member] | Maximum [Member] | |
Useful Life (in Years) | 12 years |
Trade Name [Member] | Minimum [Member] | |
Useful Life (in Years) | 2 years |
Trade Name [Member] | Maximum [Member] | |
Useful Life (in Years) | 8 years |
Dispensary license [Member] | |
Useful Life (in Years) | 14 years |
Patent [Member] | |
Useful Life (in Years) | 2 years |
SUMMARY OF SIGNIFICANT ACCOUN36
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) | 6 Months Ended |
Jun. 30, 2017 | |
Tax benefit | Company recognizes the largest amount of tax benefit that is greater than 50% likely of being ultimately realized upon settlement. |
Building [Member] | |
Estimated useful life | 32 years |
Furniture and Equipment [Member] | Minimum [Member] | |
Estimated useful life | 3 years |
Furniture and Equipment [Member] | Maximum [Member] | |
Estimated useful life | 8 years |
Leasehold Improvements [Member] | |
Estimated useful lives | The shorter of the estimated useful life or the underlying lease term for leasehold improvements |
INVENTORY (Details)
INVENTORY (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Inventory Details | ||
Raw Materials | $ 1,010,401 | $ 486,119 |
Work-In-Progress | 1,179,647 | 570,145 |
Finished Goods | 1,043,024 | 853,066 |
Total Inventory | $ 3,233,072 | $ 1,909,330 |
PROPERTY, EQUIPMENT AND LEASE38
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Property, Equipment and Leasehold Improvements, Gross | $ 14,024,867 | $ 13,019,639 |
Less accumulated depreciation | (3,443,602) | (2,554,875) |
Property, Equipment and Leasehold Improvements, Net | 10,581,265 | 10,464,764 |
Land and Building [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 1,454,124 | 1,454,124 |
Furniture and Equipment [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 3,376,758 | 3,141,244 |
Computer Hardware and Software [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 438,210 | 396,479 |
Leasehold Improvements [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 8,458,734 | 7,568,465 |
Construction in Progress [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | $ 297,041 | $ 459,327 |
PROPERTY, EQUIPMENT AND LEASE39
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Property Equipment And Leasehold Improvements Details Narrative | ||||
Depreciation expense | $ 456,659 | $ 222,939 | $ 919,732 | $ 373,668 |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) - USD ($) | 6 Months Ended | |
Jun. 30, 2017 | Dec. 31, 2016 | |
Gross Carrying Amount | $ 25,049,298 | $ 25,049,298 |
Accumulated Amortization | (2,281,250) | (1,422,200) |
Net carrying value | $ 22,768,048 | 23,627,098 |
Customer Relationships [Member] | Minimum [Member] | ||
Useful Life (in Years) | 5 years | |
Customer Relationships [Member] | Maximum [Member] | ||
Useful Life (in Years) | 12 years | |
Dispensary license [Member] | ||
Useful Life (in Years) | 14 years | |
Amortized Intangible Assets [Member] | ||
Gross Carrying Amount | $ 19,729,298 | 19,729,298 |
Accumulated Amortization | (2,281,250) | (1,422,200) |
Net carrying value | 17,448,048 | 18,307,098 |
Amortized Intangible Assets [Member] | Customer Relationships [Member] | ||
Gross Carrying Amount | 8,960,700 | 8,960,700 |
Accumulated Amortization | (1,218,528) | (780,960) |
Net carrying value | $ 7,742,172 | 8,179,740 |
Amortized Intangible Assets [Member] | Customer Relationships [Member] | Minimum [Member] | ||
Useful Life (in Years) | 5 years | |
Amortized Intangible Assets [Member] | Customer Relationships [Member] | Maximum [Member] | ||
Useful Life (in Years) | 12 years | |
Amortized Intangible Assets [Member] | Trade Brands and Patent [Member] | ||
Gross Carrying Amount | $ 498,598 | 498,598 |
Accumulated Amortization | (145,757) | (91,061) |
Net carrying value | $ 352,841 | 407,537 |
Amortized Intangible Assets [Member] | Trade Brands and Patent [Member] | Minimum [Member] | ||
Useful Life (in Years) | 2 years | |
Amortized Intangible Assets [Member] | Trade Brands and Patent [Member] | Maximum [Member] | ||
Useful Life (in Years) | 8 years | |
Amortized Intangible Assets [Member] | Dispensary license [Member] | ||
Gross Carrying Amount | $ 10,270,000 | 10,270,000 |
Accumulated Amortization | (916,965) | (550,179) |
Net carrying value | $ 9,353,035 | 9,719,821 |
Useful Life (in Years) | 14 years | |
Unamortized Intangible Assets [Member] | ||
Gross Carrying Amount | $ 5,320,000 | 5,320,000 |
Accumulated Amortization | ||
Net carrying value | 5,320,000 | 5,320,000 |
Unamortized Intangible Assets [Member] | Trade Brands and Patent [Member] | ||
Gross Carrying Amount | 5,320,000 | 5,320,000 |
Accumulated Amortization | ||
Net carrying value | $ 5,320,000 | $ 5,320,000 |
Estimated useful lives | Indefinite |
INTANGIBLE ASSETS (Details Narr
INTANGIBLE ASSETS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Intangible Assets Details Narrative | ||||
Amortization expense | $ 429,525 | $ 516,878 | $ 859,050 | $ 527,498 |
ACCOUNTS PAYABLE AND ACCRUED 42
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Accounts Payable And Accrued Expenses Details | ||
Accounts payable | $ 1,742,666 | $ 1,986,907 |
Sales tax payable | 360,176 | 122,470 |
Accrued Interest Payable | 110,217 | 96,633 |
Accrued expenses | 1,313,439 | 211,390 |
Accounts payable and accrued expenses | $ 3,526,498 | $ 2,417,400 |
NOTES PAYABLE (Details)
NOTES PAYABLE (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Total Debt | $ 1,311,995 | $ 1,918,676 |
Less short-term portion | 575,705 | 564,324 |
Long-term portion | 736,290 | 1,354,352 |
Unsecured Promissory Demand Note [Member] | ||
Total Debt | 64,324 | |
Convertible promissory note [Member] | ||
Total Debt | 500,000 | 500,000 |
Convertible promissory note one [Member] | ||
Total Debt | 102,582 | |
Convertible promissory note two [Member] | ||
Total Debt | 75,705 | 31,615 |
Convertible promissory note three [Member] | ||
Total Debt | 1,220,155 | |
Convertible promissory note four [Member] | ||
Total Debt | $ 736,290 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) | 1 Months Ended | 6 Months Ended | ||||||
Feb. 22, 2017USD ($) | Oct. 28, 2016 | Jun. 23, 2017USD ($)$ / shares | Jun. 30, 2017USD ($)$ / shares | Dec. 31, 2016USD ($)$ / shares | Dec. 16, 2016$ / shares | Nov. 01, 2016$ / shares | Dec. 14, 2015$ / shares | |
Total Debt | $ 1,311,995 | $ 1,918,676 | ||||||
Accrued interest | $ 110,217 | $ 96,633 | ||||||
Common stock, par value | $ / shares | $ 0.001 | $ 0.001 | ||||||
Senior Convertible Promissory Note A Due December 23, 2018 [Member] | ||||||||
Description of conversion price | 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) $0.1362 or (ii) 85% of the lowest daily volume weighted average price of the Common Stock in the fifteen (15) trading days prior to the conversion date (“Conversion Price A”), which Conversion Price A is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. | |||||||
Debt instrument maturity date | Dec. 23, 2018 | |||||||
Term of conversion feature | The conversion price of Note A 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. | |||||||
Additional term of conversion feature | 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) dayÂ’s notice, that the holder convert Note A at Conversion Price A. | |||||||
Description of prepayment | The Company may prepay in cash any portion of the outstanding principal amount of Note A and any accrued and unpaid interest by, upon ten (10) daysÂ’ written notice to the holder, paying an amount equal to (i) 110% of the sum of the then-outstanding principal amount of Note A plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of Note A; (ii) 115% of the sum of the then-outstanding principal amount of Note A plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of Note A; or (iii) 125% of the sum of the then-outstanding principal amount of Note A plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of Note A. | |||||||
Senior Convertible Promissory Note Due December 23, 2018 [Member] | ||||||||
Common stock, par value | $ / shares | $ 0.001 | |||||||
Principal amount | $ 3,000,000 | |||||||
Purchase price | 3,000,000 | |||||||
Common stock average trading volume to activate conversion feature | $ 2,500,000 | |||||||
Senior convertible promissoryNote B [Member] | ||||||||
Principal amount | $ 3,000,000 | |||||||
Purchase price | $ 3,000,000 | |||||||
Senior convertible promissory note [Member] | ||||||||
Description of conversion price | Conversion price per share equal to the lower of (i) $0.2495 or (ii) 85% of the lowest daily volume weighted average price 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. | |||||||
Debt instrument maturity date | Aug. 22, 2018 | |||||||
Term of conversion feature | 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. All interest payments under the Note are payable, at the Company’s option, in cash or shares of Common Stock. | |||||||
Additional term of conversion feature | 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) dayÂ’s notice, that the holder convert Note B at Conversion Price B. | |||||||
Description of prepayment | 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. | |||||||
Senior convertible promissory note [Member] | Minimum [Member] | ||||||||
Common stock average trading volume to activate conversion feature | $ 2,500,000 | |||||||
Unsecured Promissory Demand Note [Member] | ||||||||
Total Debt | $ 64,324 | |||||||
Interest rate | 4.00% | |||||||
Common stock, par value | $ / shares | $ 0.75 | |||||||
Convertible promissory note [Member] | ||||||||
Total Debt | $ 500,000 | 500,000 | ||||||
Interest rate | 1.00% | 12.00% | ||||||
Conversion price | $ / shares | $ 0.1211 | |||||||
Convesion price, percentage | 0.90 | |||||||
Convertible promissory note one [Member] | ||||||||
Total Debt | 102,582 | |||||||
Interest rate | 12.00% | |||||||
Conversion price | $ / shares | $ 0.35 | |||||||
Convertible promissory note two [Member] | ||||||||
Total Debt | 75,705 | 31,615 | ||||||
Interest rate | 12.00% | |||||||
Conversion price | $ / shares | $ 0.27 | |||||||
Convertible promissory note three [Member] | ||||||||
Total Debt | $ 1,220,155 | |||||||
Interest rate | 12.00% | |||||||
Conversion price | $ / shares | $ 0.1362 |
CONTINGENT CONSIDERATION LIAB45
CONTINGENT CONSIDERATION LIABILITY (Details) - USD ($) | 3 Months Ended | 6 Months Ended | |
Jun. 30, 2017 | Mar. 31, 2017 | Jun. 30, 2017 | |
Contingent Consideration Liability Details | |||
Contingent Consideration, begning balance | $ 16,434,620 | $ 12,085,859 | $ 12,085,859 |
Change in Fair Market Valuation of Contingent Consideration | 77,286 | 4,348,761 | |
Contingent Consideration, ending babance | 16,434,620 | ||
Performance-Based Cash Contingent Consideration | 2,088,000 | ||
Market-Based Stock Contingent Consideration | 14,346,620 | ||
Total | $ 16,434,620 |
CONTINGENT CONSIDERATION LIAB46
CONTINGENT CONSIDERATION LIABILITY (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2017 | Mar. 31, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Contingent Consideration Liability Details 1 | |||||
Contingent Consideration, begning balance | $ 16,434,620 | $ 12,085,859 | $ 12,085,859 | ||
Change in Fair Market Valuation of Contingent Consideration | 77,286 | 4,348,761 | |||
Payment of Contingent Consideration in Cash | (2,088,000) | ||||
Settlement of Contingent Consideration | (4,739,638) | (4,739,638) | |||
Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital | (4,692,697) | (4,692,697) | |||
Gain on Settlement of Contingent Consideration | (4,991,571) | (4,991,571) | |||
Contingent Consideration, ending babance | $ 16,434,620 |
CONTINGENT CONSIDERATION LIAB47
CONTINGENT CONSIDERATION LIABILITY (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | Dec. 31, 2016 | |
Contingent Consideration | $ 12,085,859 | ||||
Expected contingent consideration liability | 15,305,463 | 15,305,463 | |||
Gain on Settlement of Contingent Consideration Liability | (4,991,571) | (4,991,571) | |||
Loss on Fair Market Valuation of Contingent Consideration | 77,286 | $ 4,426,047 | |||
Final contingent consideration | $ 16,500,000 | ||||
Contingent consideration, shares issued | 18,100,000 | ||||
Contingent consideration, shares issued value | $ 4,789,638 | ||||
Contingent consideration, cash payment | 2,100,000 | ||||
Shares released from escrow, value | $ 14,400,000 | ||||
Additional shares clawed-back, shares | 34,200,000 | 34,200,000 | |||
Additional shares clawed-back, value | $ 9,684,268 | $ 9,684,268 | |||
Market-Based Clawback associated with common stock | 35,100,000 | 35,100,000 | |||
Additional shares clawed-back pursuant to disputes between the sellers | 34,200,000 | 34,200,000 | |||
Black Oak merger [Member] | |||||
Contingent Consideration | $ 12,754,553 | $ 12,754,553 | |||
Gain on Settlement of Contingent Consideration Liability | 1,100,000 | ||||
April 1, 2016 (Acquisition Date) [Member] | |||||
Contingent Consideration | 12,754,553 | 12,754,553 | |||
April 1, 2017 (Acquisition Date) [Member] | |||||
Contingent Consideration | $ 16,434,620 | $ 16,434,620 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Derivative liability - Conversion Feature | $ 3,163,000 | $ 6,987,000 |
Contingent Consideration | 12,085,859 | |
Fair value of financial liabilities | 3,163,000 | 19,072,859 |
Fair Value Measurement Using, Level 1 [Member] | ||
Derivative liability - Conversion Feature | ||
Contingent Consideration | ||
Fair value of financial liabilities | ||
Fair Value Measurement Using, Level 2 [Member] | ||
Derivative liability - Conversion Feature | ||
Contingent Consideration | ||
Fair value of financial liabilities | ||
Fair Value Measurement Using, Level 3 [Member] | ||
Derivative liability - Conversion Feature | 3,163,000 | 6,987,000 |
Contingent Consideration | 12,085,859 | |
Fair value of financial liabilities | $ 3,163,000 | $ 19,072,859 |
FAIR VALUE MEASUREMENTS (Deta49
FAIR VALUE MEASUREMENTS (Details 1) | 6 Months Ended |
Jun. 30, 2017USD ($) | |
Fair Value Measurements Details 1 | |
Liabilities measured at fair value Beginning Balance | $ 6,987,000 |
Change in fair market value of Conversion Feature | (2,597,950) |
Derivative debt converted into equity | (5,672,050) |
Issuance of equity instruments with derivatives | 4,446,000 |
Liabilities measured at fair value Ending Balance | $ 3,163,000 |
FAIR VALUE MEASUREMENTS (Deta50
FAIR VALUE MEASUREMENTS (Details 2) - USD ($) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2017 | Mar. 31, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Fair Value Measurements Details 2 | |||||
Contingent Consideration, begning balance | $ 16,434,620 | $ 12,085,859 | $ 12,085,859 | ||
Change in fair market value of contingent conversion Feature | 77,286 | 4,426,047 | |||
Payment of Contingent Consideration in Cash | 2,088,000 | ||||
Settlement of Contingent Consideration | (4,739,638) | (4,739,638) | |||
Settlement of Contingent Consideration Recorded Against Additional Paid-In Capital | (4,692,697) | (4,692,697) | |||
Gain on Settlement of Contingent Consideration Liability | (4,991,571) | (4,991,571) | |||
Contingent Consideration, ending babance | $ 16,434,620 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | Jun. 30, 2017 | Dec. 31, 2016 |
Deferred Income Tax Assets: | ||
Warrants Expense | $ 4,832,000 | $ 4,186,000 |
Derivatives Expense | 6,443,000 | 4,067,000 |
Net Operating Losses | 19,105,000 | 15,242,000 |
Deferred Income Tax Liabilities: | ||
Depreciation | (1,818,000) | (1,334,000) |
Total | 28,562,000 | 22,161,000 |
Valuation Allowance | (28,562,000) | (22,161,000) |
Net Deferred Tax Liabilities |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) - USD ($) | 6 Months Ended | |
Jun. 30, 2017 | Dec. 31, 2016 | |
Income Taxes Details Narrative | ||
Net operating loss carryforwards | $ 42,623,000 | $ 34,940,000 |
Net operating loss carryforwards expiring year | 2,034 |
EQUITY (Details)
EQUITY (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Number of Shares or Options Granted | 13,268,047 | 14,560,694 | 7,120,000 | |
Stock-Based Compensation Expense | $ 1,082,883 | $ 47,589 | $ 2,374,489 | $ 176,455 |
Stock Options [Member] | ||||
Number of Shares or Options Granted | 8,250,000 | 8,250,000 | 6,700,000 | |
Stock-Based Compensation Expense | $ 157,430 | $ 47,589 | $ 205,019 | $ 95,178 |
Employees (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 1,535,780 | 1,635,780 | ||
Stock-Based Compensation Expense | $ 294,632 | $ 320,732 | ||
Employees (Series B Preferred Stock) [Member] | ||||
Number of Shares or Options Granted | 600,000 | |||
Stock-Based Compensation Expense | $ 1,035,406 | |||
Directors (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 1,090,909 | 1,215,909 | 350,000 | |
Stock-Based Compensation Expense | $ 184,473 | $ 221,973 | $ 60,550 | |
Non-Employee Consultants (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 2,391,358 | 2,859,005 | 70,000 | |
Stock-Based Compensation Expense | $ 446,348 | $ 591,359 | $ 20,727 |
EQUITY (Details 1)
EQUITY (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Number of Shares or Options Granted | 13,268,047 | 14,560,694 | 7,120,000 | |
Stock-Based Compensation Expense | $ 1,082,883 | $ 47,589 | $ 2,374,489 | $ 176,455 |
Stock Options [Member] | ||||
Number of Shares or Options Granted | 8,250,000 | 8,250,000 | 6,700,000 | |
Stock-Based Compensation Expense | $ 157,430 | $ 47,589 | $ 205,019 | $ 95,178 |
Employees (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 1,535,780 | 1,635,780 | ||
Stock-Based Compensation Expense | $ 294,632 | $ 320,732 | ||
Employees (Series B Preferred Stock) [Member] | ||||
Number of Shares or Options Granted | 600,000 | |||
Stock-Based Compensation Expense | $ 1,035,406 | |||
Directors (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 1,090,909 | 1,215,909 | 350,000 | |
Stock-Based Compensation Expense | $ 184,473 | $ 221,973 | $ 60,550 | |
Non-Employee Consultants (Common Stock) [Member] | ||||
Number of Shares or Options Granted | 2,391,358 | 2,859,005 | 70,000 | |
Stock-Based Compensation Expense | $ 446,348 | $ 591,359 | $ 20,727 |
EQUITY (Details Narrative)
EQUITY (Details Narrative) | 6 Months Ended | |
Jun. 30, 2017USD ($)Numbershares | Jun. 30, 2016USD ($)shares | |
Stock issued, amount | $ | $ 1,150,000 | |
Stock issued for services, shares | shares | 2,859,005 | |
Stock issued for services, amount | $ | $ 591,359 | |
Compensation [Member] | ||
Stock issued for services, shares | shares | 1,635,780 | |
Stock issued for services, amount | $ | $ 320,732 | |
Director fees [Member] | ||
Stock issued, shares | shares | 1,215,909 | |
Stock issued, amount | $ | $ 221,973 | |
Accredited investor [Member] | ||
Common stock sold | shares | 17,674,027 | 25,715,674 |
Net amount | $ | $ 3,750,000 | $ 3,208,134 |
Promissory notes [Member] | ||
Converted common stock, shares | shares | 13,906,149 | |
Converted common stock, amount | $ | $ 961,740 | |
Promissory notes [Member] | ||
Converted common stock, shares | shares | 50,710,473 | |
Converted common stock, amount | $ | $ 8,839,084 | |
Series B Preferred Stock [Member] | ||
Number of votes | Number | 100 | |
Common stock conversion basis | 1-for-5.384325537 | |
Stock issued, shares | shares | 600,000 | |
Stock issued, amount | $ | $ 1,035,406 | |
Series B Preferred Stock [Member] | Black Oak acquisition [Member] | ||
Escrow share issue | shares | 4,279,841 |
COMMITMENTS (Details Narrative)
COMMITMENTS (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Commitments Details Narrative | ||||
Net rent expense | $ 312,254 | $ 298,092 | $ 627,067 | $ 431,959 |
Monthly payments | $ 30,000 | |||
Operating Leases, Indemnification Agreements, Description | The lease agreement requires monthly payments of $30,000 for eight months and is also renewable for up to three additional terms of one year each. | |||
Common stock shares issued, value | $ 1,150,000 |
SEGMENT INFORMATION (Details)
SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2017 | Jun. 30, 2016 | Jun. 30, 2017 | Jun. 30, 2016 | |
Total Revenues | $ 7,842,873 | $ 9,699,909 | $ 14,667,329 | $ 11,248,076 |
Cost of Goods Sold | 6,336,500 | 8,152,935 | 12,801,893 | 9,686,575 |
Gross Profit | 1,506,373 | 1,546,974 | 1,865,436 | 1,561,501 |
Selling, general and administrative expenses | 6,029,287 | 5,364,351 | 12,415,587 | 7,291,252 |
Loss from operations | (4,522,914) | (3,817,377) | (10,550,151) | (5,729,751) |
Other Income Expense: | ||||
Amortization of debt discount | (515,654) | (218,126) | (1,126,270) | (312,532) |
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | (488,000) | (488,000) | ||
Gain (Loss) on fair market valuation of derivatives | 2,597,950 | |||
Interest Income (Expense) | (130,510) | (60,565) | (288,343) | (116,560) |
Loss on Fair Market Valuation of Contingent Consideration | 77,286 | 4,426,047 | ||
Gain on Settlement of Contingent Consideration | (4,991,571) | (4,991,571) | ||
Total Other Income (Expense) | 3,616,184 | (972,691) | (929,734) | (3,204,589) |
Loss Before Provision for Income Taxes | (906,730) | (4,790,068) | (11,479,885) | (8,934,340) |
Herbs and Produce Products [Member] | ||||
Total Revenues | 1,777,067 | 5,873,418 | 2,694,210 | 7,274,861 |
Cost of Goods Sold | 1,325,729 | 5,517,052 | 2,295,544 | 6,837,431 |
Gross Profit | 451,338 | 356,366 | 398,666 | 437,430 |
Selling, general and administrative expenses | 855,999 | 756,405 | 1,515,062 | 1,155,610 |
Loss from operations | (404,661) | (400,039) | (1,116,396) | (718,180) |
Other Income Expense: | ||||
Amortization of debt discount | ||||
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | ||||
Loss on Extinguishment of debt | ||||
Gain (Loss) on fair market valuation of derivatives | ||||
Interest Income (Expense) | ||||
Loss on Fair Market Valuation of Contingent Consideration | ||||
Gain on Settlement of Contingent Consideration | ||||
Total Other Income (Expense) | ||||
Loss Before Provision for Income Taxes | (404,661) | (400,039) | (1,116,396) | (718,180) |
Total assets | 7,104,469 | 6,834,863 | 7,104,469 | 6,834,863 |
Cannabis Dispensary Cultivation and Production [Member] | ||||
Total Revenues | 6,049,319 | 3,768,977 | 11,936,357 | 3,899,180 |
Cost of Goods Sold | 5,010,771 | 2,596,035 | 10,506,349 | 2,809,296 |
Gross Profit | 1,038,548 | 1,172,942 | 1,430,008 | 1,089,884 |
Selling, general and administrative expenses | 2,210,475 | 1,649,452 | 4,837,480 | 1,851,588 |
Loss from operations | (1,171,927) | (476,510) | (3,407,472) | (761,704) |
Other Income Expense: | ||||
Amortization of debt discount | ||||
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | ||||
Loss on Extinguishment of debt | ||||
Gain (Loss) on fair market valuation of derivatives | ||||
Interest Income (Expense) | 250 | 250 | ||
Loss on Fair Market Valuation of Contingent Consideration | (77,286) | (4,426,047) | ||
Gain on Settlement of Contingent Consideration | 4,991,571 | 4,991,571 | ||
Total Other Income (Expense) | 4,914,285 | 250 | 565,524 | 250 |
Loss Before Provision for Income Taxes | 3,742,358 | (476,260) | (2,841,948) | (761,454) |
Total assets | 60,224,138 | 57,142,755 | 60,224,138 | 57,142,755 |
Eliminations And Other [Member] | ||||
Total Revenues | 16,487 | 57,514 | 36,762 | 74,035 |
Cost of Goods Sold | 39,848 | 39,848 | ||
Gross Profit | 16,487 | 17,666 | 36,762 | 34,187 |
Selling, general and administrative expenses | 2,962,813 | 2,958,494 | 6,063,045 | 4,284,054 |
Loss from operations | (2,946,326) | (2,940,828) | (6,026,283) | (4,249,867) |
Other Income Expense: | ||||
Amortization of debt discount | (515,654) | (218,126) | (1,126,270) | (312,532) |
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | (488,000) | (488,000) | ||
Loss on Extinguishment of debt | (1,639,137) | (2,678,595) | (920,797) | |
Gain (Loss) on fair market valuation of derivatives | 987,200 | (206,000) | 2,597,950 | (1,366,700) |
Interest Income (Expense) | (130,510) | (60,815) | (288,343) | (116,810) |
Loss on Fair Market Valuation of Contingent Consideration | ||||
Gain on Settlement of Contingent Consideration | ||||
Total Other Income (Expense) | (1,298,101) | (972,941) | (1,495,258) | (3,204,839) |
Loss Before Provision for Income Taxes | (4,244,427) | (3,913,769) | (7,521,541) | (7,454,706) |
Total assets | 9,550,062 | 2,784,814 | 9,550,062 | 2,784,814 |
Segment Information [Member] | ||||
Total Revenues | 7,842,873 | 9,699,909 | 14,667,329 | 11,248,076 |
Cost of Goods Sold | 6,336,500 | 8,152,935 | 12,801,893 | 9,686,575 |
Gross Profit | 1,506,373 | 1,546,974 | 1,865,436 | 1,561,501 |
Selling, general and administrative expenses | 6,029,287 | 5,364,351 | 12,415,587 | 7,291,252 |
Loss from operations | (4,522,914) | (3,817,377) | (10,550,151) | (5,729,751) |
Other Income Expense: | ||||
Amortization of debt discount | (515,654) | (218,126) | (1,126,270) | (312,532) |
Loss from Derivatives Issued with Debt Greater than Debt Carrying Value | (488,000) | (488,000) | ||
Loss on Extinguishment of debt | (1,639,137) | (2,678,595) | (920,797) | |
Gain (Loss) on fair market valuation of derivatives | 987,200 | (206,000) | 2,597,950 | (1,366,700) |
Interest Income (Expense) | (130,510) | (60,565) | (288,343) | (116,560) |
Loss on Fair Market Valuation of Contingent Consideration | (77,286) | (4,426,047) | ||
Gain on Settlement of Contingent Consideration | 4,991,571 | 4,991,571 | ||
Total Other Income (Expense) | 3,616,184 | (972,691) | (929,734) | (3,204,589) |
Loss Before Provision for Income Taxes | (906,730) | (4,790,068) | (11,479,885) | (8,934,340) |
Total assets | $ 76,878,669 | $ 66,762,432 | $ 76,878,669 | $ 66,762,432 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) | 6 Months Ended |
Jun. 30, 2017USD ($)shares | |
Common stock, amount | $ | $ 1,150,000 |
Subsequent Event [Member] | |
Common stock, shares | shares | 5,519,660 |
Common stock, amount | $ | $ 1,250,000 |
Subsequent Event [Member] | Employee stock-based compensation [Member] | |
Shares issued | shares | 117,648 |
Subsequent Event [Member] | Convertible promissory notes [Member] | |
Converted common stock, shares | shares | 15,738,463 |
Converted common stock, amount | $ | $ 2,092,492 |