Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2018 | May 03, 2018 | |
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 | Mar. 31, 2018 | |
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 | 68,347,901 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2,018 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash | $ 4,510,769 | $ 5,445,582 |
Accounts Receivable | 722,929 | 959,698 |
Notes Receivable | 5,964,204 | 5,010,143 |
Inventory | 4,772,158 | 5,760,019 |
Prepaid Expenses and Other Current Assets | 1,581,555 | 1,067,689 |
Total Current Assets | 17,551,615 | 18,243,131 |
Property, Equipment and Leasehold Improvements, Net | 33,343,257 | 19,191,616 |
Intangible Assets, Net | 27,166,459 | 27,773,110 |
Goodwill | 28,921,260 | 28,921,260 |
Other Assets | 861,842 | 4,058,682 |
TOTAL ASSETS | 107,844,433 | 98,187,799 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 4,840,730 | 5,444,710 |
Derivative Liabilities | 4,059,400 | 9,331,400 |
Total Current Liabilities | 8,900,130 | 14,776,110 |
Long-Term Liabilities: | ||
Long-Term Debt, Net of Discounts | 13,232,818 | 6,609,398 |
Total Long-Term Liabilities | 13,232,818 | 6,609,398 |
Total Liabilities | 22,132,948 | 21,385,508 |
COMMITMENTS AND CONTINGENCIES | ||
STOCKHOLDERS' EQUITY: | ||
Common Stock, Par Value $0.001:990,000,000 Shares Authorized as of March 31, 2018 and December 31, 2017; 65,344,816 and 61,818,560 Shares Issued and Outstanding as of March 31, 2018 and December 31, 2017, respectively | 65,345 | 61,819 |
Additional Paid-In Capital | 200,222,380 | 181,357,715 |
Accumulated Deficit | (115,580,522) | (105,548,602) |
Total Terra Tech Corp. Stockholders' Equity | 84,707,203 | 75,870,932 |
Non-Controlling Interest | 1,004,282 | 931,359 |
Total Stockholders' Equity | 85,711,485 | 76,802,291 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | 107,844,433 | 98,187,799 |
Convertible Series A Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value | ||
Series B Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred Stock, Value |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2018 | Dec. 31, 2017 |
STOCKHOLDERS' EQUITY: | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, Authorized | 990,000,000 | 990,000,000 |
Common stock, Issued | 65,344,816 | 61,818,560 |
Common stock, Outstanding | 65,344,816 | 61,818,560 |
Convertible Series A Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 100 | 100 |
Preferred stock, Issued | 8 | 8 |
Preferred stock, Outstanding | 8 | 8 |
Series B Preferred Stock | ||
STOCKHOLDERS' EQUITY: | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, Authorized | 49,999,900 | 49,999,900 |
Preferred stock, Issued | 0 | 0 |
Preferred stock, Outstanding | 0 | 0 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Consolidated Statements Of Operations | ||
Total Revenues | $ 8,615,366 | $ 6,824,456 |
Cost of Goods Sold | 6,967,926 | 6,465,393 |
Gross Profit | 1,647,440 | 359,063 |
Selling, General and Administrative Expenses | 8,422,548 | 6,386,300 |
Loss from Operations | (6,775,108) | (6,027,237) |
Other Income (Expense): | ||
Amortization of Debt Discount | (468,317) | (610,616) |
Loss on Extinguishment of Debt | (4,731,246) | (1,039,458) |
Gain on Fair Market Valuation of Derivatives | 2,281,000 | 1,610,750 |
Interest Expense, Net | (259,621) | (157,833) |
Loss on Fair Market Valuation of Contingent Consideration | (4,348,761) | |
Total Other Income (Expense) | (3,178,184) | (4,545,918) |
Net Loss | (9,953,292) | (10,573,155) |
Net Income (Loss) Attributable to Non-Controlling Interest | 78,628 | (461,167) |
NET LOSS ATTRIBUTABLE TO TERRA TECH CORP. | $ (10,031,920) | $ (10,111,988) |
Net Loss Per Common Share Attributable to Terra Tech Corp. Common Stockholders - Basic and Diluted | $ (0.16) | $ (0.27) |
Weighted-Average Number of Common Shares Outstanding - Basic and Diluted | 64,711,660 | 37,818,109 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net Loss | $ (9,953,292) | $ (10,573,155) |
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||
Gain on Fair Market Valuation of Derivatives | (2,281,000) | (1,610,750) |
Loss on Fair Market Valuation of Contingent Consideration | 4,348,761 | |
Cancellation of shares issued | (117,831) | |
Loss on Extinguishment of Debt | 4,731,246 | 1,039,458 |
Amortization of Debt Discount | 468,317 | 610,616 |
Interest income Accreted | (68,061) | |
Depreciation and Amortization | 1,137,221 | 892,598 |
Warrants Issued with Common Stock and Debt | 107,035 | |
Stock issued for interest expense | 129,639 | |
Stock Issued for Compensation | 288,450 | 1,061,506 |
Stock Issued for Director Fees | 37,500 | |
Stock Issued for Services | 16,692 | 145,011 |
Stock Option Compensation | 474,198 | 47,589 |
Changes in Operating Assets and Liabilities: | ||
Accounts Receivable | 236,769 | 328,510 |
Inventory | 987,861 | (208,527) |
Prepaid Expenses and Other Current Assets | (864,938) | (1,155,891) |
Other Assets | (203,160) | (228,795) |
Accounts Payable and Accrued Expenses | (519,369) | 1,274,929 |
NET CASH USED IN OPERATING ACTIVITIES | (5,666,897) | (3,753,966) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Issuance of Note Receivable | (886,000) | |
Purchase of Property, Equipment and Leasehold Improvements | (4,682,211) | (523,740) |
NET CASH USED IN INVESTING ACTIVITIES | (5,568,211) | (523,740) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Proceeds from Issuance of Notes Payable | 10,000,000 | 3,000,000 |
Cash Paid for Debt Discount | (495,000) | |
Proceeds from Issuance of Common Stock, Warrants and Common Stock Subscribed | 750,000 | 1,700,000 |
Proceeds from Exercise of Warrants | 51,000 | |
Cash (Distribution) Contribution from Non-Controlling Interest | (5,705) | 80,834 |
NET CASH PROVIDED BY FINANCING ACTIVITIES | 10,300,295 | 4,780,834 |
NET CHANGE IN CASH | (934,813) | 503,128 |
Cash at Beginning of Period | 5,445,582 | 9,749,572 |
CASH AT END OF PERIOD | 4,510,769 | 10,252,700 |
SUPPLEMENTAL DISCLOSURE FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||
Purchase of land and building with a mortgage | 6,500,000 | |
Fair Value of Debt Discount and Derivative liability Recorded | 6,440,000 | |
Issuance of Common Stock for Debt and Interest Expense | 17,180,837 | 3,688,963 |
Derivative Debt Converted into Equity | 2,770,650 | |
Cash back of Escrow Shares From The Tech Center Drive Asset Acquisition | 351,072 | |
Issuance of Common Stock for Other Assets | 100,000 | |
Fair Value of Warrants Issued for Debt Discount | 475,917 | |
Deposits Applied to the Purchase of property | $ 3,500,000 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 1. DESCRIPTION OF BUSINESS | Organization References in this document 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. The Company is a vertically integrated retail, production and cultivation company, with an emphasis on providing the highest quality of medical and adult use cannabis products. The Company also holds an exclusive patent on an organic antioxidant rich Superleaf lettuce and sells living herbs that are grown using classic Dutch hydroponic farming methods. The Company has a presence in three states (California, Nevada and New Jersey), and currently has cannabis operations in California and Nevada. All of the Companys cannabis dispensaries operate under the name Blüm. The Companys cannabis dispensaries offer a broad selection of medical and adult use cannabis products including flowers, concentrates and edibles. On March 12, 2018, the Company implemented a 1-for-15 reverse stock split of the Companys common stock (the Reverse Stock Split). The Reverse Stock Split became effective in the stock market upon commencement of trading on March 13, 2018. As a result of the Reverse Stock Split, every fifteen shares of the Companys Pre-Reverse Stock Split common stock were combined and reclassified into one share of the Companys common stock. The number of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor of fifteen as of March 13, 2018. All historical share and per share amounts reflected throughout unaudited consolidated financial statements have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of the Companys common stock were not affected by the Reverse Stock Split. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation The accompanying interim unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Securities Exchange Commission (SEC) Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933, and reflect the accounts and operations of the Company and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of FASB or ASC 810, Consolidation All intercompany accounts and transactions have been eliminated in consolidation. Accordingly, the accompanying interim unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the unaudited consolidated financial position of the Company as of March 31, 2018, the unaudited consolidated results of operations for the three months ended March 31, 2018 and 2017, and the unaudited consolidated results of cash flows for the three months ended March 31, 2018 and 2017 have been included. These interim unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the consolidated financial statements and related notes contained in the Companys most recent Annual Report on Form 10-K filed with the SEC. The December 31, 2017 balances reported herein are derived from the audited consolidated financial statements included in the Companys Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 16, 2018. The results for the interim periods are not necessarily indicative of results to be expected for the full year. Non-Controlling Interest Non-controlling interest is shown as a component of stockholders 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 accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns, inventory valuation, stock-based compensation expense, goodwill and purchased intangible asset valuations, derivative liabilities, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Companys future results of operations will be affected. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss or stockholders equity. Revenue Recognition On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers Under the new standard, the Company recognizes a sale as follows: Cannabis Dispensary, Cultivation and Production The Company recognizes revenue from manufacturing and distribution product sales when our customers obtain control of our products. Revenue from our retail dispensaries is recorded at the time customers take possession of the product. 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. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase. Revenue related to distribution customers is recorded when the customer is determined to have taken control of the product. That determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Recorded revenue is net of any discounts, rebates, promotional 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. Herbs and Produce Products The Company recognizes revenue from products grown in its greenhouses net of variable consideration such as estimated returns upon delivery of the product to the customer at which time control passes to the customer. Upon transfer of control, the Company has no further performance obligations. For sales for which the Company uses an outside grower, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. The evaluation considers whether the Company takes control of the products of the outside grower, whether it has the ability to direct the outside grower to provide the product to the customer on its behalf or whether it combines products from the outside grower with its own goods and services to provide the products to the customer. In evaluating whether it takes control of the products of the outside grower, the Company considers whether it has primary responsibility for fulfilling the promise to provide the products, whether the Company is subject to inventory risk related to the products and whether it has the ability to set the selling prices for the products. Fair Value of Financial Instruments The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines 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, the Company considers the principal or most advantageous market in which the Company 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 Quoted prices in active markets for identical assets or liabilities. Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 Inputs that are generally unobservable and typically reflect managements estimate of assumptions that market participants would use in pricing the asset or liability. In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments. Recently Issued Accounting Standards FASB ASU 2017-12 (Topic 815), Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities FASB ASU 2017-04 (Topic 350), Intangibles - Goodwill and Others FASB ASU No. 2016-02 (Topic 842), Leases |
CONCENTRATIONS OF BUSINESS AND
CONCENTRATIONS OF BUSINESS AND CREDIT RISK | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 3. CONCENTRATIONS OF BUSINESS AND CREDIT RISK | The Company sources cannabis products for retail, cultivation and production from various vendors. However, as a result of the new regulations in the State of California, the Company’s California retail, cultivation and production operations must use vendors licensed by the State effective January 1, 2018. As a result, the Company will be dependent upon the licensed vendors in California to supply products as of that date. If the Company is unable to enter into a relationship with sufficient members of properly licensed vendors, the Company's sales may be impacted. During the three months ended March 31, 2018 and 2017, we did not have any concentration of vendors for inventory purchases. However, this may change depending on the number of vendors who receive appropriate licenses to operate in the State of California. |
VARIABLE INTEREST ENTITY ARRANG
VARIABLE INTEREST ENTITY ARRANGEMENTS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 4. VARIABLE INTEREST ENTITY ARRANGEMENTS | The Company has shared interest in the two entities, MediFarm I and MediFarm I RE, with another investor for the operation of a cultivation operation and dispensary in Nevada. The entities are considered to be VIE’s and the Company is considered to be the primary beneficiary by reference to the power and benefits criterion under ASC 810, “Consolidation.” As the primary beneficiary of MediFarm I and MediFarm I RE, the Company consolidates the accounts and operations of these entities. All intercompany transactions are eliminated in the unaudited consolidated financial statements. The aggregate carrying values of MediFarm I and MediFarm I RE assets and liabilities, after elimination of any intercompany transactions and balances, in the consolidated balance sheets were as follows (in thousands): March 31, December 31, 2018 2017 Current Assets: Cash $ 536,175 $ 409,029 Accounts Receivable, Net 5,707 - Inventory 478,972 232,231 Prepaid Expenses and Other Current Assets 267,842 302,186 Total Current Assets 1,288,696 943,446 Property, Equipment and Leasehold Improvements, Net 1,906,395 1,965,103 TOTAL ASSETS $ 3,195,091 $ 2,908,549 Current Liabilities: Accounts Payable and Accrued Expenses 231,845 319,853 TOTAL LIABILITIES $ 231,845 $ 319,853 |
NOTES RECEIVABLE
NOTES RECEIVABLE | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 5. NOTES RECEIVABLE | On October 26, 2017, the Company entered into agreements with NuLeaf Sparks Cultivation, LLC and NuLeaf Reno Production, LLC (NuLeaf) to build and operate cultivation and production facilities for our IVXX brand of cannabis products in Nevada. The agreements are subject to approval by the State of Nevada. As part of the agreements the Company made convertible loans at the time of the agreement of $4.5 million in aggregate to the NuLeaf entities bearing an interest rate of 6% per annum. If the agreements are not approved by May 2018, the notes receivable are due in equal quarterly payments beginning August 2018. See Note 16 Subsequent Events |
PROPERTY, EQUIPMENT AND LEASEHO
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 6 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET | Property, equipment, and leasehold improvements, net consists of the following: March 31, December 31, 2018 2017 Land and Building $ 20,719,158 $ 9,047,201 Furniture and Equipment 3,579,954 3,553,587 Computer Hardware and Software 602,098 486,176 Leasehold Improvements 9,324,686 9,316,665 Construction in Progress 4,064,491 1,204,547 Subtotal 38,290,387 23,608,176 Less Accumulated Depreciation (4,947,130 ) (4,416,560 ) Property, Equipment and Leasehold Improvements, Net $ 33,343,257 $ 19,191,616 Depreciation expense related to property, equipment and leasehold improvements for the three months ended March 31, 2018 and 2017 was $530,570 and $463,073, respectively. |
NOTES PAYABLE
NOTES PAYABLE | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 7 - NOTES PAYABLE | Notes payable consists of the following: March 31, December 31, 2018 2017 Senior convertible promissory note dated August 21, 2017, issued to accredited investors, which matures February 21, 2019 and bears interest at a rate of 12% per annum. The conversion price is $4.50, subject to adjustment. The balance of the note and accrued interest was converted into common stock in January 2018. $ - $ 640,010 Senior convertible promissory note dated December 26, 2017, issued to accredited investors, which matures June 26, 2019 and bears interest at a rate of 12% per annum. The conversion price is $4.50, subject to adjustment. The balance of the note and accrued interest was converted into common stock in January 2018. - 1,469,388 Promissory note dated November 22, 2017, issued for the purchase of real property. Matures December 1, 2020, with an option to extend the maturity date 1 year. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. 4,500,000 4,500,000 Promissory note dated January 18, 2018, issued for the purchase of real property. Matures February 1, 2021, with an option to extend the maturity date 1 year. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. 6,160,001 - Senior convertible promissory note dated January 25, 2018, issued to accredited investors under the 2017 Master Securities Purchase and Convertible Promissory Notes Agreement, which matures July 25, 2019 and bears interest at a rate of 12% per annum. The conversion price is $6.00, subject to adjustment. 916,867 - Senior convertible promissory note dated March 12, 2018, issued to accredited investors under the 2018 Master Securities Purchase and Convertible Promissory Notes Agreement, which matures September 12, 2019 and bears interest at a rate of 7.5% per annum. The conversion price is $4.50, subject to adjustment. 1,655,950 - Long-Term Debt, Net of Discounts $ 13,232,818 $ 6,609,398 Total debt as of March 31, 2018 and December 31, 2017 was $13,232,818 and $6,609,398, respectively, net of unamortized debt discount of $5,267,182 and $4,790,601, respectively. The senior convertible promissory notes are secured by shares of common stock. There was accrued interest payable of $41,459 and $21,767 as of March 31, 2018 and December 31, 2017, respectively. See “Note 16 – Subsequent Events” Scheduled Maturities of Long-Term Debt Scheduled maturities of long-term debt, including the unamortized debt discounts of $5,267,182, are as follows: Nine Months Ending December 2018 Year Ending December 31, 2019 2020 2021 2022 2023 and thereafter Total Total Debt $ - $ 2,572,817 $ 4,500,000 $ 6,160,001 $ - $ - $ 13,232,818 Promissory Notes On January 18, 2018, the Company entered into a $6,500,000 promissory note for the purchase of land and a building in California with a third-party creditor. As part of the closing of the purchase of land, the Company issued warrants with a value of approximately $164,000 and paid a cash fee of $195,000. The unamortized balance as of March 31, 2018 was $339,999. The warrants and cash fee were recorded as a debt discount. The promissory note is collateralized by the land and building purchased and matures on February 1, 2021. The interest rate for the first year is 12.0% and increases 0.5% per year, up to 13.5%, through 2021. Payments of interest only are due monthly. The full principle balance and accrued interest are due at maturity. 2018 Master Securities Purchase and Convertible Promissory Notes Agreement In March 2018, the Company entered into a Securities Purchase Agreement with an accredited investor pursuant to which the Company sells to the accredited investor Senior Convertible Promissory Notes. During the period ended March 31, 2018, the Company issued one 7.5% convertible note for an aggregate value of $5,000,000. As of March 31, 2018, $5,000,000 gross of the unamortized debt discount of $3,344,050 remains due. There were no fees or expenses deducted from the net proceeds received by the Company in the offerings. The Company paid $150,000 in cash and issued approximately $116,000 of warrants in connection with the notes. The cash fee and warrant was recorded as a debt discount. For each note issued under the Master Securities Purchase Agreement, the principal and interest due and owed under the note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) the original conversion price as defined in each note issuance or (ii) 87% of the average of the two lowest daily volume weighted average price of the Common Stock in the thirteen (13) trading days prior to the conversion date (“Conversion Price”), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price 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 $10.50 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 the notes at the Conversion Price. The Company may prepay in cash any portion of the outstanding principal amount of the notes 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 notes plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the notes; (ii) 115% of the sum of the then-outstanding principal amount plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the notes; or (iii) 125% of the sum of the then-outstanding principal amount of the notes plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the notes. 2017 Master Securities Purchase and Convertible Promissory Notes Agreement The Company has a Securities Purchase Agreement with an accredited investor pursuant to which the Company sells to the accredited investor Senior Convertible Promissory Notes. During the year ended December 31, 2017, the Company issued five 12% convertible notes for an aggregate value of $20,000,000 due at various dates through June 2019. Of the $20,000,000 convertible notes issued during 2017, the Company converted $13,100,000 of the convertible notes into shares of the Company’s common stock during the year ended December 31, 2017. As of December 31, 2017, $6,900,000 gross of the unamortized debt discount of $4,790,602 remained due. During the period ended March 31, 2018, the convertible notes outstanding as of December 31, 2017 were all converted in January 2018. During the period ended March 31, 2018, the Company issued one 12% convertible note for an aggregate value of $5,000,000. Of the $5,000,000 convertible note issued during 2018, the Company converted $2,500,000 of the convertible note during the period ended March 31, 2018. As of March 31, 2018, $2,500,000 gross of the unamortized debt discount of $1,583,133 remains due. There were no fees or expenses deducted from the net proceeds received by the Company in the offerings. The Company paid $150,000 in cash and issued approximately $196,000 of warrants in connection with the notes. The cash fee and warrants issued were recorded as a debt discount. Conversion of Notes Payable and Related Loss on Extinguishment of Debt During the three months ended March 31, 2018 and 2017, the Company converted debt and accrued interest into 3,133,025 and 1,805,406 shares of the Company’s common stock, respectively. The value of the common stock issued in conversion of debt are detailed below. The table below details the conversion of the notes payable into equity and the loss on extinguishment of debt for the three months ended March 31, 2018 and 2017: Three Months Ended March 31, 2018 2017 Fair market value of common stock issued upon conversion $ 17,180,837 $ 5,014,661 Principal amount of debt converted (9,400,000 ) (3,559,324 ) Accrued interest converted (84,612 ) (129,639 ) Fair value of derivative at conversion date (9,431,000 ) (2,770,650 ) Debt discount value at conversion date 6,466,021 2,484,410 Loss on extinguishment of debt $ 4,731,246 $ 1,039,458 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 8. 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 March 31, Fair Value Measurement Using Description 2018 Level 1 Level 2 Level 3 Derivative Liabilities Conversion Feature $ 4,059,400 $ - $ - $ 4,059,400 $ 4,059,400 $ - $ - $ 4,059,400 Fair Value at December 31, Fair Value Measurement Using Description 2017 Level 1 Level 2 Level 3 Derivative Liabilities Conversion Feature $ 9,331,400 $ - $ - $ 9,331,400 $ 9,331,400 $ - $ - $ 9,331,400 The following table presents a reconciliation of the derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3): Balance at December 31, 2017 $ 9,331,400 Change in Fair Market Value of Conversion Feature (2,281,000 ) Derivative Debt Converted into Equity (9,431,000 ) Fair Value of Derivative Liability Recorded Upon Issuance of Convertible Debt 6,440,000 Balance at March 31, 2018 $ 4,059,400 The Company estimates the fair value of the derivative liabilities using the Black-Scholes-Merton option pricing model using the following assumptions for issuances during the period ended: March 31, March 31, 2018 2017 Stock Price $2.52 - $6.90 $3.81 - $5.04 Conversion and Exercise Price $2.06 - $6.60 $2.06 - $6.60 Annual Dividend Yield - - Expected Life (Years) 1.12 - 2.66 0.70 - 3.42 Risk-Free Interest Rate 1.77% - 2.27% 1.05% - 2.50% Expected Volatility 62.36% - 134.84% 61.88% - 123.56% Volatility is based on historical volatility of our common stock. Historical volatility was computed using weekly pricing observations for our common stock that correspond to the expected term. This method produces an estimate that is representative of our expectations of future volatility over the expected term of these warrants and conversion features. No financial assets were measured on a recurring basis as of March 31, 2018 and December 31, 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. |
TAX EXPENSE
TAX EXPENSE | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 9. TAX EXPENSE | For the three months ended March 31, 2018 and 2017, the Company had no income tax expense (benefit). The components of deferred income tax assets and (liabilities) are as follows: March 31, December 31, 2018 2017 Deferred Income Tax Assets: Net Operating Losses $ 9,293,518 $ 8,023,000 9,293,518 8,023,000 Deferred Income Tax Liabilities: Depreciation (939,256 ) (850,000 ) Total 8,354,262 7,173,000 Valuation Allowance (8,354,262 ) (7,173,000 ) Net Deferred Tax $ - $ - The U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act makes broad and complex changes to the U.S. tax code that affects revaluation of deferred tax assets and liabilities to reflect the federal tax rate reduction from 35.0% to 21.0%. For the three months ended March 31, 2018 and 2017, the Company had subsidiaries that produced and sold cannabis or cannabis pure concentrates, subjecting the Company to the limits of Internal Revenue Code (IRC) Section 280E. Pursuant to IRC Section 280E, the Company is allowed only to deduct expenses directly related to sales of product. The State of California does not conform to IRC Section 280E and, accordingly the Company is allowed to deduct all operating expenses on its California income tax returns. As the Company files consolidated federal income tax returns, the taxable income generated from its subsidiaries subject to IRC Section 280E has been offset by losses generated by operations not subject to IRC Section 280E. During 2017, Company amended income tax returns of our subsidiary Black Oak Gallery, a California Corporation (Black Oak) for the periods prior to acquisition, which resulted in a net tax refund in 2017. Permanent tax differences include ordinary and necessary business expenses deemed by the Company as non-allowable deductions under IRC Section 280E; non-deductible expenses for interest, derivatives and warrant expense related to debt financings and non-deductible losses related to various acquisitions. As of March 31, 2018 and December 31, 2017, the Company had net operating loss carryforwards of approximately $30,273,379 and $26,333,000, 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 IRC Section 382, which will limit their utilization. The Company has assessed the effect of these limitations and does not believe these losses to be substantially limited. The Company also has deferred tax liabilities from the excess carrying amounts of the basis of depreciable assets for financial reporting purposes. 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 three months ended March 31, 2018. 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 March 31, 2018, a valuation allowance of has been recorded against all net 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. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. All tax years from 2013 to 2016 are subject to examination. |
EQUITY
EQUITY | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 10. EQUITY | Common Stock During the three months ended March 31, 2018, senior secured convertible promissory notes and accrued interest in the amount of $17,180,837 were converted into 3,133,025 shares of common stock. During the three months ended March 31, 2018, the Company sold 160,430 shares of common stock for the net amount of $750,000 pursuant to an equity financing facility with an accredited investor. During the three months ended March 31, 2018, the Company cancelled 24,510 shares of common stock valued at $117,831, issued 6,410 shares of common stock for services performed in the amount of $16,692 and issued 81,506 shares of common stock for compensation in the amount of $288,446. During the three months ended March 31, 2018, the Company issued 197,125 shares of common stock for cashless and cash exercises of warrants. The cash received from the cash exercise of warrants was $51,000. During the three months ended March 31, 2018, the Company purchased an asset worth $300,000. $100,000 was paid in cash during March 2018, the remaining $200,000 was to be paid by issuing 53,332 shares of the Company’s common stock. The Company issued 26,666 shares of the 53,332 shares. The remaining 26,666 shares of common stock due was issued in April 2018. As part of the stock split in March 2018, the Company issued 46,687 shares of common stock to round up fractional shares to all shareholders of the Company. As part of the acquisition of Tech Center Drive in September 2017, the Company issued shares held in escrow which were to be paid six months after the acquisition date subject to any amounts to be withheld related to working capital type adjustments. As a result of the working capital adjustments, in March 2018, approximately $351,000 on the six month anniversary date, the Company withheld and cancelled 101,083 shares. |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 11. STOCK-BASED COMPENSATION | 2016 Equity Incentive Plan In the first quarter of 2016, the Company adopted the 2016 Equity Incentive Plan. The following table contains information about the 2016 Equity Incentive Plan as of March 31, 2018: Awards Reserved for Issuance Awards Issued Awards Available for Grant 2016 Equity Incentive Plan 30,000,000 1,977,732 28,022,268 Stock Options The following table summarizes the Company’s stock option activity and related information for the three months ended March 31, 2018: Number of Shares Weighted- Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value of In-the-Money Options Options Outstanding as of Janury 1, 2018 1,177,732 $ 2.17 Options Granted 800,000 $ 4.41 Options Exercised - $ - Options Forfeited - $ - Options Expired - $ - Options Outstanding as of March 31, 2018 1,977,732 $ 3.08 9.1 Years $ 522,600 Options Exercisable as of March 31, 2018 659,774 $ 2.20 8.5 Years $ 391,950 The aggregate intrinsic value is calculated as the difference between the Company’s closing stock price of $2.52 on March 31, 2018 and the exercise price of options, multiplied by the number of options. As of March 31, 2018, there was $4,239,445 total unrecognized stock-based compensation. Such costs are expected to be recognized over a weighted-average period of approximately 1.98 years. The Company recognizes compensation expense for stock option awards on a straight-line basis over the applicable service period of the award. The service period is generally the vesting period. The following assumptions were used to calculate stock-based compensation for issuances during the period ended March 31, 2018. There were no stock options issued during the period ended March 31, 2017. March 31, 2018 Expected Term (years) 6.5 Years Volatility 127.9-128.0 % Risk-Free Interest Rate 2.5-2.7 % Dividend Yield 0 % The Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. Hence, the Company uses the “simplified method” described in Staff Accounting Bulletin 107 to estimate the expected term of share option grants. The expected stock price volatility assumption was determined by examining the historical volatilities for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the Company stock-based compensation. The Company estimates the forfeiture rate at the time of grant and revisions, if necessary, were estimated based on management’s expectation through industry knowledge and historical data. Stock-Based Compensation Expense The following table sets forth the total stock-based compensation expense resulting from stock options and restricted grants of common stock to employees, directors and non-employee consultants in the consolidated statement of operations which are included in selling, general and administrative expenses: For the Three Months Ended March 31, 2018 March 31, 2017 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 800,000 $ 474,198 - $ 47,589 Stock Grants: Employees (Common Stock) 81,506 288,450 6,667 26,100 Employees (Series B Preferred Stock) - - 40,000 1,035,406 Directors (Common Stock) - - 8,333 37,500 Non–Employee Consultants (Common Stock) 6,410 16,692 31,176 145,011 Total Stock–Based Compensation Expense $ 779,340 $ 1,291,606 |
WARRANTS
WARRANTS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 12. WARRANTS | The Company has the following shares of common stock reserved for exercise of the warrants outstanding as of March 31, 2018: Shares Weighted-Average Exercise Price Warrants Outstanding as of January 1, 2018 1,191,367 $ 2.85 Warrants Exercised (283,697 ) $ 2.17 Warrants Granted 114,636 $ 4.05 Warrants Expired - $ - Warrants Outstanding as of March 31, 2018 1,022,306 $ 3.80 The following weighted-average assumptions were used to calculate the fair value of warrants issued in during the period ended March 31, 2018 and 2017 using the Black Scholes option pricing model: March 31, March 31, 2018 2017 Stock Price on Date of Grant $ 3.75 $ 4.94 Exercise Price $ 4.05 $ 3.74 Volatility 120.71 % 140.09 % Term 5-Years 5-Years Risk-Free Interest Rate 2.49 % 2.24 % Expected Dividend Rate 0 % 0 % There were no warrants recognized as an expense for the three months period ended March 31, 2018. Warrant expense of $107,035 was recorded during the three months ended March 31, 2017. For the three months ended March 31, 2018, $475,917 of warrants were issued in connection with debt and recorded as a debt discount. For the period ended March 31, 2017, there were no warrants issued in connection with debt and recorded as a debt discount. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 13. COMMITMENTS AND CONTINGENCIES | California Operating Licenses Effective January 1, 2018 the State of California allowed for adult use cannabis sales. California’s cannabis licensing system is being implemented in two phases. First, beginning on January 1, 2018, the State began issuing temporary licenses that expired on May 1, 2018 for retail and distribution permits and will expire on May 20, 2018 for cultivation permits. In April 2018, the State issued an extension for the retail and distribution permits, which will expire in July 2018 and August 2018, respectively. The Company’s prior licenses obtained from the local jurisdictions it operated in have been continued by such jurisdictions and are necessary to obtain state licensing. The Company has received a temporary license for each local jurisdiction which it had active operations. The temporary permits may be extended for an additional period of time. The Company submitted its applications for the annual permits in April 2018. Although the Company believes it will receive the necessary licenses from the State to conduct its business in a timely fashion, there is no guarantee the Company will be able to do so and any failure to do so may have a negative effect on its business and results of operations. Although the possession, cultivation and distribution of marijuana for medical and adult use is permitted in California and Nevada, marijuana is a Schedule-I controlled substance and its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan, especially in respect of our marijuana cultivation, production and dispensaries. In addition, our assets, including real property, cash, equipment and other goods, could be subject to asset forfeiture because marijuana is still federally illegal. |
SEGMENT INFORMATION
SEGMENT INFORMATION | 3 Months Ended |
Mar. 31, 2018 | |
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 Summarized financial information concerning the Company’s reportable segments is shown in the following tables. Total asset amounts at March 31, 2018 and March 31, 2017 exclude intercompany receivable balances eliminated in consolidation. For the Three Months Ended March 31, 2018 (Unaudited) Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 1,283,901 $ 7,314,554 $ 16,911 $ 8,615,366 Cost of Goods Sold 1,263,117 5,704,809 - 6,967,926 Gross Profit 20,784 1,609,745 16,911 1,647,440 Selling, General and Administrative Expenses 942,367 4,003,707 3,476,474 8,422,548 Loss from Operations (921,583 ) (2,393,962 ) (3,459,563 ) (6,775,108 ) Other Income (Expense): Amortization of Debt Discount - - (468,317 ) (468,317 ) Loss on Extinguishment of Debt - - (4,731,246 ) (4,731,246 ) Gain on Fair Market Valuation of Derivatives - - 2,281,000 2,281,000 Interest Expense - (397 ) (259,224 ) (259,621 ) Total Other Income (Expense) - (397 ) (3,177,787 ) (3,178,184 ) Loss Before Provision for Income Taxes $ (921,583 ) $ (2,394,359 ) $ (6,637,350 ) $ (9,953,292 ) Total Assets at March 31, 2018 $ 6,086,415 $ 72,403,323 $ 29,354,695 $ 107,844,433 For the Three Months Ended March 31, 2017 (Unaudited) Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 917,143 $ 5,887,038 $ 20,275 $ 6,824,456 Cost of Goods Sold 969,815 5,495,578 - 6,465,393 Gross Profit (52,672 ) 391,460 20,275 359,063 Selling, General and Administrative Expenses 659,063 2,627,005 3,100,232 6,386,300 . Loss from Operations (711,735 ) (2,235,545 ) (3,079,957 ) (6,027,237 ) Other Income (Expense): Amortization of Debt Discount - - (610,616 ) (610,616 ) Loss on Extinguishment of Debt - - (1,039,458 ) (1,039,458 ) Gain on Fair Market Valuation of Derivatives - - 1,610,750 1,610,750 Interest Expense - - (157,833 ) (157,833 ) Loss on Fair Market Valuation of Contingent Consideration - (4,348,761 ) - (4,348,761 ) Total Other Income (Expense) - (4,348,761 ) (197,157 ) (4,545,918 ) Loss Before Provision for Income Taxes $ (711,735 ) $ (6,584,306 ) $ (3,277,114 ) $ (10,573,155 ) Total Assets at March 31, 2017 $ 7,133,499 $ 59,367,012 $ 11,077,191 $ 77,577,702 |
LITIGATION AND CLAIMS
LITIGATION AND CLAIMS | 3 Months Ended |
Mar. 31, 2018 | |
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 Company’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 March 31, 2018 nor were there any asserted or unasserted material claims for which material losses are reasonably possible. On April 11, 2018, the Company filed a lawsuit in the United States District Court, Central District of California against Kenneth VandeVrede, Michael VandeVrede, Steven VandeVrede, Daniel VandeVrede, Greda VandeVrede, Beverly Willekes, Brian VandeVrede, Gro-Rite, Inc. (“Gro-Rite”) and Naturally Beautiful Plant Products, LLC (“Naturally Beautiful”) alleging breach of contract, breach of fiduciary duties, conversion, fraud, breach of covenant of good faith and fair dealing, misappropriation of trade secrets, and conspiracy related to, among other things, the Share Exchange Agreement, dated as of April 24, 2013 among the Company, the Company’s wholly-owned subsidiary, Edible Garden Corp. (“Edible Garden”), and the individual defendants (the “Share Exchange Agreement”). The Company is seeking monetary damages, including attorneys’ fees and expenses, return of shares of the Company’s common stock issued to the individual defendants under the Share Exchange Agreement, return of stock options issued to the individual defendants, and return of the Company’s intellectual property. On April 10, 2018, Gro-Rite, Naturally Beautiful and Whitetown Realty (“Whitetown Realty” and collectively, the “Whitetown Realty Plaintiffs”) filed a lawsuit in the Superior Court of New Jersey Law Division, Morris County against the Company and Edible Garden alleging, among other things, that Edible Garden owes certain amounts to Gro-Rite under a Marketing and Distribution Agreement between Edible Garden and Gro-Rite, dated May 7, 2013, and Naturally Beautiful under a Marketing and Distribution Agreement between Edible Garden and Naturally Beautiful, dated May 13, 2013 (collectively, the “Marketing and Distribution Agreements”), and that Edible Garden owes certain amounts to Whitetown Realty under the Lease between Whitetown Realty and Edible Garden, dated January 1, 2015 (the “Lease”). The Whitetown Realty Plaintiffs are seeking, among other things, compensatory damages for the amounts claimed are owed and attorneys’ fees and costs. The Company believes that Edible Garden does not owe any payments under the Marketing and Distribution Agreements or the Lease. The Company disputes the Whitetown Realty Plaintiffs’ allegations in the lawsuit and intends to vigorously defend itself. On April 13, 2018, Edible Garden Corp. filed a lawsuit in the Superior Court of New Jersey Chancery Division, Warren County against Whitetown Realty in response to a letter from a law firm representing Whitetown Realty alleging Edible Garden was in default of the Lease. Edible Garden is seeking declaratory and equitable relief to prevent Whitetown Realty from terminating the Lease and for attorneys’ fees and costs. The Company believes that Edible Garden has made all payments due to Whitetown Realty under the Lease and maintains Edible Garden is not in default of the Lease. On April 11, 2018, Kenneth VandeVrede, Michael VandeVrede and Steven VandeVrede (collectively, the “VandeVredes”) filed a lawsuit in the Superior Court of New Jersey Law Division, Warren County against the Company and Edible Garden alleging, among other things, that the Company and Edible Garden improperly suspended the VandeVredes from their positions with the Company and Edible Garden. The VandeVredes are seeking, among other things, a declaratory judgement that the they did not violate their fiduciary duties owed to the Company or Edible Garden and reinstating the VandeVredes to their status with the Company and Edible Garden prior to their suspensions and attorneys’ fees and costs. The Company disputes the VandeVrede’s allegations in the lawsuit and intends to vigorously defend itself. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 3 Months Ended |
Mar. 31, 2018 | |
Notes to Financial Statements | |
NOTE 16. SUBSEQUENT EVENTS | Equity Financing Facility Subsequent to March 31, 2018, the Company issued 366,909 shares of common stock for cash in the amount of $1,000,000 pursuant to an equity financing with an accredited investor. Debt and Interest Converted into Equity Subsequent to March 31, 2018, senior convertible promissory notes and accrued interest in the amount of $5,500,000 and $88,126, respectively, were converted into 2,791,804 shares of common stock. Other In April 2018, the Company amended the note receivable with NuLeaf to extend the maturity date to August 1, 2018. In the event the State of Nevada does not approve the agreement the Company entered into with NuLeaf, see Note 5 Notes Receivable |
SUMMARY OF SIGNIFICANT ACCOUN22
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 3 Months Ended |
Mar. 31, 2018 | |
Summary Of Significant Accounting Policies Policies | |
Basis of Presentation | Basis of Presentation The accompanying interim unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Securities Exchange Commission (“SEC”) Form 10-Q and Article 10 of Regulation S-X of the Securities Act of 1933, and reflect the accounts and operations of the Company and those of our subsidiaries in which we have a controlling financial interest. In accordance with the provisions of FASB or ASC 810, “Consolidation” All intercompany accounts and transactions have been eliminated in consolidation. Accordingly, the accompanying interim unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the unaudited consolidated financial position of the Company as of March 31, 2018, the unaudited consolidated results of operations for the three months ended March 31, 2018 and 2017, and the unaudited consolidated results of cash flows for the three months ended March 31, 2018 and 2017 have been included. These interim unaudited consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and, therefore, should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s most recent Annual Report on Form 10-K filed with the SEC. The December 31, 2017 balances reported herein are derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 16, 2018. The results for the interim periods are not necessarily indicative of results to be expected for the full year. |
Non-Controlling Interest | Non-controlling interest is shown as a component of stockholders’ 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 accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of total net revenue and expenses in the reporting periods. The Company regularly evaluates estimates and assumptions related to revenue recognition, allowances for doubtful accounts, sales returns, inventory valuation, stock-based compensation expense, goodwill and purchased intangible asset valuations, derivative liabilities, deferred income tax asset valuation allowances, uncertain tax positions, tax contingencies, litigation and other loss contingencies. These estimates and assumptions are based on current facts, historical experience and various other factors that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. |
Reclassifications | Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications did not affect net loss or stockholders’ equity. |
Revenue Recognition | On January 1, 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers Under the new standard, the Company recognizes a sale as follows: Cannabis Dispensary, Cultivation and Production The Company recognizes revenue from manufacturing and distribution product sales when our customers obtain control of our products. Revenue from our retail dispensaries is recorded at the time customers take possession of the product. 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. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase. Revenue related to distribution customers is recorded when the customer is determined to have taken control of the product. That determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Recorded revenue is net of any discounts, rebates, promotional 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. Herbs and Produce Products The Company recognizes revenue from products grown in its greenhouses net of variable consideration such as estimated returns upon delivery of the product to the customer at which time control passes to the customer. Upon transfer of control, the Company has no further performance obligations. For sales for which the Company uses an outside grower, the Company evaluates whether it is appropriate to record the gross amount of product sales and related costs or the net amount earned as commissions. The evaluation considers whether the Company takes control of the products of the outside grower, whether it has the ability to direct the outside grower to provide the product to the customer on its behalf or whether it combines products from the outside grower with its own goods and services to provide the products to the customer. In evaluating whether it takes control of the products of the outside grower, the Company considers whether it has primary responsibility for fulfilling the promise to provide the products, whether the Company is subject to inventory risk related to the products and whether it has the ability to set the selling prices for the products. |
Fair Value of Financial Instruments | The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines 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, the Company considers the principal or most advantageous market in which the Company 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 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company has not elected the fair value option for any eligible financial instruments. |
Recently Issued Accounting Standards | FASB ASU 2017-12 (Topic 815), “Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities” FASB ASU 2017-04 (Topic 350), “Intangibles - Goodwill and Others” FASB ASU No. 2016-02 (Topic 842), “Leases” |
VARIABLE INTEREST ENTITY ARRA23
VARIABLE INTEREST ENTITY ARRANGEMENTS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Variable Interest Entity Arrangements Tables | |
VARIABLE INTEREST ENTITY ARRANGEMENTS | March 31, December 31, 2018 2017 Current Assets: Cash $ 536,175 $ 409,029 Accounts Receivable, Net 5,707 - Inventory 478,972 232,231 Prepaid Expenses and Other Current Assets 267,842 302,186 Total Current Assets 1,288,696 943,446 Property, Equipment and Leasehold Improvements, Net 1,906,395 1,965,103 TOTAL ASSETS $ 3,195,091 $ 2,908,549 Current Liabilities: Accounts Payable and Accrued Expenses 231,845 319,853 TOTAL LIABILITIES $ 231,845 $ 319,853 |
PROPERTY, EQUIPMENT AND LEASE24
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Property Equipment And Leasehold Improvements Net Tables | |
Property, equipment, and leasehold improvements | March 31, December 31, 2018 2017 Land and Building $ 20,719,158 $ 9,047,201 Furniture and Equipment 3,579,954 3,553,587 Computer Hardware and Software 602,098 486,176 Leasehold Improvements 9,324,686 9,316,665 Construction in Progress 4,064,491 1,204,547 Subtotal 38,290,387 23,608,176 Less Accumulated Depreciation (4,947,130 ) (4,416,560 ) Property, Equipment and Leasehold Improvements, Net $ 33,343,257 $ 19,191,616 |
NOTES PAYABLE (Tables)
NOTES PAYABLE (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Notes Payable Tables | |
Notes payable | March 31, December 31, 2018 2017 Senior convertible promissory note dated August 21, 2017, issued to accredited investors, which matures February 21, 2019 and bears interest at a rate of 12% per annum. The conversion price is $4.50, subject to adjustment. The balance of the note and accrued interest was converted into common stock in January 2018. $ - $ 640,010 Senior convertible promissory note dated December 26, 2017, issued to accredited investors, which matures June 26, 2019 and bears interest at a rate of 12% per annum. The conversion price is $4.50, subject to adjustment. The balance of the note and accrued interest was converted into common stock in January 2018. - 1,469,388 Promissory note dated November 22, 2017, issued for the purchase of real property. Matures December 1, 2020, with an option to extend the maturity date 1 year. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. 4,500,000 4,500,000 Promissory note dated January 18, 2018, issued for the purchase of real property. Matures February 1, 2021, with an option to extend the maturity date 1 year. The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. 6,160,001 - Senior convertible promissory note dated January 25, 2018, issued to accredited investors under the 2017 Master Securities Purchase and Convertible Promissory Notes Agreement, which matures July 25, 2019 and bears interest at a rate of 12% per annum. The conversion price is $6.00, subject to adjustment. 916,867 - Senior convertible promissory note dated March 12, 2018, issued to accredited investors under the 2018 Master Securities Purchase and Convertible Promissory Notes Agreement, which matures September 12, 2019 and bears interest at a rate of 7.5% per annum. The conversion price is $4.50, subject to adjustment. 1,655,950 - Long-Term Debt, Net of Discounts $ 13,232,818 $ 6,609,398 |
Scheduled Maturities of Long-Term Debt | Nine Months Ending December 2018 Year Ending December 31, 2019 2020 2021 2022 2023 and thereafter Total Total Debt $ - $ 2,572,817 $ 4,500,000 $ 6,160,001 $ - $ - $ 13,232,818 |
Conversion of the notes payable | Three Months Ended March 31, 2018 2017 Fair market value of common stock issued upon conversion $ 17,180,837 $ 5,014,661 Principal amount of debt converted (9,400,000 ) (3,559,324 ) Accrued interest converted (84,612 ) (129,639 ) Fair value of derivative at conversion date (9,431,000 ) (2,770,650 ) Debt discount value at conversion date 6,466,021 2,484,410 Loss on extinguishment of debt $ 4,731,246 $ 1,039,458 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Fair Value Measurements Tables | |
Fair value hierarchy financial assets measured | Fair Value at March 31, Fair Value Measurement Using Description 2018 Level 1 Level 2 Level 3 Derivative Liabilities Conversion Feature $ 4,059,400 $ - $ - $ 4,059,400 $ 4,059,400 $ - $ - $ 4,059,400 Fair Value at December 31, Fair Value Measurement Using Description 2017 Level 1 Level 2 Level 3 Derivative Liabilities Conversion Feature $ 9,331,400 $ - $ - $ 9,331,400 $ 9,331,400 $ - $ - $ 9,331,400 |
Reconciliation of the Derivative Liabilities measured | Balance at December 31, 2017 $ 9,331,400 Change in Fair Market Value of Conversion Feature (2,281,000 ) Derivative Debt Converted into Equity (9,431,000 ) Fair Value of Derivative Liability Recorded Upon Issuance of Convertible Debt 6,440,000 Balance at March 31, 2018 $ 4,059,400 |
Estimated fair value of derivative liabilities assumptions | March 31, March 31, 2018 2017 Stock Price $2.52 - $6.90 $3.81 - $5.04 Conversion and Exercise Price $2.06 - $6.60 $2.06 - $6.60 Annual Dividend Yield - - Expected Life (Years) 1.12 - 2.66 0.70 - 3.42 Risk-Free Interest Rate 1.77% - 2.27% 1.05% - 2.50% Expected Volatility 62.36% - 134.84% 61.88% - 123.56% |
TAX EXPENSE (Tables)
TAX EXPENSE (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Tax Expense Tables | |
Deferred tax assets and liabilities | March 31, December 31, 2018 2017 Deferred Income Tax Assets: Net Operating Losses $ 9,293,518 $ 8,023,000 9,293,518 8,023,000 Deferred Income Tax Liabilities: Depreciation (939,256 ) (850,000 ) Total 8,354,262 7,173,000 Valuation Allowance (8,354,262 ) (7,173,000 ) Net Deferred Tax $ - $ - |
STOCK-BASED COMPENSATION (Table
STOCK-BASED COMPENSATION (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Stock-based Compensation Tables | |
Equity Incentive Plan | Awards Reserved for Issuance Awards Issued Awards Available for Grant 2016 Equity Incentive Plan 30,000,000 1,977,732 28,022,268 |
Stock option activity | Number of Shares Weighted- Average Exercise Price Per Share Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value of In-the-Money Options Options Outstanding as of Janury 1, 2018 1,177,732 $ 2.17 Options Granted 800,000 $ 4.41 Options Exercised - $ - Options Forfeited - $ - Options Expired - $ - Options Outstanding as of March 31, 2018 1,977,732 $ 3.08 9.1 Years $ 522,600 Options Exercisable as of March 31, 2018 659,774 $ 2.20 8.5 Years $ 391,950 |
Weighted-average assumptions stock-based compensation | March 31, 2018 Expected Term (years) 6.5 Years Volatility 127.9-128.0 % Risk-Free Interest Rate 2.5-2.7 % Dividend Yield 0 % |
Stock-Based Compensation Expense | For the Three Months Ended March 31, 2018 March 31, 2017 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 800,000 $ 474,198 - $ 47,589 Stock Grants: Employees (Common Stock) 81,506 288,450 6,667 26,100 Employees (Series B Preferred Stock) - - 40,000 1,035,406 Directors (Common Stock) - - 8,333 37,500 Non–Employee Consultants (Common Stock) 6,410 16,692 31,176 145,011 Total Stock–Based Compensation Expense $ 779,340 $ 1,291,606 |
WARRANTS (Tables)
WARRANTS (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Warrants Tables | |
Warrants outstanding | Shares Weighted-Average Exercise Price Warrants Outstanding as of January 1, 2018 1,191,367 $ 2.85 Warrants Exercised (283,697 ) $ 2.17 Warrants Granted 114,636 $ 4.05 Warrants Expired - $ - Warrants Outstanding as of March 31, 2018 1,022,306 $ 3.80 |
Warrants utilizing weighted-average inputs | March 31, March 31, 2018 2017 Stock Price on Date of Grant $ 3.75 $ 4.94 Exercise Price $ 4.05 $ 3.74 Volatility 120.71 % 140.09 % Term 5-Years 5-Years Risk-Free Interest Rate 2.49 % 2.24 % Expected Dividend Rate 0 % 0 % |
SEGMENT INFORMATION (Tables)
SEGMENT INFORMATION (Tables) | 3 Months Ended |
Mar. 31, 2018 | |
Segment Information Tables | |
Summarized financial information | For the Three Months Ended March 31, 2018 (Unaudited) Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 1,283,901 $ 7,314,554 $ 16,911 $ 8,615,366 Cost of Goods Sold 1,263,117 5,704,809 - 6,967,926 Gross Profit 20,784 1,609,745 16,911 1,647,440 Selling, General and Administrative Expenses 942,367 4,003,707 3,476,474 8,422,548 Loss from Operations (921,583 ) (2,393,962 ) (3,459,563 ) (6,775,108 ) Other Income (Expense): Amortization of Debt Discount - - (468,317 ) (468,317 ) Loss on Extinguishment of Debt - - (4,731,246 ) (4,731,246 ) Gain on Fair Market Valuation of Derivatives - - 2,281,000 2,281,000 Interest Expense - (397 ) (259,224 ) (259,621 ) Total Other Income (Expense) - (397 ) (3,177,787 ) (3,178,184 ) Loss Before Provision for Income Taxes $ (921,583 ) $ (2,394,359 ) $ (6,637,350 ) $ (9,953,292 ) Total Assets at March 31, 2018 $ 6,086,415 $ 72,403,323 $ 29,354,695 $ 107,844,433 For the Three Months Ended March 31, 2017 (Unaudited) Herbs and Produce Products Cannabis Dispensary, Cultivation and Production Eliminations and Other Total Total Revenues $ 917,143 $ 5,887,038 $ 20,275 $ 6,824,456 Cost of Goods Sold 969,815 5,495,578 - 6,465,393 Gross Profit (52,672 ) 391,460 20,275 359,063 Selling, General and Administrative Expenses 659,063 2,627,005 3,100,232 6,386,300 . Loss from Operations (711,735 ) (2,235,545 ) (3,079,957 ) (6,027,237 ) Other Income (Expense): Amortization of Debt Discount - - (610,616 ) (610,616 ) Loss on Extinguishment of Debt - - (1,039,458 ) (1,039,458 ) Gain on Fair Market Valuation of Derivatives - - 1,610,750 1,610,750 Interest Expense - - (157,833 ) (157,833 ) Loss on Fair Market Valuation of Contingent Consideration - (4,348,761 ) - (4,348,761 ) Total Other Income (Expense) - (4,348,761 ) (197,157 ) (4,545,918 ) Loss Before Provision for Income Taxes $ (711,735 ) $ (6,584,306 ) $ (3,277,114 ) $ (10,573,155 ) Total Assets at March 31, 2017 $ 7,133,499 $ 59,367,012 $ 11,077,191 $ 77,577,702 |
DESCRIPTION OF BUSINESS (Detail
DESCRIPTION OF BUSINESS (Details Narrative) | Mar. 12, 2018 | Mar. 31, 2018 |
Description Of Business Details Narrative | ||
State of Incorporation | Nevada | |
Reverse Stock Split | 1-for-15 |
VARIABLE INTEREST ENTITY ARRA32
VARIABLE INTEREST ENTITY ARRANGEMENTS (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Current Assets: | ||
Cash | $ 4,510,769 | $ 5,445,582 |
Accounts Receivable, Net | 722,929 | 959,698 |
Inventory | 4,772,158 | 5,760,019 |
Prepaid Expenses and Other Current Assets | 1,581,555 | 1,067,689 |
Total Current Assets | 17,551,615 | 18,243,131 |
Property, Equipment and Leasehold Improvements, Net | 33,343,257 | 19,191,616 |
TOTAL ASSETS | 107,844,433 | 98,187,799 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 4,840,730 | 5,444,710 |
Total Liabilities | 22,132,948 | 21,385,508 |
Variable Interest Entity [Member] | ||
Current Assets: | ||
Cash | 536,175 | 409,029 |
Accounts Receivable, Net | 5,707 | |
Inventory | 478,972 | 232,231 |
Prepaid Expenses and Other Current Assets | 267,842 | 302,186 |
Total Current Assets | 1,288,696 | 943,446 |
Property, Equipment and Leasehold Improvements, Net | 1,906,395 | 1,965,103 |
TOTAL ASSETS | 3,195,091 | 2,908,549 |
Current Liabilities: | ||
Accounts Payable and Accrued Expenses | 231,845 | 319,853 |
Total Liabilities | $ 231,845 | $ 319,853 |
NOTES RECEIVABLE (Details Narra
NOTES RECEIVABLE (Details Narrative) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 | Oct. 26, 2017 |
Notes receivable | $ 5,964,204 | $ 5,010,143 | |
NuLeaf [Member] | |||
Convertible loans | $ 4,500,000 | ||
Interest rate per annum | 6.00% | ||
Ownership percentage | 50.00% |
PROPERTY, EQUIPMENT AND LEASE34
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Property, Equipment and Leasehold Improvements, Gross | $ 38,290,387 | $ 23,608,176 |
Less Accumulated Depreciation | (4,947,130) | (4,416,560) |
Property, Equipment and Leasehold Improvements, Net | 33,343,257 | 19,191,616 |
Land and Building [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 20,719,158 | 9,047,201 |
Furniture and Equipment [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 3,579,954 | 3,553,587 |
Computer Hardware and Software [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 602,098 | 486,176 |
Leasehold Improvements [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | 9,324,686 | 9,316,665 |
Construction in Progress [Member] | ||
Property, Equipment and Leasehold Improvements, Gross | $ 4,064,491 | $ 1,204,547 |
PROPERTY, EQUIPMENT AND LEASE35
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Property Equipment And Leasehold Improvements Net Details Narrative | ||
Depreciation expense | $ 530,570 | $ 463,073 |
NOTES PAYABLE (Details)
NOTES PAYABLE (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Notes payable | $ 13,232,818 | $ 6,609,398 |
Convertible promissory note [Member] | ||
Notes payable | 640,010 | |
Convertible promissory note One [Member] | ||
Notes payable | 1,469,388 | |
Promissory Note [Member] | ||
Notes payable | 4,500,000 | 4,500,000 |
Promissory Note One [Member] | ||
Notes payable | 6,160,001 | |
Convertible promissory note Two [Member] | ||
Notes payable | 916,867 | |
Convertible promissory note Three [Member] | ||
Notes payable | $ 1,655,950 |
NOTES PAYABLE (Details 1)
NOTES PAYABLE (Details 1) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Total Debt | $ 13,232,818 | $ 6,609,398 |
2018 [Member] | ||
Total Debt | ||
2019 [Member] | ||
Total Debt | 2,572,817 | |
2020 [Member] | ||
Total Debt | 4,500,000 | |
2021 [Member] | ||
Total Debt | 6,160,001 | |
2022 [Member] | ||
Total Debt | ||
2023 and Thereafter [Member] | ||
Total Debt |
NOTES PAYABLE (Details 2)
NOTES PAYABLE (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Notes Payable Details 2 | ||
Fair market value of common stock issued upon conversion | $ 17,180,837 | $ 5,014,661 |
Principal amount of debt converted | (9,400,000) | (3,559,324) |
Accrued interest converted | (84,612) | (129,639) |
Fair value of derivative at conversion date | (9,431,000) | (2,770,650) |
Debt discount value at conversion date | 6,466,021 | 2,484,410 |
Loss on Extinguishment of Debt | $ 4,731,246 | $ 1,039,458 |
NOTES PAYABLE (Details Narrativ
NOTES PAYABLE (Details Narrative) - USD ($) | Mar. 12, 2018 | Dec. 26, 2018 | Jan. 25, 2018 | Jan. 18, 2018 | Nov. 22, 2017 | Mar. 31, 2018 | Mar. 31, 2017 | Dec. 31, 2017 | Aug. 21, 2018 | Dec. 26, 2017 | Aug. 21, 2017 |
Total debt | $ 13,232,818 | $ 6,609,398 | |||||||||
Unamortized debt discount | 5,267,182 | 4,790,601 | |||||||||
Accrued interest | 41,459 | $ 21,767 | |||||||||
Debt conversion, converted instrument, amount | (9,400,000) | $ (3,559,324) | |||||||||
Unamortized debt discount balance remaining | 339,999 | ||||||||||
Cash paid for debt discount | $ (495,000) | ||||||||||
Common stock issued in conversion of debt | 3,133,025 | 1,805,406 | |||||||||
Convertible promissory note [Member] | |||||||||||
Unamortized debt discount | $ 2,500,000 | ||||||||||
Issuance of convertible debt | 2,500,000 | ||||||||||
Unamortized debt discount balance remaining | 1,583,133 | ||||||||||
Convertible promissory note [Member] | 2018 Master Securities Purchase Agreement [Member] | |||||||||||
Unamortized debt discount | $ 5,000,000 | ||||||||||
Interest rate | 7.50% | ||||||||||
Convertible debt aggregate value | $ 5,000,000 | ||||||||||
Unamortized debt discount balance remaining | 3,344,050 | ||||||||||
Cash paid for debt discount | 150,000 | ||||||||||
Issuance of warrants value | $ 116,000 | ||||||||||
Description of conversion price | For each note issued under the Master Securities Purchase Agreement, the principal and interest due and owed under the note is convertible into shares of Common Stock at any time at the election of the holder at a conversion price per share equal to the lower of (i) the original conversion price as defined in each note issuance or (ii) 87% of the average of the two lowest daily volume weighted average price of the Common Stock in the thirteen (13) trading days prior to the conversion date (Conversion Price), which Conversion Price is subject to adjustment for (i) stock splits, stock dividends, combinations, or similar events and (ii) full ratchet anti-dilution protection. Upon certain events of default, the conversion price 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 $10.50 or more and (ii) the average daily trading value of the Common Stock is greater than $2,500,000 for the prior ten (10) consecutive trading days, then the Company may demand, upon one (1) days notice, that the holder convert the notes at the Conversion Price. The Company may prepay in cash any portion of the outstanding principal amount of the notes 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 notes plus accrued but unpaid interest, if the prepayment date is within 90 days of the issuance date of the notes; (ii) 115% of the sum of the then-outstanding principal amount plus accrued but unpaid interest, if the prepayment date is between 91 days and 180 days of the issuance date of the notes; or (iii) 125% of the sum of the then-outstanding principal amount of the notes plus accrued but unpaid interest, if the prepayment date is after 180 days of the issuance date of the notes. | ||||||||||
Convertible promissory note [Member] | 2017 Master Securities Purchase Agreement [Member] | |||||||||||
Unamortized debt discount | $ 4,790,602 | ||||||||||
Interest rate | 12.00% | 12.00% | |||||||||
Convertible debt aggregate value | $ 5,000,000 | $ 20,000,000 | |||||||||
Issuance of convertible debt | 5,000,000 | 20,000,000 | |||||||||
Debt conversion, converted instrument, amount | 13,100,000 | ||||||||||
Unamortized debt discount balance remaining | $ 6,900,000 | ||||||||||
Cash paid for debt discount | 150,000 | ||||||||||
Issuance of warrants value | $ 196,000 | ||||||||||
Convertible promissory note [Member] | |||||||||||
Interest rate | 12.00% | ||||||||||
Conversion price | $ 4.50 | ||||||||||
Debt instrument maturity date | Feb. 21, 2019 | ||||||||||
Convertible promissory note One [Member] | |||||||||||
Interest rate | 12.00% | ||||||||||
Conversion price | $ 4.50 | ||||||||||
Debt instrument maturity date | Jun. 26, 2019 | ||||||||||
Convertible promissory note Three [Member] | |||||||||||
Interest rate escalation description | The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5% | ||||||||||
Debt instrument maturity date | Dec. 1, 2020 | ||||||||||
Convertible promissory note Three [Member] | Minimum [Member] | |||||||||||
Interest rate | 12.00% | ||||||||||
Convertible promissory note Three [Member] | Maximum [Member] | |||||||||||
Interest rate | 13.50% | ||||||||||
Convertible promissory note Four [Member] | |||||||||||
Interest rate escalation description | The promissory note bears interest at 12.0% for year one and escalates 0.5% per year thereafter up to 13.5%. | ||||||||||
Debt instrument maturity date | Feb. 1, 2021 | ||||||||||
Convertible promissory note Four [Member] | Minimum [Member] | |||||||||||
Interest rate | 12.00% | ||||||||||
Convertible promissory note Four [Member] | Maximum [Member] | |||||||||||
Interest rate | 13.50% | ||||||||||
Convertible promissory note Five [Member] | |||||||||||
Interest rate | 12.00% | ||||||||||
Conversion price | $ 6 | ||||||||||
Debt instrument maturity date | Jul. 25, 2019 | ||||||||||
Ppromissory note Six [Member] | |||||||||||
Interest rate | 7.50% | ||||||||||
Conversion price | $ 4.50 | ||||||||||
Debt instrument maturity date | Sep. 12, 2019 | ||||||||||
Promissory Note [Member] | California [Member] | Third- Party Creditor [Member] | |||||||||||
Purchase of land and building | $ 6,500,000 | ||||||||||
Cash paid for debt discount | 195,000 | ||||||||||
Issuance of warrants value | $ 164,000 | ||||||||||
Interest rate escalation description | The interest rate for the first year is 12.0% and increases 0.5% per year, up to 13.5%, through 2021. Payments of interest only are due monthly. |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Derivative liability - Conversion Feature | $ 4,059,400 | $ 9,331,400 |
Fair value of financial liabilities | 4,059,400 | 9,331,400 |
Fair Value Measurement Using, Level 1 [Member] | ||
Derivative liability - Conversion Feature | ||
Fair value of financial liabilities | ||
Fair Value Measurement Using, Level 2 [Member] | ||
Derivative liability - Conversion Feature | ||
Fair value of financial liabilities | ||
Fair Value Measurement Using, Level 3 [Member] | ||
Derivative liability - Conversion Feature | 4,059,400 | 9,331,400 |
Fair value of financial liabilities | $ 4,059,400 | $ 9,331,400 |
FAIR VALUE MEASUREMENTS (Deta41
FAIR VALUE MEASUREMENTS (Details 1) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Derivative Debt Converted into Equity | $ 2,770,650 | |
Fair Value Measurement Using, Level 3 [Member] | ||
Liabilities measured at fair value Beginning Balance | $ 9,331,400 | |
Change in Fair Market Value of Conversion Feature | (2,281,000) | |
Derivative Debt Converted into Equity | (9,431,000) | |
Fair Value of Derivative Liability Recorded Upon Issuance of Convertible Debt | 6,440,000 | |
Liabilities measured at fair value Ending Balance | $ 4,059,400 |
FAIR VALUE MEASUREMENTS (Deta42
FAIR VALUE MEASUREMENTS (Details 2) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Stock Price | $ 2.52 | |
Derivative Liabilities [Member] | ||
Annual Dividend Yield | ||
Minimum [Member] | Derivative Liabilities [Member] | ||
Stock Price | $ 2.52 | $ 3.81 |
Conversion and Exercise Price | $ 2.06 | $ 2.06 |
Expected Life (Years) | 1 year 1 month 13 days | 8 months 12 days |
Risk-Free Interest Rate | 1.77% | 1.05% |
Expected Volatility | 62.36% | 61.88% |
Maximum [Member] | Derivative Liabilities [Member] | ||
Stock Price | $ 6.90 | $ 5.04 |
Conversion and Exercise Price | $ 6.60 | $ 6.60 |
Expected Life (Years) | 2 years 7 months 28 days | 3 years 5 months 1 day |
Risk-Free Interest Rate | 2.27% | 2.50% |
Expected Volatility | 134.84% | 123.56% |
TAX EXPENSE (Details)
TAX EXPENSE (Details) - USD ($) | Mar. 31, 2018 | Dec. 31, 2017 |
Deferred Income Tax Assets: | ||
Net Operating Losses | $ 9,293,518 | $ 8,023,000 |
Deferred Income Tax Assets | 9,293,518 | 8,023,000 |
Deferred Income Tax Liabilities: | ||
Depreciation | (939,256) | (850,000) |
Total | 8,354,262 | 7,173,000 |
Valuation Allowance | (8,354,262) | (7,173,000) |
Net Deferred Tax |
TAX EXPENSE (Details Narrative)
TAX EXPENSE (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Tax Expense Details Narrative | ||
Net operating loss carry forwards | $ 30,273,379 | $ 26,333,000 |
Net operating loss carry forwards expiring year | 2,034 | |
Tax Cuts and Jobs Act, description | The Tax Act makes broad and complex changes to the U.S. tax code that affects revaluation of deferred tax assets and liabilities to reflect the federal tax rate reduction from 35.0% to 21.0%. |
EQUITY (Details Narrative)
EQUITY (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Common stock shares cancelled | 24,510 | |
Value of common stock shares cancelled | $ 117,831 | |
Common stock shares issued for services | 6,410 | |
Common stock value issued for services | $ 16,692 | |
Common stock shares issued for compensation | 81,506 | |
Common stock value issued for compensation | $ 288,446 | |
Common stock shares issued upon exercise of warrants or rights | 197,125 | |
Proceeds from exercise of warrants or rights | $ 51,000 | |
Amount of asset purchased | 300,000 | |
Asset purchased, consideration paid in cash | 100,000 | |
Asset purchased, consideration payable | $ 200,000 | |
Asset purchased shares issuable for consideration payable | 53,332 | |
Description for shares issued or issuable for asset purchased | Company issued 26,666 shares of the 53,332 shares. The remaining 26,666 shares of common stock due was issued in April 2018 | |
Common stock shares issued, stock split | 46,687 | |
Senior secured convertible promissory notes [Member] | ||
Debt conversion converted amount | $ 17,180,837 | |
Debt conversion converted instrument, shares issued | 3,133,025 | |
Accredited investor [Member] | ||
Common stock shares sold | 160,430 | |
Proceeds from sale of common stock | $ 750,000 | |
Tech Center Drive [Member] | ||
Business acquisition working capital adjustments amount withheld | $ 351,000 | |
Business acquisition, shares cancelled due to working capital adjustments | 101,083 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - 2016 Equity Incentive Plan [Member] | Mar. 31, 2018shares |
Awards Reserved for Issuance | 30,000,000 |
Awards Issued | 1,977,732 |
Awards Available for Grant | 28,022,268 |
STOCK-BASED COMPENSATION (Det47
STOCK-BASED COMPENSATION (Details 1) | 3 Months Ended |
Mar. 31, 2018USD ($)$ / sharesshares | |
Number of Options | |
Options/Warrants outstanding - beginning balance | shares | 1,177,732 |
Options granted | shares | 800,000 |
Options forfeited | shares | |
Options exercised | shares | |
Options Expired | shares | |
Options/Warrants outstanding - ending balance | shares | 1,977,732 |
Options exercisable | shares | 659,774 |
Weighted average exercise price | |
Options/Warrants outstanding - beginning balance | $ / shares | $ 2.17 |
Options granted | $ / shares | 4.41 |
Options forfeited | $ / shares | |
Options exercised | $ / shares | |
Options Expired | $ / shares | |
Options/Warrants outstanding - ending balance | $ / shares | 3.08 |
Options exercisable | $ / shares | $ 2.20 |
Weighted average remaining contracted term | |
Options outstanding - ending balance | 9 years 1 month 6 days |
Options exercisable | 8 years 6 months |
Aggregate intrinsic value | |
Options outstanding - ending balance | $ | $ 522,600 |
Options exercisable | $ | $ 391,950 |
STOCK-BASED COMPENSATION (Det48
STOCK-BASED COMPENSATION (Details 2) | 3 Months Ended |
Mar. 31, 2018 | |
Expected Term (years) | 6 years 6 months |
Dividend Yield | 0.00% |
Minimum [Member] | |
Volatility | 127.90% |
Risk-Free Interest Rate | 2.50% |
Maximum [Member] | |
Volatility | 128.00% |
Risk-Free Interest Rate | 2.70% |
STOCK-BASED COMPENSATION (Det49
STOCK-BASED COMPENSATION (Details 3) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Stock-Based Compensation Expense | $ 779,340 | $ 1,291,606 |
Stock Option [Member] | ||
Number of Shares or Options Granted | 800,000 | |
Stock-Based Compensation Expense | $ 474,198 | $ 47,589 |
Employees (Common Stock) [Member] | ||
Number of Shares or Options Granted | 81,506 | 6,667 |
Stock-Based Compensation Expense | $ 288,450 | $ 26,100 |
Employees (Series B Preferred Stock) [Member] | ||
Number of Shares or Options Granted | 40,000 | |
Stock-Based Compensation Expense | $ 1,035,406 | |
Directors (Common Stock) [Member] | ||
Number of Shares or Options Granted | 8,333 | |
Stock-Based Compensation Expense | $ 37,500 | |
Non-Employee Consultants (Common Stock) [Member] | ||
Number of Shares or Options Granted | 6,410 | 31,176 |
Stock-Based Compensation Expense | $ 16,692 | $ 145,011 |
STOCK-BASED COMPENSATION (Det50
STOCK-BASED COMPENSATION (Details Narrative) | 3 Months Ended |
Mar. 31, 2018USD ($)$ / shares | |
Stock-based Compensation Details Narrative | |
Closing stock price | $ / shares | $ 2.52 |
Unrecognized stock-based compensation | $ | $ 4,239,445 |
Weighted-average period | 1 year 11 months 23 days |
WARRANTS (Details)
WARRANTS (Details) | 3 Months Ended |
Mar. 31, 2018$ / sharesshares | |
Shares | |
Options/Warrants outstanding - beginning balance | shares | 1,177,732 |
Warrants exercised | shares | |
Options/Warrants outstanding - ending balance | shares | 1,977,732 |
Weighted Average Exercise Price | |
Options/Warrants outstanding - beginning balance | $ 2.17 |
Warrants exercised | |
Warrants granted | 4.41 |
Options/Warrants outstanding - ending balance | $ 3.08 |
Warrant [Member] | |
Shares | |
Options/Warrants outstanding - beginning balance | shares | 1,191,367 |
Warrants exercised | shares | (283,697) |
Warrants granted | shares | 114,636 |
Warrants expired | shares | |
Options/Warrants outstanding - ending balance | shares | 1,022,306 |
Weighted Average Exercise Price | |
Options/Warrants outstanding - beginning balance | $ 2.85 |
Warrants exercised | 2.17 |
Warrants granted | 4.05 |
Warrants expired | |
Options/Warrants outstanding - ending balance | $ 3.80 |
WARRANTS (Details 1)
WARRANTS (Details 1) - $ / shares | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Stock Price on Date of Grant | $ 2.52 | |
Warrant [Member] | ||
Stock Price on Date of Grant | 3.75 | $ 4.94 |
Exercise Price | $ 4.05 | $ 3.74 |
Volatility | 120.71% | |
Term | 5 years | 5 years |
Risk-Free Interest Rate | 2.49% | 2.24% |
Expected Dividend Rate | 0.00% | 0.00% |
WARRANTS (Details Narrative)
WARRANTS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Warrants Details | ||
Fair Value of Warrants Issued for Debt Discount | $ 475,917 | |
Warrants Issued with Common Stock and Debt | $ 107,035 |
SEGMENT INFORMATION (Details)
SEGMENT INFORMATION (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Mar. 31, 2017 | |
Total Revenues | $ 8,615,366 | $ 6,824,456 |
Cost of Goods Sold | 6,967,926 | 6,465,393 |
Gross Profit | 1,647,440 | 359,063 |
Selling, general and administrative expenses | 8,422,548 | 6,386,300 |
Loss from operations | (6,775,108) | (6,027,237) |
Other Income Expense: | ||
Amortization of debt discount | (468,317) | (610,616) |
Interest Expense | (259,621) | (157,833) |
Total Other Income (Expense) | (3,178,184) | (4,545,918) |
Herbs and Produce Products [Member] | ||
Total Revenues | 1,283,901 | 917,143 |
Cost of Goods Sold | 1,263,117 | 969,815 |
Gross Profit | 20,784 | (52,672) |
Selling, general and administrative expenses | 942,367 | 659,063 |
Loss from operations | (921,583) | (711,735) |
Other Income Expense: | ||
Amortization of debt discount | ||
Losson Extinguishment of Debt | ||
Gain on Fair Market Valuation of Derivatives | ||
Interest Expense | ||
Loss on Fair Market Valuation of Contingent Consideration | ||
Total Other Income (Expense) | ||
Loss Before Provision for Income Taxes | (921,583) | (711,735) |
Total assets | 6,086,415 | 7,133,499 |
Cannabis Dispensary Cultivation and Production [Member] | ||
Total Revenues | 7,314,554 | 5,887,038 |
Cost of Goods Sold | 5,704,809 | 5,495,578 |
Gross Profit | 1,609,745 | 391,460 |
Selling, general and administrative expenses | 4,003,707 | 2,627,005 |
Loss from operations | (2,393,962) | (2,235,545) |
Other Income Expense: | ||
Amortization of debt discount | ||
Losson Extinguishment of Debt | ||
Gain on Fair Market Valuation of Derivatives | ||
Interest Expense | (397) | |
Loss on Fair Market Valuation of Contingent Consideration | (4,348,761) | |
Total Other Income (Expense) | (397) | (4,348,761) |
Loss Before Provision for Income Taxes | (2,394,359) | (6,584,306) |
Total assets | 72,403,323 | 59,367,012 |
Eliminations And Other [Member] | ||
Total Revenues | 16,911 | 20,275 |
Cost of Goods Sold | ||
Gross Profit | 16,911 | 20,275 |
Selling, general and administrative expenses | 3,476,474 | 3,100,232 |
Loss from operations | (3,459,563) | (3,079,957) |
Other Income Expense: | ||
Amortization of debt discount | (468,317) | (610,616) |
Losson Extinguishment of Debt | (4,731,246) | (1,039,458) |
Gain on Fair Market Valuation of Derivatives | 2,281,000 | 1,610,750 |
Interest Expense | (259,224) | (157,833) |
Loss on Fair Market Valuation of Contingent Consideration | ||
Total Other Income (Expense) | (3,177,787) | (197,157) |
Loss Before Provision for Income Taxes | (6,637,350) | (3,277,114) |
Total assets | 29,354,695 | 11,077,191 |
Segment Information [Member] | ||
Total Revenues | 8,615,366 | 6,824,456 |
Cost of Goods Sold | 6,967,926 | 6,465,393 |
Gross Profit | 1,647,440 | 359,063 |
Selling, general and administrative expenses | 8,422,548 | 6,386,300 |
Loss from operations | (6,775,108) | (6,027,237) |
Other Income Expense: | ||
Amortization of debt discount | (468,317) | (610,616) |
Losson Extinguishment of Debt | (4,731,246) | (1,039,458) |
Gain on Fair Market Valuation of Derivatives | 2,281,000 | 1,610,750 |
Interest Expense | (259,621) | (157,833) |
Loss on Fair Market Valuation of Contingent Consideration | (4,348,761) | |
Total Other Income (Expense) | (3,178,184) | (4,545,918) |
Loss Before Provision for Income Taxes | (9,953,292) | (10,573,155) |
Total assets | $ 107,844,433 | $ 77,577,702 |
SUBSEQUENT EVENTS (Details Narr
SUBSEQUENT EVENTS (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2018 | Dec. 31, 2017 | |
Accrued interest | $ 41,459 | $ 21,767 |
Subsequent Event [Member] | Accredited Investor [Member] | ||
Common stock for cash, amount | $ 1,000,000 | |
Common stock for cash, shares | 366,909 | |
Convertible promissory notes [Member] | Subsequent Event [Member] | ||
Converted common stock, amount | $ 5,500,000 | |
Converted common stock, shares | 2,791,804 | |
Accrued interest | $ 88,126 |