Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2019 | Mar. 20, 2020 | Jun. 30, 2019 | |
Cover [Abstract] | |||
Entity Registrant Name | Medicine Man Technologies, Inc. | ||
Entity Central Index Key | 0001622879 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2019 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | true | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Ex Transition Period | false | ||
Entity Public Float | $ 71,600,000 | ||
Entity Common Stock, Shares Outstanding | 39,952,628 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2019 | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation State Country Code | NV | ||
Entity File Number | 000-55450 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash and cash equivalents | $ 11,853,627 | $ 321,788 |
Accounts receivable, net of allowance for doubtful accounts | 313,317 | 1,180,757 |
Accounts receivable - related party | 72,658 | 125,112 |
Inventory | 684,940 | 489,239 |
Note receivable - related party | 767,695 | 0 |
Other assets | 529,416 | 50,824 |
Prepaid acquisition costs (Note 12) | 1,347,462 | 0 |
Total current assets | 15,569,115 | 2,167,720 |
Non-current assets | ||
Fixed assets, net os accumulated depreciation of $159,354 and $149,015, respectively | 239,078 | 94,640 |
Goodwill | 12,304,306 | 12,304,306 |
Intangible assets, net of accumulated amortization of $19,811 and $13,903, respectively | 75,289 | 81,197 |
Investment | 406,774 | 2,199,344 |
Accounts receivable - litigation | 3,063,968 | 1,281,511 |
Deferred tax assets, net | 268,423 | 0 |
Notes receivable - noncurrent, net | 241,711 | 92,888 |
Operating lease right of use assets | 59,943 | 0 |
Total non-current assets | 16,659,492 | 16,053,886 |
Total assets | 32,228,607 | 18,221,606 |
Current liabilities | ||
Accounts payable | 699,961 | 202,515 |
Accounts payable - related party | 15,372 | 71,312 |
Accrued expenses | 1,091,204 | 291,084 |
Derivative liabilities | 3,773,382 | 0 |
Income taxes payable | 1,940 | 582,931 |
Total current liabilities | 5,581,859 | 1,147,842 |
Long-term liabilities | ||
Lease liabilities | 66,803 | 0 |
Total long-term liabilities | 66,803 | 0 |
Total liabilities | 5,648,662 | 1,147,842 |
Commitments and Contingencies (Note 12) | 0 | 0 |
Shareholders' equity | ||
Preferred stock $0.001 par value. 10,000,000 authorized, zero shares issued and outstanding December 31, 2019 and December 31, 2018, respectively. | 0 | 0 |
Common stock $0.001 par value. 250,000,000 authorized, 39,952,626 and 27,753,310 shares issued and outstanding December 31, 2019 and December 31, 2018, respectively. | 39,953 | 27,875 |
Additional paid-in capital | 50,356,469 | 22,886,624 |
Accumulated deficit | (22,816,477) | (5,840,735) |
Common stock held in treasury, at cost, 257,732 shares and zero shares held at December 31, 2019 and 2018, respectively | (1,000,000) | 0 |
Total Shareholders' equity | 26,579,945 | 17,073,764 |
Total liabilities and stockholders' equity | $ 32,228,607 | $ 18,221,606 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 159,354 | $ 149,015 |
Accumulated amortization | $ 19,811 | $ 13,903 |
Preferred stock authorized | 10,000,000 | 10,000,000 |
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock issued | 0 | 0 |
Preferred stock outstanding | 0 | 0 |
Common stock authorized | 250,000,000 | 90,000,000 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock issued | 39,952,626 | 27,753,310 |
Common stock outstanding | 39,952,626 | 27,753,310 |
Treasury Stock, Common, Shares | 257,732 | 0 |
Consolidated Statement of Compr
Consolidated Statement of Comprehensive (Loss) And Income - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Operating revenues | ||
Total revenue | $ 12,400,955 | $ 9,442,555 |
Cost of goods and services | ||
Cost of goods and services | 7,616,221 | 2,577,510 |
Total cost of goods and services | 7,616,221 | 2,577,510 |
Gross profit | 4,784,734 | 6,865,045 |
Operating expenses | ||
Selling, general and administrative expenses | 2,261,317 | 1,101,756 |
Professional services | 3,357,877 | 885,149 |
Salaries, benefits and related expenses | 3,567,535 | 1,250,549 |
Stock based compensation | 7,279,363 | 1,457,250 |
Derivative expense - contingent compensation | 5,400,559 | 0 |
Total operating expenses | 21,866,651 | 4,694,704 |
(Loss) Income from operations | (17,081,917) | 2,170,341 |
Other income (expense) | ||
Bad debt expense | (151,169) | (196,112) |
Loss on sale of assets | 0 | (8,998) |
Unrealized gain on derivative liabilities | 1,627,176 | 0 |
Unrealized loss on marketable securities | (1,792,569) | (463,386) |
Interest (expense) income, net | (160,195) | 30,001 |
Total other (expense) | (476,756) | (638,495) |
(Loss) income before income taxes | (17,558,673) | 1,531,846 |
Provision for income tax (benefit) expense | (582,931) | 582,931 |
Net (loss) income | $ (16,975,742) | $ 948,915 |
Basic (loss) earnings per common share | $ (0.50) | $ 0.04 |
Diluted (loss) earnings per common share | $ (0.50) | $ 0.03 |
Weighted-average number of common shares outstanding - Basic | 33,740,557 | 25,121,896 |
Weighted-average number of common shares outstanding - Diluted | 33,740,557 | 27,769,357 |
Comprehensive (loss) income | $ (16,975,742) | $ 948,915 |
Product sales, net [Member] | ||
Operating revenues | ||
Total revenue | 6,468,230 | 1,476,169 |
Product sales - related party, net [Member] | ||
Operating revenues | ||
Total revenue | 1,351,578 | 555,434 |
Litigation Revenue [Member] | ||
Operating revenues | ||
Total revenue | 1,782,457 | 1,518,099 |
Licensing, consulting and Cultivation Max fees [Member] | ||
Operating revenues | ||
Total revenue | 2,767,649 | 5,810,815 |
Other Operating Revenues [Member] | ||
Operating revenues | ||
Total revenue | $ 31,041 | $ 82,038 |
Statement of Changes in Stockho
Statement of Changes in Stockholders' Equity - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Common Stock Held In Treasury at Cost | Total |
Beginning balance, shares at Dec. 31, 2017 | 0 | 22,991,137 | ||||
Beginning balance, value at Dec. 31, 2017 | $ 0 | $ 22,113 | $ 17,505,697 | $ (6,789,650) | $ 10,739,160 | |
Net income (loss) | 948,915 | 948,915 | ||||
Issuance of common stock in connection with sales made under private or public offerings, shares | 937,647 | |||||
Issuance of common stock in connection with sales made under private or public offerings, value | $ 938 | 999,062 | 1,000,000 | |||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 1,091,197 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, value | $ 1,091 | (1,091) | ||||
Issuance of common stock as compensation to employees, officers and/or directors, shares | 800,000 | |||||
Issuance of common stock as compensation to employees, officers and/or directors, value | $ 800 | 1,456,450 | 1,457,250 | |||
Issuance of common stock in connection with the acquisition of a business, shares | 1,933,329 | |||||
Issuance of common stock in connection with the acquisition of a business, value | $ 1,933 | 2,998,067 | 3,000,000 | |||
Adjustment for acquisition payment | (71,561) | (71,561) | ||||
Ending balance, shares at Dec. 31, 2018 | 0 | 27,753,310 | ||||
Ending balance, value at Dec. 31, 2018 | $ 0 | $ 27,875 | 22,886,624 | (5,840,735) | 17,073,764 | |
Net income (loss) | (16,975,742) | (16,975,742) | ||||
Issuance of common stock in connection with sales made under private or public offerings, shares | 9,800,000 | |||||
Issuance of common stock in connection with sales made under private or public offerings, value | $ 9,800 | 19,590,200 | 19,600,000 | |||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 485,543 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, value | $ 365 | 602,195 | 602,560 | |||
Issuance of common stock as compensation to employees, officers and/or directors, shares | 1,913,775 | |||||
Issuance of common stock as compensation to employees, officers and/or directors, value | $ 1,913 | 3,220,488 | 3,222,401 | |||
Return of common stock in lieu of collection of certain accounts receivable | (1,000,000) | (1,000,000) | ||||
Stock based compensation expense related to common stock options | 4,056,962 | 4,056,962 | ||||
Ending balance, shares at Dec. 31, 2019 | 0 | 39,952,628 | ||||
Ending balance, value at Dec. 31, 2019 | $ 0 | $ 39,953 | $ 50,536,469 | $ (22,816,477) | $ (1,000,000) | $ 26,579,945 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Cash flows from operating activities of continuing operations: | ||
Net (loss) income | $ (16,975,742) | $ 948,915 |
Adjustments to reconcile net (loss) income to cash used in operating activities: | ||
Depreciation and amortization | 61,708 | 81,960 |
Bad debt expense | 151,169 | 196,112 |
Deferred taxes | (268,423) | 0 |
Derivative expense | 5,400,559 | 0 |
Unrealized loss on derivative liabilities | (1,627,176) | 0 |
Equity securities received in lieu of cash for fees and services provided | 0 | (2,662,730) |
Realized loss on disposal of fixed assets | 0 | 8,998 |
Unrealized loss on marketable securities | 1,792,569 | 463,386 |
Stock based compensation | 7,184,363 | 1,457,250 |
Changes in operating assets and liabilities | ||
Accounts receivable | (3,361,194) | (2,100,318) |
Inventory | (195,701) | (92,148) |
Prepaid expense and other current assets | (383,592) | 0 |
Other assets | 0 | 11,445 |
Operating lease right of use assets and liabilities | 6,860 | 0 |
Accounts payable and other liabilities | 1,241,626 | (65,962) |
Income taxes payable | (580,991) | 582,931 |
Net cash used in operating activities | (7,553,965) | (1,170,160) |
Cash flows from investing activities | ||
Adjustment for acquisition payment | 0 | (71,561) |
Issuance of notes receivable | (916,518) | (97,889) |
Repayment of short-term debt | 0 | (58,280) |
Proceeds from sale of fixed assets | 0 | 14,000 |
Purchase of fixed assets | (200,238) | (43,037) |
Net cash used in investing activities | (1,116,756) | (256,767) |
Cash flows from financing activities | ||
Proceeds from issuance of common stock, net of issuance costs | 19,600,000 | 1,000,000 |
Proceeds for exercise of common stock purchase warrants, net of issuance costs | 602,560 | 0 |
Net cash provided by financing activities | 20,202,560 | 1,000,000 |
Net increase in cash and cash equivalents | 11,531,839 | (426,927) |
Cash and cash equivalents at beginning of period | 321,788 | 748,715 |
Cash and cash equivalents at end of period | 11,853,627 | 321,788 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 192,107 | 0 |
Cash paid for income taxes | 268,423 | 0 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Common stock issued in connection with long term service contracts | 95,000 | 0 |
Return of common stock in lieu of collection of certain accounts receivable | $ 1,000,000 | $ 0 |
Organization and Nature of Oper
Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Business Description | Organization and Nature of Operations Business Description – Business Activity Medicine Man Technologies Inc. (the “Company”) incorporated in Nevada on March 20, 2014. On May 1, 2014, the Company entered into an exclusive Technology License Agreement with Medicine Man Denver, Inc., f/k/a Medicine Man Production Corporation, a Colorado corporation (“Medicine Man Denver”) whereby Medicine Man Denver granted it a license to use all of their proprietary processes they have developed, implemented and practiced at its cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future) (the “Medicine Man Denver License Agreement”). The Company commenced its business on May 1, 2014 and currently generates revenues from consulting activities for prospective clients interested in entering the cannabis industry as well as sponsoring seminars offered to the cannabis industry and other business endeavors related to our core competencies. |
1. Liquidity and Capital Resour
1. Liquidity and Capital Resources | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Liquidity and Capital Resources | 1. Liquidity and Capital Resources During the fiscal year ended December 31, 2019 and 2018, the Company primarily used revenues from its operation supplemented by cash to fund its operations. Cash and cash equivalents are carried at cost or amortized cost and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date. The Company had $11,853,627 and $321,788 classified as cash and cash equivalents as of December 31, 2019, and December 31, 2018, respectively. The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be more than the insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents. To mitigate credit risk, the Company may purchase highly liquid investments with an original maturity of three months or less. At December 31, 2019, the Company had one United States Treasury Bill with a maturity date of January 14, 2020 and bearing interest at a rate of approximately 1.4%. The following table depicts the composition of the Company’s cash and cash equivalents as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Deposits placed with banks $ 736,101 $ 321,788 United States Treasury Bill 11,117,526 – Total cash and cash equivalents $ 11,853,627 $ 321,788 |
2. Critical Accounting Policies
2. Critical Accounting Policies and Estimates | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Critical Accounting Policies and Estimates | 2. Critical Accounting Policies and Estimates Basis of Presentation These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s net (loss) earnings and financial position. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; 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 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. The Company’s financial instruments include cash, accounts receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of the year, using Level 3 inputs. The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2019 and 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3): December 31, 2019 December 31, 2018 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 406,774 $ 2,199,344 Marketable Securities at Fair Value on a Recurring Basis Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc. (CHV), a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange. Fair Value of Financial Instruments The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report. Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to consulting revenues are recorded when a milestone is reached at point in time resulting in funds being due for delivered services, and where payment is reasonably assured. Accounts receivable related to Cultivation Max revenues are recorded based on cultivation yields over time on harvested cannabis. Consulting and Cultivation Max revenues are generally collected from 30 to 60 days after the invoice is sent. The following table depicts the composition of our accounts receivable as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Accounts receivable – trade $ 384,202 $ 1,180,757 Accounts receivable – related party 72,658 125,112 Accounts receivable – litigation, non-current 3,063,968 1,281,511 Allowance for doubtful accounts (70,885 ) – Total accounts receivable $ 3,449,943 $ 2,587,380 The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. At December 31, 2019 and 2018, the Company recorded an allowance for doubtful accounts of $70,885 and $0, respectively. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company wrote-off $80,284 of its accounts receivable during the year ended December 31, 2019. The Company did not write-off any of its accounts receivable in year ended December 31, 2018. On March 22, 2019, the Company entered into an Agreement of Sale of Future Receipts (“Factoring Agreement”) with Libertas Funding, LLC (“Purchaser”). Under the terms of the Factoring Agreement, the Purchaser acquired $810,000 of certain future receivables from the Company for $582,000 in net proceeds. The Company is required to repay the Purchaser $24,107 weekly for an estimated term of eight months. On July 2, 2019, the Company repaid $436,607, which represented all remaining amounts owed under the Factoring Agreement. The Company recorded $192,107 in interest expense related to the Factoring Agreement during the year ended December 31, 2019. In July 2018, the Company commenced legal action against a customer in Clark County, Nevada for breach of contract, adding a significant value to its receivables for fees that had been booked, due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly. The Company provided services to this customer for a period of thirteen months, agreeing conditionally to three modifications in December 2017, March 2018 and May 2018 to forego certain revenue sharing payments in accordance with the agreement with the customer, which were subsequently breached by the customer. As a result, the Company engaged legal counsel and filed a complaint in Clark County, Nevada, which alleged breach of contract and sought general, special and punitive damages in the amount of $3,876,850. On August 2, 2019, a jury in the District Court of Clark County, Nevada found in favor of the Company and awarded the Company damages totaling $2,773,321 (See Part II, Item 1, Legal Proceedings for more information). The Company has classified the awarded amount receivable as a non-current asset since the customer has subsequently filed an appeal. Considering this customer’s appeal, the Company sought to compel the customer to obtain and produce a bond securing the award. On December 13, 2019, proof of the bond was posted through United States Fire Insurance Company, naming the Company as the obligee. At December 31, 2019 and 2018, the accounts receivable for this matter totaled $2,773,321 and $990,864, and the related revenue recorded totaled $1,782,457 and $1,015,154 for the years ended December 31, 2019 and 2018, respectively. The Company analyzed the contract, associated revenue and litigation process under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers Paragraph 606-10-25 states that an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met: · The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. · The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. · The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Paragraph 606-10-25 further states that the process for determining the proper treatment for a contract modification includes three steps: · Determine whether a change to a contract qualifies as a contract modification. · Determine whether the modification should be treated as a separate, standalone contract or as a modification of the original contract. If the contract is a separate contract, the entity follows the five-step model to determine how to recognize revenue. If the modification is not treated as a separate contract, the entity continues to Step 3. · Determine appropriate accounting treatment for contract modification not accounted for as a separate contract. ASC 606 defines a contract modification as a change in scope and/or price to an original contract or any change to the enforceable rights and obligations of the parties to the original contract. Enforceable rights and obligations are those that are approved by both parties and legally required. A contract modification does not need to be written; enforceable changes can be the result of oral agreements or implied through customary business practices. The effect that the modification has on the transaction price and on the entity’s measure of progress towards satisfaction of the performance obligation is recognized as an adjustment to revenue either as an increase in or a reduction of revenue at the date of the modification. The adjustment to revenue is made on a cumulative catch-up basis. As management determined that the litigation process constituted a contract modification, and that the contract was upheld judicially, the Company recognized and recorded $1,782,457 on a cumulative catch-up basis as of August 2, 2019. On June 7, 2019, the Company filed a complaint against a second customer in Clark County, Nevada, for, amongst other causes of action, breach of contract. On July 17, 2019, the parties stipulated to stay the case in favor of arbitration. Since that time, the parties have been in the process of mutually agreeing upon an arbitrator, which has now completed. The parties are now in the process of scheduling the arbitration. As of December 31, 2019 and 2018, the accounts receivable for this matter totaled $290,647. Notes Receivable In July 2016, the Company executed a non-binding Term Sheet to acquire Capital G Ltd, an Ohio limited liability company and its three wholly owned subsidiary companies, Funk Sac LLC, Commodogy LLC, and OdorNo LLC. The agreement was subject to the Company’s due diligence as well as execution of definitive agreements. In January 2017, the parties agreed not to proceed with this transaction. As part of the term sheet, the Company agreed to loan Capital G the principal balance of $250,000 pursuant to the terms of a convertible note which accrues interest at the rate of 12% per annum and which became due November 1, 2017. As of September 30, 2018, this note has not been repaid when it became due. As of December 31, 2018, the Company has written off 100%, or $250,000, of this balance plus accrued interest of $49,018. Due to this bad debt expense not being a part of the Company’s normal business this expense is categorized in other income and expense on the income statement. On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (AMC), a wholly-owned subsidiary of publicly-traded Canada House Wellness Group, Inc. (CHV). The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The lending facility is for a term of 36 months and bears interest at a rate of 2%. As of December 31, 2019 and 2018, the Company had loaned to AMC a total of $241,711 and $92,888, respectively. The Company classified these loans as long-term notes receivable on its consolidated balance sheets as of December 31, 2019 and 2018. Other Assets (Current and Non-Current) Other assets at December 31, 2019 and 2018 were $529,416 and $50,824, respectively. At December 31, 2019, other assets included $480,881 in prepaid expenses, $21,085 in interest receivable and $27,450 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars and other general and administrative costs. At December 31, 2018, other assets included $29,005 in prepaid expenses and $21,819 in security deposits. Goodwill and Intangible Assets Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill at the end of each calendar year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2019 on its reporting units and subsidiary with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived asset are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets at December 31, 2019 on its reporting units and subsidiary with material amounts on their respective balance sheets and determined that no impairment exists. Accounts Payable Accounts payable at December 31, 2019 and 2018 were $699,961 and $202,515, respectively, and were comprised of trade payables for various purchases and services rendered during the ordinary course of business. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at December 31, 2019 and 2018 were $1,091,204 and $291,084, respectively. At December 31, 2019, accrued expenses and other liabilities was comprised of customer deposits of $148,109, accrued payroll of $714,220, and operating expenses of $228,875. At December 31, 2018, accrued expenses and other liabilities was comprised of $163,568 in customer deposits, $21,330 in deferred rent expense and $106,185 in accrued payroll. Revenue Recognition and Related Allowances The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of its results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer. The Company has three main revenue streams: (i) product sales; (ii) licensing, consulting and Cultivation Max fees; and (iii) other operating revenues from seminars, reimbursements and other miscellaneous sources. Product sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Revenue from licensing, consulting and Cultivation Max fees are recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded. Revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs. Intellectual Property Licensing Agreement with ABBA Medix Corp. On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (“AMC”), a wholly-owned subsidiary of publicly-traded CHV. The license agreement granted AMC the right to use products and processes related to high-efficiency cultivation of cannabis, as well as various inventions, ideas, discoveries, algorithms, designs, hardware, prototypes, copyrights, processes, mask works, trade secrets, know-how, calculations, testing results, technical data, documentation, potential customer contracts, marketing ideas and other technology in the cannabis cultivation industry, in addition to all related trademarks, from the Company. The license was granted as of the effective date of the agreement for an 18-month period and shall automatically renew for successive 18-month periods until the agreement is otherwise terminated. As consideration for granting the license to AMC, the Company received the following: · $1,150,000 in cash; · $3,500,000 in shares of CHV common stock; and · Ongoing licensing fees calculated as a percentage of AMC’s sales revenue directly related to the Company’s intellectual property. ASC 606 provides guidance in determining the proper accounting treatment for the license of the intellectual property requiring the Company had to complete a sequence of analyses. These analyses include the following: (i) sale versus licensing transactions; (ii) distinct performance obligations; (iii) the nature of the license; and (iv) the timing of recognition based on the nature of the license. Based on an analysis of ASC 606, the Company determined the following: · The license agreement establishes AMC’s right to use the intellectual property; it does not transfer any of the Company’s ownership in the assets. Therefore, the agreement is clearly identified as a licensing transaction. · The license agreement grants AMC the right to use the intellectual property immediately and does provide for the transfer of any other goods or services to AMC. The property is capable of being distinct, and the promise to transfer the property is distinct within the context of the contract. The Company recognized its license as distinct and a separate performance obligation. · The intellectual property is functional intellectual property as it has significant standalone functionality. The license agreement with AMC grants them with the exclusive right to use the Company’s intellectual property immediately upon the date of the agreement. This date clearly represents a transfer of control to the customer. Further, upon its effectiveness, the Company established the right to payment and the customer accepted the asset. As control has been transferred to the customer, the Company has satisfied its performance obligation and, as such, is entitled to immediately recognize the $4,650,000 in revenue associated with the granting of the licensing rights. Additionally, under the terms of the agreement, the Company agreed to provide a loan facility to AMC under the following terms: The Licensor (the Company) shall provide a lending facility to the Licensee (AMC) in $125,000 increments of up to $500,000; noting that any increment over the initial $250,000 advanced shall only be funded upon the Licensee’s funding of the second $575,000 amount to the Licensor. Such lending facilities shall bear a nominal interest rate and carry terms as agreed to by both parties. Both parties agree that each of the Licensor’s advances shall be first money in and first money to be repaid in accordance with the terms mutually agreed to. The purpose of this lending facility was to provide financing support to AMC, the licensee of the Company’s intellectual property, for investing in capital expenses that would allow them to generate revenue that would result in a royalty being paid to Medicine Man Technologies, Inc. The Company is entitled to receive 4% of the gross revenues associated with the sale of Success Nutrients by AMC over the term of the agreement. The Company considered the guidance under ASC 606 in determining whether the facility had any impact on the Company’s ability to recognize revenue from the licensing agreement. Based upon the Company’s analysis, the Company determined the business purpose of the financing facility that it provided to AMCwas a separate agreement with distinct responsibilities from the Company’s performance obligations under the intellectual property license agreement. The Company considered the scope exceptions highlighted in 606-10-15-2(c) and determined that ASC 825, Financial Instruments On July 31, 2018, the license agreement was amended solely to eliminate the equal $1,000,000 million-dollar stock swap element. Based upon the Company’s analysis of ASC 606-10-25-13, the Company determined the modification represented the elimination of a stock swap between the Company and its customer’s parent company, CHV. While the consideration had a defined value, the result of the modification does not beneficially or negatively impact either the Company or its customer. The Company determined that the remaining goods or services as of the time of the modification are not distinct and, form part of a single performance obligation that was partially, if not fully, satisfied. As the consideration represented an exchange of equal value between the two parties, the Company did not record any revenue adjustments (either as an increase or a reduction) due to the elimination of the stock swap. Cultivation Max fees On August 6, 2018, the Company entered into an agreement with a client that was comprised of two basic elements: Element One Element Two 25% of the value of the product grown over 2 pounds per light” · The term for receiving 25% of the value grown over 2 pounds per light, was reduced from five three · The 25% level was reduced to 5% · In return, the Company received a $1,000,000 fee which it billed in 2018 and collected in full in January 2019. Specifically, the wording in the addendum stated, “ The aforementioned fee of $1,000,000 shall be deemed earned by the Licensor (Medicine Man) upon the execution of this Addendum and shall be payable before January 15, 2019”. The amendment also provided that the client will reimburse the Company up to $11,000 a month for the cost of its employees if they are needed at the client’s locations. The Company considered this a pass-thru item where no profit was recognized. Under the guidelines of ASC 606-10-25-27, an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met: a. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs 606-10-55-5 through 55-6). b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (see paragraph 606-10-55-7). c. The entity’s performance does not create an asset with an alternative use to the entity (see paragraph 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (see paragraph 606-10-25-29). As a result of the contractual consulting services the Company provided for Element One, control of the services has been transferred to the customer. These services enhanced the client’s crop output capabilities and clearly meet criteria (a) and (b) above, and, therefore were recorded as revenue in 2018. With respect to Element Two in terms of considering the revenue method of recognition under ASC 606, the following characteristics of the transaction were considered: · The Company had no further performance obligations · The customer contractually deemed this fee as earned · The future potential value of the reduction from 25% over five years, to 5% over three years, is an asset that legally passed to the client. · The customer paid the fee Based on the analysis performed, the Company determined “control” at a point in time, transferred immediately to the client upon the signing of the amendment. As a result, the Company recorded a trade receivable of $1,000,000 on its balance sheet as of December 31, 2018 and $1,000,000 of revenue in its statement of operations for the year ended December 31, 2018. This $1,000,000 receivable was fully received in January of 2019. The Company notes no change in the pattern of revenue recognition due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers Costs of Goods and Services Sold Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of Company’s products and services. General and Administrative Expenses General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s products or services. Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and totaled $455,047 and $291,711 for years ended December 31, 2019 and 2018, respectively. Stock-Based Compensation The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse. Share-based expense paid to through direct stock grants is expensed as occurred. Since the Company’s stock is publicly traded, the value is determined based on the number of shares issued and the over-the-counter quoted value of the stock on the date of the transaction. On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance. The Company recognized $7,279,363 and $1,457,250 in expense for stock-based compensation to directors, employees and consultants during the years ended December 31, 2019 and 2018, respectively. Income Taxes ASC 740, Income Taxes Right of Use Assets and Lease Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and dete |
3. Recent Accounting Pronouncem
3. Recent Accounting Pronouncements | 12 Months Ended |
Dec. 31, 2019 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | 3. Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below: FASB ASU 2017-01, Clarifying the Definition of a Business (Topic 805) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), |
4. Fixed Assets
4. Fixed Assets | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Fixed Assets | 4. Fixed Assets Fixed assets are recorded at cost, net of accumulated depreciation and are comprised of the following: December 31, 2019 December 31, 2018 Furniture and fixtures $ 98,903 $ 98,395 Leasehold improvements 40,953 36,900 Vehicles 34,000 34,000 Office equipment 33,833 74,360 Work in process 190,743 – 398,432 243,655 Less: accumulated depreciation (159,354 ) (149,015 ) Total property and equipment, net of depreciation $ 239,078 $ 94,640 Depreciation on fixed assets is recorded on a straight-line basis over the following expected useful: Furniture and fixtures 3 years Marketing display 3 years Vehicles 3 years Office equipment 3 years Depreciation expense for the years ended December 31, 2019 and 2018 was $55,800 and $75,446, respectively. |
5. Intangible Asset
5. Intangible Asset | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Asset | 5. Intangible Asset Intangible assets at December 31, 2019 and 2018 were comprised of the following: December 31, December 31, License agreement $ 5,300 $ 5,300 Product license and registration 57,300 57,300 Trade secret – intellectual property 32,500 32,500 95,100 95,100 Less: accumulated amortization (19,811 ) (13,903 ) Total intangible assets, net of amortization $ 75,289 $ 81,197 Amortization expense for years ended December 31, 2019 and 2018 was $5,908 and $6,515, respectively. |
6. Derivative Liability
6. Derivative Liability | 12 Months Ended |
Dec. 31, 2019 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Liability | 6. Derivative Liabilities During the year ended December 31, 2019, the Company entered into employment agreements with certain key officers that contained contingent consideration provisions based upon the achievement of certain market condition milestones. The Company determined that each of these vesting conditions represented derivative instruments. On January 8, 2019, the Company granted the right to receive 500,000 shares of restricted common stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On April 23, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. Similarly, on June 11, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. The Company accounts for derivative instruments in accordance with the U.S. GAAP accounting guidance under ASC 815 Derivatives and Hedging Activities As of December 31, 2019, the fair value of these derivative liabilities is $3,773,382. The change in the fair value of derivative liabilities for the year ended December 31, 2019 was $1,627,177, resulting in an aggregate unrealized gain on derivative liabilities. |
7. Related Party Transactions
7. Related Party Transactions | 12 Months Ended |
Dec. 31, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 7. Related Party Transactions For the year ended December 31, 2019 During the year ended December 31, 2019, the Company had sales from Super Farm LLC (“Super Farm”) totaling $578,655 and sales from De Best Inc. (“De Best”) totaling $191,915. The Company gives a larger discount on nutrient sales to related parties than non-related parties. During the year ended December 31, 2019, the Company had sales discounts associated with Super Farm totaling $291,823 and sales discounts associated with De Best totaling $95,957. As of December 31, 2019, the Company had an accounts receivable balance from Super Farm totaling $33,127 and an accounts receivable balance from De Best totaling $2,180. The Company’s Chief Cultivation Officer, Joshua Haupt, currently owns 20% of both Super Farm and De Best. During the year ended December 31, 2019, the Company recorded sales from Medicine Man Denver totaling $402,839 and sales discounts totaling $143,473. As of December 31, 2019, the Company had an accounts receivable balance with Medicine Man Denver totaling $34,748. Also, during the year ended December 31, 2019, the Company incurred expenses from Medicine Man Denver totaling $125,897 for contract labor and other related administrative costs. The Company’s former Chief Executive Officer, Andy Williams, currently owns 38% of Medicine Man Denver. During the year ended December 31, 2019, the Company recorded sales from MedPharm Holdings LLC (“MedPharm Holdings”) totaling $64,378 and sales discounts totaling $7,498. As of December 31, 2019, the Company had an accounts receivable balance with MedPharm Holdings totaling $2,604. Also, during the year ended December 31, 2019, the Company issued various notes receivable to MedPharm Holdings totaling $767,695 with original maturity dates ranging from September 21, 2019 through January 19, 2020 and all bearing interest at 8% per annum. Certain notes extended to 2020 by mutual agreement between the Company and noteholder. The Company’s former Chief Executive Officer, Andy Williams, currently owns 29% of MedPharm Holdings. During the year ended December 31, 2019, the Company recorded sales from Baseball 18, LLC (“Baseball”) totaling $165,617. The revenue is included under product sales - related party, net, in the Company’s consolidated financial statements. As of December 31, 2019, the Company had an accounts receivable balance with Baseball totaling $169,960. During the year ended December 31, 2019, the Company recorded sales from Farm Boy, LLC (“Farm Boy”) totaling $321,307. The revenue is included under product sales - related party, net, in the Company’s consolidated financial statements. As of December 31, 2019, the Company had an accounts receivable balance with Farm Boy totaling $330,911. For the year ended December 31, 2018 As of December 31, 2018, the Company had six related parties, Brett Roper, Medicine Man Denver, MedPharm Holdings, MedPharm Iowa, Super Farm LLC and De Best Inc. The Company’s Chief Cultivation Officer, Joshua Haupt, currently owns 20% of both Super Farm and De Best. Additionally, the Company’s former Chief Executive Officer, Andy Williams, currently owns 38% of Medicine Man Denver. Andy Williams also owns 10% of MedPharm Holdings and 3% of MedPharm Iowa. Brett Roper was the Chief Executive Officer of the Company before Andy Williams. During the year ended December 31, 2018, the Company had net sales from Super Farm totaling $264,103 and $88,063 in net sales from De Best. The Company gives a larger discount on nutrient sales to related parties than non-related parties. As of December 31, 2018, the Company had accounts receivable balance with Super Farm totaling $61,110 and $20,503 accounts receivable from De Best. As of December 31, 2018, the company had an accounts payable balance to Brett Roper in the amount of $69,714. As of and for the year ended December 31, 2018, the Company had sales from Medicine Man Denver totaling $158,805 and an accounts receivable balance of $28,893. As of December 31, 2018, the Company had an accounts receivable balance owed from Medicine Man Denver totaling $2,986. During the year ended December 31, 2018, the Company had sales from MedPharm Iowa totaling $10,026 and $34,438 in sales from MedPharm Holdings. As of December 31, 2018, the Company had an accounts receivable balance owed from MedPharm Iowa totaling $1,195 and $10,425 owed from MedPharm Holdings. |
8. Goodwill and Acquisition Acc
8. Goodwill and Acquisition Accounting | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Acquisition Accounting | 8. Goodwill and Acquisition Accounting On September 17, 2018, of the Company acquired Two JS LLC, d/b/a The Big Tomato, a Colorado limited liability company (“Big T” or “The Big Tomato”). The Company issued an aggregate of 1,933,329 shares of its common stock in exchange for a 100% ownership of Big T. The Company utilized purchase price accounting stating that net book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $3,000,000 of Goodwill. At September 17, 2018, the Company’s per share value of Common Stock was $1.55. There was no requirement for The Big Tomato to have independent audited financial statement for the prior two fiscal years and any interim periods because the aggregate value of the acquisition is less than 20% of the Company’s current assets. The Big Tomato Balance Sheet Book/Fair Value Book/Fair Value Assets: Liabilities: Inventory $ 291,000 Accounts payable $ 272,266 Other assets 4,950 Customer Deposits 23,684 $ 295,950 $ 295,950 Purchase Price (1,933,329*1.5517) $ 3,000,000 Less: BV of Assets (295,950 ) Add: BV of Liabilities 295,950 Goodwill $ 3,000,000 As of December 31, 2019, the Company’s Goodwill has a balance of $12,304,306. This amount consisted of $3,003,226 from the DCG (Denver Consulting Group) acquisition, $6,301,080 from the Success Nutrients and Pono Productions acquisitions and $3,000,000 from the acquisition of The Big Tomato. As of December 31, 2019, the Company had an independent third-party valuation group perform an impairment analysis on our consolidated goodwill balance. It was noted that as of December 31, 2019, no impairment was needed. |
9. Inventory
9. Inventory | 12 Months Ended |
Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventory | 9. Inventory As of December 31, 2019, and December 31, 2018, the Company had $684,940 and $489,239 of finished goods inventory, respectively. The Company only has finished goods within inventory because it does not produce any of its products. All inventory is produced by a third party. The inventory valuation method that the Company uses is the FIFO method. During the years ended December 31, 2019 and 2018, the Company did not recognize any impairment for obsolescence within its inventory. |
10. Note Payable
10. Note Payable | 12 Months Ended |
Dec. 31, 2019 | |
Debt Disclosure [Abstract] | |
Note Payable | 10. Note Payable The Company had a note payable to its Chief Cultivation Officer, Joshua Haupt. The note was repaid in full during the quarter ended March 31, 2018. |
11. Leases
11. Leases | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Leases | 11. Leases Leases with an initial term of one year or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with a term greater than one year are recognized on the balance sheet at the time of lease commencement or modification by recording an ROU operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company's leases consist of real estate leases for office, retail and warehouse spaces. The Company elected to combine the lease and related non-lease components for its operating leases. The Company’s operating leases may include options to extend or terminate the leases, which are not included in the determination of the ROU asset or lease liability unless it is reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less than one year. The Company’s lease agreements do not contain any material residual value guarantees or materially restrictive covenants. As the Company's leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations was 6%. Balance Sheet Classification of Operating Lease Assets and Liabilities Balance Sheet Line December 31, 2019 Asset Operating lease asset Non-Current Assets $ 59,943 Liabilities Operating lease liability Non-Current Liabilities $ 66,803 Lease Costs The table below summarizes the components of lease costs for the year ended December 31, 2019. Year Ended December 31, 2019 Operating lease costs $ 227,115 Maturities of Lease Liabilities Maturities of lease liabilities as of December 31, 2019 are as follows: 2020 fiscal year $ 67,904 Total lease payments 67,904 Less: Interest (1,101 ) Present value of lease liabilities $ 66,803 The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2019: 2020 fiscal year $ 67,904 |
12. Commitments and Contingenci
12. Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 12. Commitments and Contingencies Over the past three years, the Company has supported legislation in Colorado to allow licensed cannabis companies in Colorado to trade their securities, provided they are reporting companies under the Exchange Act, as amended. HB19-1090 titled, “Publicly Licensed Marijuana Companies” was signed into Colorado legislature on May 29, 2019 and went into effect on November 1, 2019. The bill repeals the provision that prohibits publicly traded corporations from holding a marijuana license in Colorado. Effective January 10, 2019, the Company entered into binding term sheets to acquire three cannabis and cannabis related companies, including the following: · FutureVision 2020, LLC and FutureVision Ltd., Inc. dba Medicine Man Denver (in the aggregate, “Medicine Man Denver”), owners of several licensed dispensaries and a cultivation facility in the Denver, Colorado metro area. It is also a leading cultivator, retailer and one of the best-known brands in the cannabis sector, winning over a dozen industry awards. Medicine Man Denver operates out of a 35,000 square foot cultivation operation and has four popular retail locations across the Denver metropolitan area; · MedPharm Holdings, a company that develops and manages intellectual property related to the manufacture and formulation of products containing cannabinoid extracts. Management believes that this acquisition will bring world-class processing and pharmaceutical-grade products to the company; and · MX LLC, the holder of the license that allow it to be a manufacturer of marijuana infused products in the Denver metro area. It also has a research license that has been issued by the state of Colorado and the local jurisdiction approval is in process. The term sheets provide for the issuance of shares of common stock to the targets at an initial price per share of $1.32, with the final price to be determined based on the fair market valuation, which is subject to an independent valuation assessment. The Company’s former Chief Executive Officer, Andrew Williams, serves as an officer/manager and has an ownership interest in each of the targets above. On May 24, 2019, the Company entered into a binding term sheet with Farm Boy and Baseball setting forth the terms of the acquisition by the Company of 100% of the capital stock and assets of Farm Boy and Baseball, respectively. As consideration, the Company shall pay a total purchase price of $5,937,500, subject to adjustment, consisting of $1,187,500 cash and 1,578,073 shares of its common stock, par value $0.001 per share. The 1,578,073 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to the execution date. Also, on May 24, 2019, the Company entered into a binding term sheet with Los Suenos, LLC (“Los Suenos”) and Emerald setting forth the terms of the acquisition by the Company of 100% of the capital stock and assets of Los Suenos and Emerald, respectively. As consideration, the Company shall pay a total purchase price of $5,937,500, subject to adjustment, consisting of $1,187,500 cash and 1,578,073 shares of its common stock, par value $0.001 per share. The 1,578,073 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to the execution date. On May 31, 2019, the Company entered into a binding term sheet with Mesa Organics Ltd., Mesa Organics II Ltd. and Mesa Organics III Ltd. (collectively referred to herein as “MesaPur”) setting forth the terms of the acquisition by the Company of 100% of the capital stock and assets of MesaPur. As consideration, the Company shall pay a total purchase price of $12,012,758, subject to adjustment, consisting of $2,402,552 cash and 2,801,809 shares of its common stock, par value $0.001 per share. The 2,801,809 shares were determined by averaging the closing price of Company’s common stock for the ten (10) days prior to the execution date. On August 6, 2019, the Company entered into a binding term sheet with Cold Baked, LLC and Golden Works, LLC (d/b/a “Dabble”) setting forth the terms of the acquisition by the Company of 100% of the capital stock and assets of Dabble. As consideration, the Company shall pay a total purchase price of $3,750,000 consisting of $750,000 cash and 996,678 shares of its common stock, par value $0.001 per share. The 996,678 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to the execution date. On August 15, 2019, the Company entered into a binding term sheet with Medically Correct, LLC (“Medically Correct”), an edible, extract and topical company, setting forth the terms of the acquisition by the Company of 100% of the capital stock and assets of Medically Correct. As consideration, the Company shall pay a total purchase price of $17,250,000 consisting of $3,450,000 cash and 4,677,967 shares of its common stock, par value $0.001 per share. The 4,677,967 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 8, 2019. On August 28, 2019, the Company entered into a binding term sheet with Starbuds Pueblo LLC, Starbuds Louisville LLC, Starbuds Niwot LLC, Starbuds Longmont LLC and Starbuds Commerce City LLC (“Starbuds”) pursuant to which the Company will purchase the membership interests of Starbuds. As consideration, the Company shall pay a total purchase price of $31,005,089 consisting of $23,253,816 in cash and 2,601,098 shares of its common stock, par value $0.001 per share. The 2,601,098 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 28, 2019. On August 29, 2019, the Company entered into a binding term sheet with High Country Supply d/b/a Colorado Harvest Company (“CHC”) pursuant to which the Company will purchase 100% of the capital stock or assets of CHC. As consideration, the Company shall pay a total purchase price of $12,500,000 consisting of $4,000,000 in cash and 2,881,356 shares of its common stock, par value $0.001 per share. The 2,881,356 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to July 8, 2019. On August 30, 2019, the Company entered into a binding term sheet with Colorado Health Consultants, LLC, CitiMed, LLC, Lucky Ticket LLC and KEW LLC (collectively, the “Targets”) pursuant to which the Company will purchase the membership interests of the Targets. As consideration, the Company shall pay a total purchase price of $36,898,499 consisting of $27,673,874.25 in cash and 3,095,512 shares of its common stock, par value $0.001 per share. The 3,095,512 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 30, 2019. On August 31, 2019, the Company entered into a binding term sheet with SB Aurora LLC, SB Arapahoe LLC, SB Alameda LLC, and SB 44th LLC (“SB”) pursuant to which the Company will purchase the membership interests of SB. As consideration, the Company shall pay a total purchase price of $50,096,413 consisting of $37,590,310 in cash and 4,202,720 shares of its common stock, par value $0.001 per share. The 4,202,720 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 31, 2019. On September 5, 2019, the Company entered into a binding term sheet dated September 2, 2019 with RSFCG, LLC, RFSCA LLC, RFSCB, LLC, RFSCEV, LLC, RFSCED LLC, RFSCLV, LLC, RFSCG-1 LLC, and RFSCLVG LLC, which entities operate under the name Roots RX (“Roots RX”) pursuant to which the Company will purchase the membership interests of Roots RX. As consideration, the Company shall pay a total purchase price of $15,000,000 consisting of $9,750,000 in cash and 1,779,661 shares of its common stock, par value $0.001 per share. The 1,779,661 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 29, 2019. On September 6, 2019, the Company entered into a binding term sheet with Ahab LLC, Garden Greens LLC, Syls LLC, Heartland Industries, LLC and Tri City Partners LLC, which entities operate under the name “Strawberry Fields” (“Strawberry Fields”) pursuant to which the Company will purchase 100% of the capital stock or assets of Strawberry Fields, except for certain assets as outlined in the term sheet. As consideration, the Company shall pay a total purchase price of $31,000,000 consisting of $14,000,000 in cash and 5,704,698 shares of its common stock, par value $0.001 per share. The 5,704,698 shares were determined by averaging the closing price of Company’s common stock for the five (5) days prior to August 22, 2019. On September 9, 2019, the Company entered into a binding term sheet with Canyon, LLC (“Canyon”) and It Brand Enterprises, LLC (“It Brand”) pursuant to which the Company will purchase 100% of the capital stock or assets of Canyon and certain assets of It Brand. As consideration, the Company shall pay a total purchase price of $5,130,000 consisting of (i) a cash component which in no case will be greater than $2,565,000, and (ii) an equity component, which will consist of shares of the Company’s common stock, par value $0.001 per share, for the balance of the purchase price. The number of shares that make up the equity component will be determined by dividing the balance of the Purchase Price by the average closing price of Company’s common stock for the five (5) days prior to September 7, 2019. Prepaid acquisition costs During the year ended December 31, 2019, the Company entered into a number of sales transactions with companies above for which it has executed binding term sheets to acquire. The Company expects to settle each of these outstanding balances with the respective entity at the time of, or shortly following, their acquisition. The contemplated acquisitions detailed above are conditioned upon the satisfaction or mutual waiver of certain closing conditions, including, but not limited to: · regulatory approval relating to all applicable filings and expiration or early termination of any applicable waiting periods; · regulatory approval of the Marijuana Enforcement Division and applicable local licensing authority approval; · receipt of all material necessary, third party, consents and approvals; · each party's compliance in all material respects with the respective obligations under the term sheet; · a tax structure that is satisfactory to both the Company and the targets; · the execution of leases and employment agreements that are mutually acceptable to each party; and · the execution of definitive agreements between the respective parties. There can be no assurance that we will be able to consummate any of the proposed acquisitions. |
13. Stockholders' Equity
13. Stockholders' Equity | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | 13. Stockholders’ Equity On December 10, 2019, the shareholders approved an amendment to the Company’s articles of incorporation increasing the number of authorized shares of common stock from 90,000,000 shares to 250,000,000 shares. The Company is authorized to issue two classes of shares, designated preferred stock and common stock. Preferred Stock The number of shares of preferred stock authorized is 10,000,000, par value $0.001 per share. The preferred stock may be divided into such number of series as the Company’s Board of Directors may determine. The Board is authorized to determine and alter the rights, preferences, privileges and restrictions granted and imposed upon any wholly unissued series of preferred stock, and to fix the number and designation of shares of any series of preferred stock. The Board, within limits and restrictions stated in any resolution of the Board, originally fixing the number of shares constituting any series may increase or decrease, but not below the number of such series then outstanding, the shares of any subsequent series. Common Stock The number of shares of common stock authorized is 250,000,000, par value $0.001 per share. At December 31, 2019 and 2018, the Company had 39,952,628 and 27,753,310 shares of common stock, respectively, issued and outstanding. Common Stock Issued in Private Placements During the year ended December 31, 2018, the Company sold 937,647 shares of common stock to an accredited investor in a private placement. On June 5, 2019, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with an accredited investor (the “Investor”). Pursuant to the Purchase Agreement, the Company agreed to sell to the Investor and the Investor agreed to purchase, in a private placement, up to 7,000,000 shares of the Company’s common stock, at a price of $2.00 per share and warrants to purchase 100% of the number of shares of common stock sold. The warrants are for a term of three years and are exercisable at a price of $3.50. At the initial closing on June 5, 2019, the Company issued and sold 1,500,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock, for gross proceeds of $3,000,000. The Purchase Agreement contemplates the sale of additional shares of common stock, subject to certain closing conditions set forth in the Purchase Agreement, as follows: (i) 3,500,000 shares of common stock and warrants to purchase 3,500,000 shares of common stock at a second closing to be held on or before July 15, 2019; (ii) 1,000,000 shares of common stock and warrants to purchase 1,000,000 shares of common stock at a third closing; and (ii) 1,000,000 shares of common stock and warrants to purchase 1,000,000 shares of common stock at a fourth closing. On July 15, 2019, the Company entered into an amendment (the “Amendment”) to the Purchase Agreement. Pursuant to the Amendment, among other things, the Purchase Agreement was amended to provide for the sale, at the third closing, of a minimum of 3,000,000 shares of the Company’s common stock, with the Investor having the option to acquire up to an additional 2,500,000 shares of common stock for an aggregate of up to 5,500,000 shares of common stock and warrants to purchase 100% of the number of shares of common stock sold at the third closing. The Amendment also removed as a closing condition to the second closing, the requirement that the Company shall have entered into definitive agreements for the acquisitions of each of (a) MedPharm Holdings, (b) Futurevision 2020, LLC, Futurevision Ltd, and Medicine Man Longmont, LLC, collectively, (c) MX, LLC, (d) Los Sueños Farms, LLC, and Emerald, and (e) Farm Boy and Baseball. In addition, the Amendment removed all references to a fourth closing and the conditions for such closing, which were outlined in the Purchase Agreement. On July 16, 2019, the Company issued and sold 3,500,000 shares of common stock and warrants to purchase 3,500,000 shares of common stock pursuant to the terms of the Purchase Agreement, as amended, for gross proceeds of $7,000,000. On September 17, 2019, the Company issued and sold 3,000,000 shares of common stock and warrants to purchase 3,000,000 shares of common stock pursuant to the terms of the Purchase Agreement, as amended, for gross proceeds of $6,000,000. On September 30, 2019, the Company issued and sold 1,100,000 shares of common stock and warrants to purchase 1,100,000 shares of common stock pursuant to the terms of the Purchase Agreement, as amended, for gross proceeds of $2,200,000. During the year ended December 31, 2019, the Company issued an additional 700,000 shares of common stock and warrants to purchase 700,000 shares of common stock, for gross proceeds of $1,400,000. Common Stock Issued in Connection with the Exercise of Warrants During the year ended December 31, 2019, the Company issued 485,543 shares of common stock for proceeds of $602,560 under a series of stock warrant exercises with an exercise price of $1.33 per share. Common Stock Issued as Compensation to Employees, Officers and Directors During the year ended December 31, 2018, the Company granted 800,000 shares of common stock to certain employees, officers and/or directors, valued at $1,457,250. On January 8, 2019, the Company granted to an officer of the Company, Paul Dickman, 1,000,000 shares of common stock, valued at $660,000. On March 14, 2019, the Company granted 50,000 shares of common stock to James Toreson upon his resignation as a member of its board of directors for his service. These shares were valued at $95,000. During the year ended December 31, 2019, the Company issued an additional 690,000 shares of common stock valued at $2,161,880 to employees, officers and directors as compensation. Common Stock Issued in Exchange for Consulting, Professional and Other Services Concurrent with his resignation as described above, the Company issued 50,000 shares of its common stock to Mr. Toreson in connection with a consulting agreement having a service period extending through May 31, 2020. These shares were valued at $95,000. During the year ended December 31, 2019, the Company issued an additional 123,775 shares of common stock valued at $210,521 to contractors and professionals in exchange for services provided. Warrants The Company accounts for common stock purchase warrants in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. The Company estimates the fair value of warrants at date of grant using the Black-Scholes option pricing model. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants, and the assumptions used in the Black Scholes option-pricing model are moderately judgmental. During the year ended December 31, 2017, the Company issued 1,500,566 common stock purchase warrants with an exercise price of $1.33 per share, expiring on March 17, 2019. During the year ended December 31, 2019, an aggregate of 485,543 of these warrants were exercised while the remaining warrants were forfeited. During the period ended December 31, 2017, the Company issued 2,000,000 common stock purchase warrants to three employees of the Company with an exercise price of $1.445 per share, expiring on December 31, 2019. As of September 30, 2018, all of these warrants were exercised. During the year ended December 31, 2018, the Company issued 250,000 common stock purchase warrants to one employee of the Company with an exercise price of $1.49 per share for a period of time expiring on December 31, 2021. The Company estimated the fair value of these warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $1.49, (ii) the contractual term of the warrant of 3 years, (iii) a risk-free interest rate of 2.48% and (iv) an expected volatility of the price of the underlying common stock of 126%. During the year ended December 31, 2019, the Company issued 9,800,000 common stock purchase warrants to various accredited investors with an exercise price of $3.50 per share with an expiration date of three years from the date of issuance. The Company estimated the fair value of these warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $3.50, (ii) the contractual term of the warrant of 3 years, (iii) a risk-free interest rate ranging between 1.56% - 1.84% and (iv) an expected volatility of the price of the underlying common stock ranging between 158% - 162%. Number of shares Balance as of January 1, 2019 2,647,461 Warrants exercised (485,543 ) Warrants forfeited (2,161,918 ) Warrants issued 9,800,000 Balance as of December 31, 2019 9,800,000 |
14. Tax Provision
14. Tax Provision | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Tax Provision | 14. Tax Provision The Company utilizes ASC 740, Income Taxes The following table sets forth the components of income tax (benefit) expense for the years ended December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Federal $ (477,625 ) $ 477,625 State and local (105,305 ) 105,305 Total $ (582,931 ) $ 582,931 The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the years ended December 31, 2019 and 2018: December 31, December 31, 2018 Federal taxes at U.S. statutory rate 21.0% 21.0% State income taxes 4.6% 4.6% Permanent and temporary differences (15.5% ) 27.5% Change in valuation allowance (6.8% ) (15.1% ) Effective tax rate 3.3% 38.1% The following tables set forth the components of income taxes payable as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Federal $ – $ 477,625 State and local – 105,305 Total $ – $ 582,931 The following tables set forth the components of deferred income taxes as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Deferred tax assets: Bad debt allowance $ 18,168 – Accrued expenses 38,413 – Share based compensation accruals 3,528,726 373,493 Net operating loss carryforwards 1,703,425 – Unrealized losses 578,201 118,766 Total deferred tax assets 5,866,934 492,259 Less: valuation allowance (5,598,511 ) (492,259 ) Net deferred tax assets $ 268,423 – Deferred tax liabilities: Prepaid expenses $ 121,777 7,434 Fixed assets 12,388 24,256 Goodwill and intangible assets 636,188 174,173 Unrealized gains 417,046 – Total deferred tax liabilities 1,187,399 205,863 Less: valuation allowance (1,187,399 ) (205,863 ) Net deferred tax liabilities $ – – Total deferred tax assets, net $ 268,423 – On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (“TCJA”), which instituted fundamental changes to the taxation of corporations, including a reduction the U.S. corporate income tax rate to 21% beginning in 2018. As of December 31, 2019, the Company had federal, state and local net operating loss carryforwards of approximately $6.6 million that are available to offset future liabilities for income taxes. The Company has generally established a valuation allowance against these carryforwards based on an assessment that it is more likely than not that these benefits will not be realized in future years. The federal and state net operating loss carryforwards expire in 2039. The Company remains subject to examination in federal and state jurisdictions in which the Company conducts its operations and files tax returns. These tax years range from 2015 through 2019. The Company believes that the results of current or any prospective audits will not have a material effect on its financial position or results of operations as adequate reserves have been provided to cover any potential exposures related to these ongoing audits. The Company has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits and determined that no unrecognized tax benefits associated with the tax positions exist. |
15. Major Customers and Account
15. Major Customers and Accounts Receivable | 12 Months Ended |
Dec. 31, 2019 | |
Major Customers And Accounts Receivable | |
Major Customers and Accounts Receivable | 15. Major Customers and Accounts Receivable The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable. For the year ended December 31, 2019, one customer accounted for 14% of revenue. As of December 31, 2019, two customers accounted for 68% of accounts receivable, one with 57% and another with 11%. For the year ended December 31, 2018, two customers accounted for 48% of revenue, one with 37% and another with 11%. As of December 31, 2018, three customers accounted for 88% of accounts receivable, one with 11%, one with 38% and another with 39%. The Company is currently pursuing litigation against two of these customers to receive contractual amounts owed. See “Part II, Item 1, Legal Proceedings” for further explanation. |
16. Segment Information
16. Segment Information | 12 Months Ended |
Dec. 31, 2019 | |
Segment Reporting [Abstract] | |
Segment Information | 16. Segment Information The Company has three identifiable segments as of December 31, 2019; (i) products, (ii) licensing and consulting and (iii) corporate, infrastructure and other. The products segment sells merchandise directly to customers via e-commerce portals, through the Company’s proprietary websites and retail location. The licensing and consulting segment sales derives its revenue from licensing and consulting agreements with cannabis related entities. The corporate, infrastructure and other segment represents new resources added in anticipation of various acquisition transactions and other corporate related costs. The following information represents segment activity for the years ended December 31, 2019 and 2018: For the Years Ended December 31, 2019 2018 Products Licensing and Consulting Corporate, Infrastructure and Other Total Products Licensing and Consulting Total Revenues $ 7,820,518 $ 4,580,436 $ – $ 12,400,955 $ 2,031,603 $ 7,410,952 $ 9,442,555 Intangible assets amortization $ 5,465 $ 443 $ – $ 5,908 $ 5,987 $ 528 $ 6,515 Depreciation $ 7,186 $ 48,614 $ – $ 55,800 $ 5,848 $ 69,598 $ 75,446 Net income (loss) $ 794,747 $ 1,688,147 $ (19,458,635 ) $ (16,975,742 ) $ 878,067 $ 70,848 $ 948,915 Segment assets $ 12,406,230 $ 6,081,485 $ 13,740,892 $ 32,228,607 $ 5,631,127 $ 12,590,478 $ 18,221,605 |
17. Earnings per share (Basic a
17. Earnings per share (Basic and Dilutive) | 12 Months Ended |
Dec. 31, 2019 | |
Earnings Per Share [Abstract] | |
Earnings per share (Basic and Dilutive) | 17. Earnings per share (Basic and Dilutive) The Company computes net (loss) income per share in accordance with ASC 260, Earnings per Share The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations for the years ended December 31, 2019 and 2018. 2019 2018 Numerator: Net income (loss) $ (16,975,742 ) $ 948,915 Denominator: Weighted-average shares of common stock 33,740,557 25,121,896 Dilutive effect of warrants – 2,647,461 Diluted weighted-average shares of common stock 33,740,557 27,769,357 Net income (loss) per common share from: Basic $ (0.50 ) $ 0.04 Diluted $ (0.50 ) $ 0.03 Dilutive-potential common share equivalents are excluded from the computation of net loss per share in loss periods, as their effect would be antidilutive. As the Company has incurred a loss from operations in 2019, shares issuable pursuant to equity awards were excluded from the computation of diluted net loss per share in the accompanying consolidated statements of operations, as their effect is anti-dilutive. |
18. Subsequent Events
18. Subsequent Events | 12 Months Ended |
Dec. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | 18. Subsequent events In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2019 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, except as follows: On February 25, 2020, Andy Williams resigned from the positions of President and member of the Board of Directors of Medicine Man Technologies, Inc. Mr. Williams’s resignation is not the result of any disagreement with the Company on any matter relating to the company’s operations, policies or practices. Simultaneously, the Company entered into a Severance Agreement and Release (the “Severance Agreement”) with Mr. Williams. The Severance Agreements provides that as severance and in consideration of a customary release against the Company and other customary covenants, Mr. Williams will receive (i) continued salary in the amount of $300,000, half of which is to be paid within ten days of the execution of the Severance Agreement, and the remaining half is to be paid in 26 equal disbursements in accordance with the Company’s regular payroll periods, (ii) bonus payment in the amount of $25,000, (iii) one year family health care coverage, (iv) stock options to purchase 350,000 shares of the Company’s common stock, which may be exercised on a cashless basis, and (v) stock options to purchase 15,000 shares of the Company’s common stock, which may be exercised on a cashless basis. On March 6, 2020, the Company’s former Chief Operating Officer, Joe Puglise, issued an arbitration demand against the Company claiming breach of contract. While the Company believes it has meritorious defenses against the claim, the ultimate resolution of the matter, which is expected to occur within one year, could result in a loss of up to $3.5 million. |
2. Critical Accounting Polici_2
2. Critical Accounting Policies and Estimates (Policies) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation These accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual financial statements. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s net (loss) earnings and financial position. |
Fair Value Measurements | Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; 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 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. The Company’s financial instruments include cash, accounts receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of the year, using Level 3 inputs. The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2019 and 2018, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3): December 31, 2019 December 31, 2018 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 406,774 $ 2,199,344 |
Marketable Securities at Fair Value on a Recurring Basis | Marketable Securities at Fair Value on a Recurring Basis Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc. (CHV), a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available for sale securities are recorded at current market value as of the date of this report. |
Accounts receivable | Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to consulting revenues are recorded when a milestone is reached at point in time resulting in funds being due for delivered services, and where payment is reasonably assured. Accounts receivable related to Cultivation Max revenues are recorded based on cultivation yields over time on harvested cannabis. Consulting and Cultivation Max revenues are generally collected from 30 to 60 days after the invoice is sent. The following table depicts the composition of our accounts receivable as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Accounts receivable – trade $ 384,202 $ 1,180,757 Accounts receivable – related party 72,658 125,112 Accounts receivable – litigation, non-current 3,063,968 1,281,511 Allowance for doubtful accounts (70,885 ) – Total accounts receivable $ 3,449,943 $ 2,587,380 The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. At December 31, 2019 and 2018, the Company recorded an allowance for doubtful accounts of $70,885 and $0, respectively. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company wrote-off $80,284 of its accounts receivable during the year ended December 31, 2019. The Company did not write-off any of its accounts receivable in year ended December 31, 2018. On March 22, 2019, the Company entered into an Agreement of Sale of Future Receipts (“Factoring Agreement”) with Libertas Funding, LLC (“Purchaser”). Under the terms of the Factoring Agreement, the Purchaser acquired $810,000 of certain future receivables from the Company for $582,000 in net proceeds. The Company is required to repay the Purchaser $24,107 weekly for an estimated term of eight months. On July 2, 2019, the Company repaid $436,607, which represented all remaining amounts owed under the Factoring Agreement. The Company recorded $192,107 in interest expense related to the Factoring Agreement during the year ended December 31, 2019. In July 2018, the Company commenced legal action against a customer in Clark County, Nevada for breach of contract, adding a significant value to its receivables for fees that had been booked, due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly. The Company provided services to this customer for a period of thirteen months, agreeing conditionally to three modifications in December 2017, March 2018 and May 2018 to forego certain revenue sharing payments in accordance with the agreement with the customer, which were subsequently breached by the customer. As a result, the Company engaged legal counsel and filed a complaint in Clark County, Nevada, which alleged breach of contract and sought general, special and punitive damages in the amount of $3,876,850. On August 2, 2019, a jury in the District Court of Clark County, Nevada found in favor of the Company and awarded the Company damages totaling $2,773,321 (See Part II, Item 1, Legal Proceedings for more information). The Company has classified the awarded amount receivable as a non-current asset since the customer has subsequently filed an appeal. Considering this customer’s appeal, the Company sought to compel the customer to obtain and produce a bond securing the award. On December 13, 2019, proof of the bond was posted through United States Fire Insurance Company, naming the Company as the obligee. At December 31, 2019 and 2018, the accounts receivable for this matter totaled $2,773,321 and $990,864, and the related revenue recorded totaled $1,782,457 and $1,015,154 for the years ended December 31, 2019 and 2018, respectively. The Company analyzed the contract, associated revenue and litigation process under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers Paragraph 606-10-25 states that an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met: · The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. · The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. · The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Paragraph 606-10-25 further states that the process for determining the proper treatment for a contract modification includes three steps: · Determine whether a change to a contract qualifies as a contract modification. · Determine whether the modification should be treated as a separate, standalone contract or as a modification of the original contract. If the contract is a separate contract, the entity follows the five-step model to determine how to recognize revenue. If the modification is not treated as a separate contract, the entity continues to Step 3. · Determine appropriate accounting treatment for contract modification not accounted for as a separate contract. ASC 606 defines a contract modification as a change in scope and/or price to an original contract or any change to the enforceable rights and obligations of the parties to the original contract. Enforceable rights and obligations are those that are approved by both parties and legally required. A contract modification does not need to be written; enforceable changes can be the result of oral agreements or implied through customary business practices. The effect that the modification has on the transaction price and on the entity’s measure of progress towards satisfaction of the performance obligation is recognized as an adjustment to revenue either as an increase in or a reduction of revenue at the date of the modification. The adjustment to revenue is made on a cumulative catch-up basis. As management determined that the litigation process constituted a contract modification, and that the contract was upheld judicially, the Company recognized and recorded $1,782,457 on a cumulative catch-up basis as of August 2, 2019. On June 7, 2019, the Company filed a complaint against a second customer in Clark County, Nevada, for, amongst other causes of action, breach of contract. On July 17, 2019, the parties stipulated to stay the case in favor of arbitration. Since that time, the parties have been in the process of mutually agreeing upon an arbitrator, which has now completed. The parties are now in the process of scheduling the arbitration. As of December 31, 2019 and 2018, the accounts receivable for this matter totaled $290,647. |
Notes receivable | Notes Receivable In July 2016, the Company executed a non-binding Term Sheet to acquire Capital G Ltd, an Ohio limited liability company and its three wholly owned subsidiary companies, Funk Sac LLC, Commodogy LLC, and OdorNo LLC. The agreement was subject to the Company’s due diligence as well as execution of definitive agreements. In January 2017, the parties agreed not to proceed with this transaction. As part of the term sheet, the Company agreed to loan Capital G the principal balance of $250,000 pursuant to the terms of a convertible note which accrues interest at the rate of 12% per annum and which became due November 1, 2017. As of September 30, 2018, this note has not been repaid when it became due. As of December 31, 2018, the Company has written off 100%, or $250,000, of this balance plus accrued interest of $49,018. Due to this bad debt expense not being a part of the Company’s normal business this expense is categorized in other income and expense on the income statement. On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (AMC), a wholly-owned subsidiary of publicly-traded Canada House Wellness Group, Inc. (CHV). The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The lending facility is for a term of 36 months and bears interest at a rate of 2%. As of December 31, 2019 and 2018, the Company had loaned to AMC a total of $241,711 and $92,888, respectively. The Company classified these loans as long-term notes receivable on its consolidated balance sheets as of December 31, 2019 and 2018. |
Other assets (current and non-current) | Other Assets (Current and Non-Current) Other assets at December 31, 2019 and 2018 were $529,416 and $50,824, respectively. At December 31, 2019, other assets included $480,881 in prepaid expenses, $21,085 in interest receivable and $27,450 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars and other general and administrative costs. At December 31, 2018, other assets included $29,005 in prepaid expenses and $21,819 in security deposits. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill at the end of each calendar year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2019 on its reporting units and subsidiary with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. |
Long-Lived Assets | Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived asset are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets at December 31, 2019 on its reporting units and subsidiary with material amounts on their respective balance sheets and determined that no impairment exists. |
Accounts payable | Accounts Payable Accounts payable at December 31, 2019 and 2018 were $699,961 and $202,515, respectively and were comprised of trade payables for various purchases and services rendered during the ordinary course of business. |
Accrued expenses and other liabilities | Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at December 31, 2019 and 2018 were $1,091,204 and $291,084, respectively. At December 31, 2019, accrued expenses and other liabilities was comprised of customer deposits of $148,109, accrued payroll of $714,220, and operating expenses of $228,875. At December 31, 2018, accrued expenses and other liabilities was comprised of $163,568 in customer deposits, $21,330 in deferred rent expense and $106,185 in accrued payroll. |
Revenue recognition and related allowances | Revenue Recognition and Related Allowances The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of its results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer. The Company has three main revenue streams: (i) product sales; (ii) licensing, consulting and Cultivation Max fees; and (iii) other operating revenues from seminars, reimbursements and other miscellaneous sources. Product sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Revenue from licensing, consulting and Cultivation Max fees are recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded. Revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs. |
Intellectual Property Licensing Agreement with ABBA Medix Corp. | Intellectual Property Licensing Agreement with ABBA Medix Corp. On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (“AMC”), a wholly-owned subsidiary of publicly-traded CHV. The license agreement granted AMC the right to use products and processes related to high-efficiency cultivation of cannabis, as well as various inventions, ideas, discoveries, algorithms, designs, hardware, prototypes, copyrights, processes, mask works, trade secrets, know-how, calculations, testing results, technical data, documentation, potential customer contracts, marketing ideas and other technology in the cannabis cultivation industry, in addition to all related trademarks, from the Company. The license was granted as of the effective date of the agreement for an 18-month period and shall automatically renew for successive 18-month periods until the agreement is otherwise terminated. As consideration for granting the license to AMC, the Company received the following: · $1,150,000 in cash; · $3,500,000 in shares of CHV common stock; and · Ongoing licensing fees calculated as a percentage of AMC’s sales revenue directly related to the Company’s intellectual property. ASC 606 provides guidance in determining the proper accounting treatment for the license of the intellectual property requiring the Company had to complete a sequence of analyses. These analyses include the following: (i) sale versus licensing transactions; (ii) distinct performance obligations; (iii) the nature of the license; and (iv) the timing of recognition based on the nature of the license. Based on an analysis of ASC 606, the Company determined the following: · The license agreement establishes AMC’s right to use the intellectual property; it does not transfer any of the Company’s ownership in the assets. Therefore, the agreement is clearly identified as a licensing transaction. · The license agreement grants AMC the right to use the intellectual property immediately and does provide for the transfer of any other goods or services to AMC. The property is capable of being distinct, and the promise to transfer the property is distinct within the context of the contract. The Company recognized its license as distinct and a separate performance obligation. · The intellectual property is functional intellectual property as it has significant standalone functionality. The license agreement with AMC grants them with the exclusive right to use the Company’s intellectual property immediately upon the date of the agreement. This date clearly represents a transfer of control to the customer. Further, upon its effectiveness, the Company established the right to payment and the customer accepted the asset. As control has been transferred to the customer, the Company has satisfied its performance obligation and, as such, is entitled to immediately recognize the $4,650,000 in revenue associated with the granting of the licensing rights. Additionally, under the terms of the agreement, the Company agreed to provide a loan facility to AMC under the following terms: The Licensor (the Company) shall provide a lending facility to the Licensee (AMC) in $125,000 increments of up to $500,000; noting that any increment over the initial $250,000 advanced shall only be funded upon the Licensee’s funding of the second $575,000 amount to the Licensor. Such lending facilities shall bear a nominal interest rate and carry terms as agreed to by both parties. Both parties agree that each of the Licensor’s advances shall be first money in and first money to be repaid in accordance with the terms mutually agreed to. The purpose of this lending facility was to provide financing support to AMC, the licensee of the Company’s intellectual property, for investing in capital expenses that would allow them to generate revenue that would result in a royalty being paid to Medicine Man Technologies, Inc. The Company is entitled to receive 4% of the gross revenues associated with the sale of Success Nutrients by AMC over the term of the agreement. The Company considered the guidance under ASC 606 in determining whether the facility had any impact on the Company’s ability to recognize revenue from the licensing agreement. Based upon the Company’s analysis, the Company determined the business purpose of the financing facility that it provided to AMCwas a separate agreement with distinct responsibilities from the Company’s performance obligations under the intellectual property license agreement. The Company considered the scope exceptions highlighted in 606-10-15-2(c) and determined that ASC 825, Financial Instruments On July 31, 2018, the license agreement was amended solely to eliminate the equal $1,000,000 million-dollar stock swap element. Based upon the Company’s analysis of ASC 606-10-25-13, the Company determined the modification represented the elimination of a stock swap between the Company and its customer’s parent company, CHV. While the consideration had a defined value, the result of the modification does not beneficially or negatively impact either the Company or its customer. The Company determined that the remaining goods or services as of the time of the modification are not distinct and, form part of a single performance obligation that was partially, if not fully, satisfied. As the consideration represented an exchange of equal value between the two parties, the Company did not record any revenue adjustments (either as an increase or a reduction) due to the elimination of the stock swap. |
Cultivation Max fees | Cultivation Max fees On August 6, 2018, the Company entered into an agreement with a client that was comprised of two basic elements: Element One Element Two 25% of the value of the product grown over 2 pounds per light” · The term for receiving 25% of the value grown over 2 pounds per light, was reduced from five three · The 25% level was reduced to 5% · In return, the Company received a $1,000,000 fee which it billed in 2018 and collected in full in January 2019. Specifically, the wording in the addendum stated, “ The aforementioned fee of $1,000,000 shall be deemed earned by the Licensor (Medicine Man) upon the execution of this Addendum and shall be payable before January 15, 2019”. The amendment also provided that the client will reimburse the Company up to $11,000 a month for the cost of its employees if they are needed at the client’s locations. The Company considered this a pass-thru item where no profit was recognized. Under the guidelines of ASC 606-10-25-27, an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time, if one of the following criteria is met: a. The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs (see paragraphs 606-10-55-5 through 55-6). b. The entity’s performance creates or enhances an asset (for example, work in process) that the customer controls as the asset is created or enhanced (see paragraph 606-10-55-7). c. The entity’s performance does not create an asset with an alternative use to the entity (see paragraph 606-10-25-28), and the entity has an enforceable right to payment for performance completed to date (see paragraph 606-10-25-29). As a result of the contractual consulting services the Company provided for Element One, control of the services has been transferred to the customer. These services enhanced the client’s crop output capabilities and clearly meet criteria (a) and (b) above, and, therefore were recorded as revenue in 2018. With respect to Element Two in terms of considering the revenue method of recognition under ASC 606, the following characteristics of the transaction were considered: · The Company had no further performance obligations · The customer contractually deemed this fee as earned · The future potential value of the reduction from 25% over five years, to 5% over three years, is an asset that legally passed to the client. · The customer paid the fee Based on the analysis performed, the Company determined “control” at a point in time, transferred immediately to the client upon the signing of the amendment. As a result, the Company recorded a trade receivable of $1,000,000 on its balance sheet as of December 31, 2018 and $1,000,000 of revenue in its statement of operations for the year ended December 31, 2018. This $1,000,000 receivable was fully received in January of 2019. The Company notes no change in the pattern of revenue recognition due to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers |
Cost of Goods and Services Sold | Costs of Goods and Services Sold Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of Company’s products and services. |
General and Administrative Expenses | General and Administrative Expenses General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s products or services. |
Advertising and Marketing Costs | Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and totaled $455,047 and $291,711 for years ended December 31, 2019 and 2018, respectively. |
Stock-Based Compensation | Stock-Based Compensation The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse. Share-based expense paid to through direct stock grants is expensed as occurred. Since the Company’s stock is publicly traded, the value is determined based on the number of shares issued and the over-the-counter quoted value of the stock on the date of the transaction. On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance. The Company recognized $7,279,363 and $1,457,250 in expense for stock-based compensation to directors, employees and consultants during the years ended December 31, 2019 and 2018, respectively. |
Income Taxes | Income Taxes ASC 740, Income Taxes |
Right of Use Assets and Lease Liabilities | Right of Use Assets and Lease Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’ lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating leases are included in operating lease Right-of-Use assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets. |
1. Liquidity and Capital Reso_2
1. Liquidity and Capital Resources (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Composition of cash | The following table depicts the composition of the Company’s cash and cash equivalents as of December 31, 2019 and 2018: December 31, 2019 December 31, 2018 Deposits placed with banks $ 736,101 $ 321,788 United States Treasury Bills 11,117,526 – Total cash and cash equivalents $ 11,853,627 $ 321,788 |
2. Critical Accounting Polici_3
2. Critical Accounting Policies and Estimates (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Accounting Policies [Abstract] | |
Schedule of fair value measurement | December 31, 2019 December 31, 2018 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 406,774 $ 2,199,344 |
Schedule of Accounts Receivable | December 31, 2019 December 31, 2018 Accounts receivable – trade $ 384,202 $ 1,180,757 Accounts receivable – related party 72,658 125,112 Accounts receivable – litigation, non-current 3,063,968 1,281,511 Allowance for doubtful accounts (70,885 ) – Total accounts receivable $ 3,449,943 $ 2,587,380 |
4. Fixed Assets (Tables)
4. Fixed Assets (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment table | December 31, 2019 December 31, 2018 Furniture and fixtures $ 98,903 $ 98,395 Leasehold improvements 40,953 36,900 Vehicles 34,000 34,000 Office equipment 33,833 74,360 Work in process 190,743 – 398,432 243,655 Less: accumulated depreciation (159,354 ) (149,015 ) Total property and equipment, net of depreciation $ 239,078 $ 94,640 |
Schedule of property and equipment useful lives | Depreciation on equipment is provided on a straight-line basis over its expected useful lives at the following annual rates. Furniture and fixtures 3 years Marketing display 3 years Vehicles 3 years Office equipment 3 years |
5. Intangible Asset (Tables)
5. Intangible Asset (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible assets | December 31, December 31, License agreement $ 5,300 $ 5,300 Product license and registration 57,300 57,300 Trade secret – intellectual property 32,500 32,500 95,100 95,100 Less: accumulated amortization (19,811 ) (13,903 ) Total intangible assets, net of amortization $ 75,289 $ 81,197 |
8. Goodwill and Acquisition A_2
8. Goodwill and Acquisition Accounting (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Business acquisition allocation | The Big Tomato Balance Sheet Book/Fair Value Book/Fair Value Assets: Liabilities: Inventory $ 291,000 Accounts payable $ 272,266 Other assets 4,950 Customer Deposits 23,684 $ 295,950 $ 295,950 Purchase Price (1,933,329*1.5517) $ 3,000,000 Less: BV of Assets (295,950 ) Add: BV of Liabilities 295,950 Goodwill $ 3,000,000 |
11. Leases (Tables)
11. Leases (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Leases [Abstract] | |
Balance Sheet Classification Table | Balance Sheet Classification of Operating Lease Assets and Liabilities Balance Sheet Line December 31, 2019 Asset Operating lease asset Non-Current Assets $ 59,943 Liabilities Operating lease liability Non-Current Liabilities $ 66,803 |
Operating Lease Costs | The table below summarizes the components of lease costs for the year ended December 31, 2019. Year Ended December 31, 2019 Operating lease costs $ 227,115 |
Maturities of Lease Liabilities | Maturities of lease liabilities as of December 31, 2019 are as follows: 2020 fiscal year $ 67,904 Total lease payments 67,904 Less: Interest (1,101 ) Present value of lease liabilities $ 66,803 |
Future minimum lease obligations | The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2019: 2020 fiscal year $ 67,904 |
13. Stockholders' Equity (Table
13. Stockholders' Equity (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Equity [Abstract] | |
Schedule of warrant activity | Number of shares Balance as of January 1, 2019 2,647,461 Warrants exercised (485,543 ) Warrants forfeited (2,161,918 ) Warrants issued 9,800,000 Balance as of December 31, 2019 9,800,000 |
14. Tax Provision (Tables)
14. Tax Provision (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Components of income tax expense | December 31, 2019 December 31, 2018 Federal $ (477,625 ) $ 477,625 State and local (105,305 ) 105,305 Total $ (582,931 ) $ 582,931 |
Reconciliation of income tax expense | December 31, December 31, 2018 Federal taxes at U.S. statutory rate 21.0% 21.0% State income taxes 4.6% 4.6% Permanent and temporary differences (15.5% ) 27.5% Change in valuation allowance (6.8% ) (15.1% ) Effective tax rate 3.3% 38.1% |
Components of income tax payable | December 31, 2019 December 31, 2018 Federal $ – $ 477,625 State and local – 105,305 Total $ – $ 582,931 |
Components of deferred income tax | December 31, 2019 December 31, 2018 Deferred tax assets: Bad debt allowance $ 18,168 – Accrued expenses 38,413 – Share based compensation accruals 3,528,726 373,493 Net operating loss carryforwards 1,703,425 – Unrealized losses 578,201 118,766 Total deferred tax assets 5,866,934 492,259 Less: valuation allowance (5,598,511 ) (492,259 ) Net deferred tax assets $ 268,423 – Deferred tax liabilities: Prepaid expenses $ 121,777 7,434 Fixed assets 12,388 24,256 Goodwill and intangible assets 636,188 174,173 Unrealized gains 417,046 – Total deferred tax liabilities 1,187,399 205,863 Less: valuation allowance (1,187,399 ) (205,863 ) Net deferred tax liabilities $ – – Total deferred tax assets, net $ 268,423 – |
16. Segment Information (Tables
16. Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information | For the Years Ended December 31, 2019 2018 Products Licensing and Consulting Corporate, Infrastructure and Other Total Products Licensing and Consulting Total Revenues $ 7,820,518 $ 4,580,436 $ – $ 12,400,955 $ 2,031,603 $ 7,410,952 $ 9,442,555 Intangible assets amortization $ 5,465 $ 443 $ – $ 5,908 $ 5,987 $ 528 $ 6,515 Depreciation $ 7,186 $ 48,614 $ – $ 55,800 $ 5,848 $ 69,598 $ 75,446 Net income (loss) $ 794,747 $ 1,688,147 $ (19,458,635 ) $ (16,975,742 ) $ 878,067 $ 70,848 $ 948,915 Segment assets $ 12,406,230 $ 6,081,485 $ 13,740,892 $ 32,228,607 $ 5,631,127 $ 12,590,478 $ 18,221,605 |
17. Earnings per share (Basic_2
17. Earnings per share (Basic and Dilutive) (Tables) | 12 Months Ended |
Dec. 31, 2019 | |
Earnings Per Share [Abstract] | |
Basic and diluted earnings per share | 2019 2018 Numerator: Net income (loss) $ (16,975,742 ) $ 948,915 Denominator: Weighted-average shares of common stock 33,740,557 25,121,896 Dilutive effect of warrants – 2,647,461 Diluted weighted-average shares of common stock 33,740,557 27,769,357 Net income (loss) per common share from: Basic $ (0.50 ) $ 0.04 Diluted $ (0.50 ) $ 0.03 |
1. Liquidity and Capital Reso_3
1. Liquidity and Capital Resources (Details - Cash) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Total cash and cash equivalents | $ 11,853,627 | $ 321,788 | $ 748,715 |
Bank Deposits [Member] | |||
Total cash and cash equivalents | 736,101 | 321,788 | |
U S Treasury Bills [Member] | |||
Total cash and cash equivalents | $ 11,117,526 | $ 0 |
1. Liquidity and Capital Reso_4
1. Liquidity and Capital Resources (Details Narrative) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Cash and cash equivalents | $ 11,853,627 | $ 321,788 | $ 748,715 |
2. Critical Accounting Polici_4
2. Critical Accounting Policies and Estimates (Details - Level 3) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Fair Value Inputs Level 1 [Member] | Fair Value Measurements Recurring [Member] | Marketable Securities [Member] | ||
Fair value assets | $ 406,774 | $ 2,199,344 |
2. Critical Accounting Polici_5
2. Critical Accounting Policies and Estimates (Details Receivables) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Total accounts receivable | $ 3,449,943 | $ 2,587,380 |
Allowance for doubtful accounts | (70,885) | 0 |
Trade Accounts Receivable [Member] | ||
Total accounts receivable | 384,202 | 1,180,757 |
Accounts receivable - related party [Member] | ||
Total accounts receivable | 72,658 | 125,112 |
Accounts receivable - litigation [Member] | ||
Total accounts receivable | $ 3,063,968 | $ 1,281,511 |
2. Critical Accounting Polici_6
2. Critical Accounting Policies and Estimates (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | |||
Mar. 22, 2019 | Jul. 02, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | Aug. 02, 2019 | Jul. 17, 2018 | |
Accounts receivable | $ 3,449,943 | $ 2,587,380 | ||||
Allowance for doubtful accounts | 70,885 | 0 | ||||
Accounts receivable written off | 80,284 | 0 | ||||
Accounts receivable - litigation | 3,063,968 | 1,281,511 | ||||
Revenues | 12,400,955 | 9,442,555 | ||||
Cumulative effect of new accounting principle | $ 1,782,457 | |||||
Long-term notes receivable | 241,711 | 92,888 | ||||
Other assets | 529,416 | 50,824 | ||||
Accounts payable | 699,961 | 202,515 | ||||
Accrued expenses and other liabilities | 1,091,204 | 291,084 | ||||
Advertising and marketing expense | 455,047 | 291,711 | ||||
Stock based compensation expense | 7,279,363 | 1,457,250 | ||||
Litigation Revenue [Member] | ||||||
Revenues | 1,782,457 | 1,518,099 | ||||
Licensing, consulting and Cultivation Max fees [Member] | ||||||
Revenues | 2,767,649 | 5,810,815 | ||||
Factoring Agreement [Member] | ||||||
Accounts receivable pledged | $ 810,000 | |||||
Proceeds from pledged collateral | $ 582,000 | |||||
Repayment of pledged collateral | $ 436,607 | |||||
Interest expense | 192,107 | |||||
Trade Accounts Receivable [Member] | ||||||
Accounts receivable | 384,202 | 1,180,757 | ||||
AMC [Member] | ||||||
Long-term notes receivable | 241,711 | 92,888 | ||||
Capital G Ltd. [Member] | ||||||
Loss on investment | (250,000) | |||||
Loss on investment, interest income | (49,018) | |||||
AMC [Member] | Trade Accounts Receivable [Member] | ||||||
Accounts receivable | 250,000 | |||||
Prepaid Expenses [Member] | ||||||
Other assets | 480,881 | 29,005 | ||||
Interest Receivable [Member] | ||||||
Other assets | 21,085 | |||||
Security Deposits [Member] | ||||||
Other assets | 27,450 | 21,819 | ||||
Customer Deposits [Member] | ||||||
Accrued expenses and other liabilities | 148,109 | 163,568 | ||||
Accrued Payroll [Member] | ||||||
Accrued expenses and other liabilities | 714,220 | 106,185 | ||||
Operating Expenses [Member] | ||||||
Accrued expenses and other liabilities | 228,875 | |||||
Deferred Rent Expense [Member] | ||||||
Accrued expenses and other liabilities | 21,330 | |||||
Factoring Agreement [Member] | ||||||
Interest expense | 192,107 | |||||
License Agreement [Member] | AMC [Member] | ||||||
Proceeds from licensing agreement | 1,150,000 | |||||
Investment shares received, value | $ 3,500,000 | |||||
License Agreement [Member] | AMC [Member] | Licensing, consulting and Cultivation Max fees [Member] | ||||||
Revenues | 4,650,000 | |||||
Cultivation License [Member] | Licensing, consulting and Cultivation Max fees [Member] | ||||||
Revenues | 1,000,000 | |||||
2nd Breach of Contract [Member] | ||||||
Accounts receivable - litigation | 290,647 | 290,647 | ||||
Breach of Contract [Member] | ||||||
Accounts receivable - litigation | 2,773,321 | 990,864 | ||||
Breach of Contract [Member] | Litigation Revenue [Member] | ||||||
Revenues | $ 1,782,457 | $ 1,015,154 |
4. Fixed Assets (Details)
4. Fixed Assets (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Property and Equipment, gross | $ 398,432 | $ 243,655 |
Less: Accumulated Depreciation | (159,354) | (149,015) |
Property and equipment, net | 239,078 | 94,640 |
Furniture and Fixtures [Member] | ||
Property and Equipment, gross | 98,903 | 98,395 |
Leasehold Improvements [Member] | ||
Property and Equipment, gross | 40,953 | 36,900 |
Work In Progress [Member] | ||
Property and Equipment, gross | 34,000 | 34,000 |
Vehicles [Member] | ||
Property and Equipment, gross | 33,833 | 74,360 |
Office Equipment [Member] | ||
Property and Equipment, gross | $ 190,743 | $ 0 |
4. Fixed Assets (Details - Expe
4. Fixed Assets (Details - Expected life) | 12 Months Ended |
Dec. 31, 2019 | |
Furniture and Fixtures [Member] | |
Estimated useful life | 3 years |
Marketing Display [Member] | |
Estimated useful life | 3 years |
Vehicles [Member] | |
Estimated useful life | 3 years |
Office Equipment [Member] | |
Estimated useful life | 3 years |
4. Fixed Assets (Details Narrat
4. Fixed Assets (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 55,800 | $ 75,446 |
5. Intangible Asset (Details)
5. Intangible Asset (Details) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Intangible assets, gross | $ 95,100 | $ 95,100 |
Less: accumulated amortization | (19,811) | (13,903) |
Intangible assets, net | 75,289 | 81,197 |
License Agreement [Member] | ||
Intangible assets, gross | 5,300 | 5,300 |
Product License and Registration [Member] | ||
Intangible assets, gross | 57,300 | 57,300 |
Trade Secret [Member] | ||
Intangible assets, gross | $ 32,500 | $ 32,500 |
5. Intangible Asset (Details Na
5. Intangible Asset (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 5,908 | $ 6,515 |
6. Derivative Liability (Detail
6. Derivative Liability (Details Narrative) - USD ($) | Jan. 08, 2019 | Apr. 23, 2019 | Jun. 11, 2019 | Dec. 31, 2019 | Dec. 31, 2018 |
Fair value of derivative liabilities | $ 3,773,382 | $ 0 | |||
Change in fair value of derivatives | $ 1,627,176 | $ 0 | |||
Officer [Member] | |||||
Restricted stock granted, shares | 500,000 | 1,000,000 | 1,000,000 |
7. Related Party Transactions (
7. Related Party Transactions (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Notes receivable issued | $ 916,518 | $ 97,889 |
Super Farm [Member] | ||
Revenue from related parties | 578,655 | 264,103 |
Accounts receivable from related parties | 33,127 | 61,110 |
Discount on sales given | $ 291,823 | |
Super Farm [Member] | Chief Cultivation Officer [Member] | ||
Ownership percentage by related party | 20.00% | |
DeBest [Member] | ||
Revenue from related parties | $ 191,915 | 88,063 |
Accounts receivable from related parties | 2,180 | 20,503 |
Discount on sales given | $ 95,957 | |
DeBest [Member] | Chief Cultivation Officer [Member] | ||
Ownership percentage by related party | 20.00% | |
Med Man Denver [Member] | ||
Revenue from related parties | $ 402,839 | 158,805 |
Accounts receivable from related parties | 34,748 | 28,893 |
Discount on sales given | 143,473 | |
Costs and expenses to related party | $ 125,897 | |
Med Man Denver [Member] | Former CEO [Member] | ||
Ownership percentage by related party | 38.00% | |
Med Pharm Holdings [Member] | ||
Revenue from related parties | $ 64,378 | 34,438 |
Accounts receivable from related parties | 2,604 | 10,425 |
Discount on sales given | 7,498 | |
Notes receivable issued | $ 767,695 | |
Note receivable interest rate | 8.00% | |
Med Pharm Holdings [Member] | Chief Executive Officer [Member] | ||
Ownership percentage by related party | 29.00% | |
Baseball 18 LLC [Member] | ||
Revenue from related parties | $ 165,617 | |
Accounts receivable from related parties | 169,960 | |
Farm Boy [Member] | ||
Revenue from related parties | 321,307 | |
Accounts receivable from related parties | $ 330,911 | |
Med Pharm Iowa [Member] | ||
Revenue from related parties | 10,026 | |
Accounts receivable from related parties | 1,195 | |
FutureVision [Member] | ||
Accounts receivable from related parties | 2,986 | |
Brett Roper [Member] | ||
Accounts payable to related party | $ 69,714 |
8. Goodwill and Acquisition A_3
8. Goodwill and Acquisition Accounting (Details - Acquisition) - USD ($) | 9 Months Ended | ||
Sep. 17, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Business Combination assumed assets/liabilities | |||
Goodwill | $ 12,304,306 | $ 12,304,306 | |
Big Tomato [Member] | |||
Business Combination assumed assets/liabilities | |||
Inventory | $ 291,000 | ||
Other assets | 4,950 | ||
Total assets | 295,950 | ||
Accounts payable | 272,266 | ||
Customer deposits | 23,684 | ||
Total liabilities | 295,950 | ||
Purchase price | 3,000,000 | ||
Less: Book value of assets | (295,950) | ||
Add: Book value of liabilities | 295,950 | ||
Goodwill | $ 3,000,000 | $ 3,000,000 |
8. Goodwill and Acquisition A_4
8. Goodwill and Acquisition Accounting (Details Narrative) - USD ($) | 9 Months Ended | 12 Months Ended | |
Sep. 17, 2018 | Dec. 31, 2019 | Dec. 31, 2018 | |
Goodwill | $ 12,304,306 | $ 12,304,306 | |
Impairment | 0 | ||
Big Tomato [Member] | |||
Stock issued for acquisition, shares | 1,933,329 | ||
Consideration transferred | $ 3,000,000 | ||
Goodwill | $ 3,000,000 | 3,000,000 | |
Denver Consulting Group [Member] | |||
Goodwill | 3,003,226 | ||
Success Nutrients and Pono Publications [Member] | |||
Goodwill | $ 6,301,080 |
9. Inventory (Details Narrative
9. Inventory (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Inventory Disclosure [Abstract] | ||
Finished goods inventory | $ 684,940 | $ 489,239 |
Inventory obsolescence | $ 0 | $ 0 |
11. Leases (Details - Balance S
11. Leases (Details - Balance Sheet Classification) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Leases [Abstract] | ||
Operating lease asset - non-current | $ 59,943 | $ 0 |
Operating lease liability - non-current | $ 66,803 | $ 0 |
11. Leases (Details - Operating
11. Leases (Details - Operating lease cost) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Leases [Abstract] | |
Operating lease costs | $ 227,115 |
11. Leases (Details - Lease mat
11. Leases (Details - Lease maturities) | Dec. 31, 2019USD ($) |
Leases [Abstract] | |
2020 fiscal year | $ 67,904 |
Total lease payments | 67,904 |
Less: interest | (1,101) |
Present value of lease liabilities | $ 66,803 |
11. Leases (Details - Minimum l
11. Leases (Details - Minimum lease obligation) | Dec. 31, 2019USD ($) |
Leases [Abstract] | |
2020 fiscal year | $ 67,904 |
11. Leases (Details Narrative)
11. Leases (Details Narrative) | Dec. 31, 2019 |
Leases [Abstract] | |
Weighted average remaining lease term | 1 year |
Weighted average lease discount rate | 6.00% |
12. Commitments and Contingen_2
12. Commitments and Contingencies (Details Narrative) - USD ($) | 5 Months Ended | 7 Months Ended | 8 Months Ended | ||||||||
May 31, 2019 | May 24, 2019 | Aug. 15, 2019 | Aug. 06, 2019 | Sep. 09, 2019 | Sep. 06, 2019 | Sep. 05, 2019 | Aug. 31, 2019 | Aug. 30, 2019 | Aug. 29, 2019 | Aug. 28, 2019 | |
Farm Boy [Member] | |||||||||||
Consideration to be transferred | $ 5,937,500 | ||||||||||
Cash to be paid for acquisition | $ 1,187,500 | ||||||||||
Stock to be issued for acquisition | 1,578,073 | ||||||||||
Los Suenos [Member] | |||||||||||
Consideration to be transferred | $ 5,937,500 | ||||||||||
Cash to be paid for acquisition | $ 1,187,500 | ||||||||||
Stock to be issued for acquisition | 1,578,073 | ||||||||||
Mesa Organics [Member] | |||||||||||
Consideration to be transferred | $ 12,012,758 | ||||||||||
Cash to be paid for acquisition | $ 2,402,552 | ||||||||||
Stock to be issued for acquisition | 2,801,809 | ||||||||||
Dabble [Member] | |||||||||||
Consideration to be transferred | $ 3,750,000 | ||||||||||
Cash to be paid for acquisition | $ 750,000 | ||||||||||
Stock to be issued for acquisition | 996,678 | ||||||||||
Medically Correct [Member] | |||||||||||
Consideration to be transferred | $ 17,250,000 | ||||||||||
Cash to be paid for acquisition | $ 3,450,000 | ||||||||||
Stock to be issued for acquisition | 4,677,967 | ||||||||||
Starbuds [Member] | |||||||||||
Consideration to be transferred | $ 31,005,089 | ||||||||||
Cash to be paid for acquisition | $ 23,253,816 | ||||||||||
Stock to be issued for acquisition | 2,601,098 | ||||||||||
Colorado Harvest Company [Member] | |||||||||||
Consideration to be transferred | $ 12,500,000 | ||||||||||
Cash to be paid for acquisition | $ 4,000,000 | ||||||||||
Stock to be issued for acquisition | 2,881,356 | ||||||||||
Targets [Member] | |||||||||||
Consideration to be transferred | $ 36,898,499 | ||||||||||
Cash to be paid for acquisition | $ 27,673,874 | ||||||||||
Stock to be issued for acquisition | 3,095,512 | ||||||||||
SB [Member] | |||||||||||
Consideration to be transferred | $ 50,096,413 | ||||||||||
Cash to be paid for acquisition | $ 37,590,310 | ||||||||||
Stock to be issued for acquisition | 4,202,720 | ||||||||||
Roots RX [Member] | |||||||||||
Consideration to be transferred | $ 15,000,000 | ||||||||||
Cash to be paid for acquisition | $ 9,750,000 | ||||||||||
Stock to be issued for acquisition | 1,779,661 | ||||||||||
Strawberry Fields [Member] | |||||||||||
Consideration to be transferred | $ 31,000,000 | ||||||||||
Cash to be paid for acquisition | $ 14,000,000 | ||||||||||
Stock to be issued for acquisition | 5,704,698 | ||||||||||
Canyon [Member] | |||||||||||
Consideration to be transferred | $ 5,130,000 | ||||||||||
Cash to be paid for acquisition | $ 2,565,000 |
13. Stockholders' Equity (Detai
13. Stockholders' Equity (Details Warrant Activity) - Warrants [Member] | 12 Months Ended |
Dec. 31, 2019shares | |
Warrants outstanding, beginning balance | 2,647,461 |
Warrants exercised | (485,543) |
Warrants forfeited | (2,161,918) |
Warrants issued | 9,800,000 |
Warrants outstanding, ending balance | 9,800,000 |
13. Stockholders' Equity (Det_2
13. Stockholders' Equity (Details Narrative) - USD ($) | Jan. 08, 2019 | Mar. 14, 2019 | Jun. 05, 2019 | Jul. 16, 2019 | Sep. 30, 2019 | Sep. 17, 2019 | Dec. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Common stock authorized | 250,000,000 | 90,000,000 | |||||||
Common stock par value | $ 0.001 | $ 0.001 | |||||||
Common stock issued | 39,952,626 | 27,753,310 | |||||||
Common stock outstanding | 39,952,626 | 27,753,310 | |||||||
Preferred stock authorized | 10,000,000 | 10,000,000 | |||||||
Preferred stock par value | $ 0.001 | $ 0.001 | |||||||
Proceeds from warrant exercises | $ 602,560 | $ 0 | |||||||
Stock issued for compensation, value | $ 3,222,401 | $ 1,457,250 | |||||||
Warrants [Member] | Issued during the FYE December 31, 2017 | |||||||||
Warrants issued, shares | 1,500,566 | ||||||||
Warrant exercisable price | $ 1.33 | ||||||||
Warrants exercised | 485,543 | ||||||||
Warrants forfeited | 1,048,140 | ||||||||
Employees, Officers and Directors [Member] | |||||||||
Stock issued for compensation, shares | 690,000 | 800,000 | |||||||
Stock issued for compensation, value | $ 2,160,880 | $ 1,457,250 | |||||||
Paul Dickman [Member] | |||||||||
Stock issued for compensation, shares | 1,000,000 | ||||||||
Stock issued for compensation, value | $ 660,000 | ||||||||
Warrant Exercises [Member] | |||||||||
Warrant exercisable price | $ 1.33 | ||||||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 485,543 | ||||||||
Proceeds from warrant exercises | $ 602,560 | ||||||||
James Toreson [Member] | |||||||||
Stock issued for services, shares | 50,000 | ||||||||
Stock issued for services, value | $ 95,000 | ||||||||
Contractors and Professionals [Member] | |||||||||
Stock issued for services, shares | 123,775 | ||||||||
Stock issued for services, value | $ 210,521 | ||||||||
Three Employees [Member] | Warrants [Member] | Issued during the FYE December 31, 2017 | |||||||||
Warrants issued, shares | 2,000,000 | ||||||||
Warrant exercisable price | $ 1.445 | ||||||||
Warrants exercised | 2,000,000 | ||||||||
One Employee [Member] | Warrants [Member] | December 31, 2018 [Member] | |||||||||
Warrants issued, shares | 250,000 | ||||||||
Warrant term | 3 years | ||||||||
Warrant exercisable price | $ 1.49 | ||||||||
Various Accredited Investors [Member] | Warrants [Member] | |||||||||
Warrants issued, shares | 9,800,000 | ||||||||
Warrant term | 3 years | ||||||||
Warrant exercisable price | $ 3.50 | ||||||||
Private Placement [Member] | Accredited Investor [Member] | |||||||||
Stock issued new, shares | 937,647 | ||||||||
Purchase Agreement [Member] | |||||||||
Stock issued new, shares | 1,500,000 | 3,500,000 | 1,100,000 | 3,000,000 | |||||
Warrants issued, shares | 1,500,000 | 3,500,000 | 1,100,000 | 3,000,000 | |||||
Proceeds from sale of equity | $ 3,000,000 | $ 7,000,000 | $ 2,200,000 | $ 6,000,000 | |||||
Warrant term | 3 years | ||||||||
Warrant exercisable price | $ 3.50 | ||||||||
Other Transaction [Member] | |||||||||
Stock issued new, shares | 700,000 | ||||||||
Warrants issued, shares | 700,000 | ||||||||
Proceeds from sale of equity | $ 1,400,000 |
14. Tax Provision (Details - Co
14. Tax Provision (Details - Components of Income Tax) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Federal income tax expense | $ (477,625) | $ 477,625 |
State and local income tax expense | (105,305) | 105,305 |
Income tax expense | $ (582,931) | $ 582,931 |
14. Tax Provision (Details - Re
14. Tax Provision (Details - Reconciliation of income taxes) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | ||
Federal taxes at U.S. statutory rate | 21.00% | 21.00% |
State income taxes | 4.60% | 4.60% |
Permanent and temporary differences | (15.50%) | 27.50% |
Change in valuation allowance | (6.80%) | (15.10%) |
Effective tax rate | 3.30% | 38.10% |
14. Tax Provision (Details - _2
14. Tax Provision (Details - Components of Income tax payable) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Total income taxes payable | $ 0 | $ 582,931 |
Federal [Member] | ||
Total income taxes payable | 0 | 477,625 |
State and Local [Member] | ||
Total income taxes payable | $ 0 | $ 105,305 |
14. Tax Provision (Details - De
14. Tax Provision (Details - Deferred Income Taxes) - USD ($) | Dec. 31, 2019 | Dec. 31, 2018 |
Deferred tax assets: | ||
Bad debt allowance | $ 18,168 | $ 0 |
Accrued expenses | 38,413 | 0 |
Share based compensation accruals | 3,528,726 | 373,493 |
Net operating loss carryforwards | 1,703,425 | 0 |
Unrealized losses | 578,201 | 118,766 |
Total deferred tax assets | 5,866,934 | 492,259 |
Less: valuation allowance | (5,598,511) | (492,259) |
Net deferred tax assets | 268,423 | 0 |
Deferred tax liabilities: | ||
Prepaid expenses | 121,777 | 7,434 |
Fixed assets | 12,388 | 24,256 |
Goodwill and intangible assets | 636,188 | 174,173 |
Unrealized gains | 417,046 | 0 |
Total deferred tax liabilities | 1,187,399 | 205,863 |
Less: valuation allowance | (1,187,399) | (205,863) |
Net deferred tax liabilities | 0 | 0 |
Total deferred tax assets, net | $ 268,423 | $ 0 |
14. Tax Provision (Details Narr
14. Tax Provision (Details Narrative) | 12 Months Ended |
Dec. 31, 2019USD ($) | |
Income Tax Disclosure [Abstract] | |
Net operating loss carryover | $ 6,600,000 |
NOL beginning expiration date | Dec. 31, 2039 |
15. Major Customers and Accou_2
15. Major Customers and Accounts Receivable (Details Narrative) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Sales Revenue, Net [Member] | One Customer [Member] | ||
Concentration percentage | 14.00% | 37.00% |
Sales Revenue, Net [Member] | Another Customer [Member] | ||
Concentration percentage | 11.00% | |
Accounts Receivable [Member] | One Customer [Member] | ||
Concentration percentage | 57.00% | 11.00% |
Accounts Receivable [Member] | Another Customer [Member] | ||
Concentration percentage | 11.00% | 38.00% |
Accounts Receivable [Member] | Another Customer [Member] | ||
Concentration percentage | 39.00% |
16. Segment Information (Detail
16. Segment Information (Details- Segment Information) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Revenues | $ 12,400,955 | $ 9,442,555 |
Intangible assets amortization | 5,908 | 6,515 |
Depreciation | 55,800 | 75,446 |
Net income (loss) | (16,975,742) | 948,915 |
Segment assets | 32,228,607 | 18,221,606 |
Products [Member] | ||
Revenues | 7,820,518 | 2,031,603 |
Intangible assets amortization | 5,465 | 5,987 |
Depreciation | 7,186 | 5,848 |
Net income (loss) | 794,747 | 878,067 |
Segment assets | 12,406,230 | 5,631,127 |
Licensing and Consulting [Member] | ||
Revenues | 4,580,436 | 7,410,952 |
Intangible assets amortization | 443 | 528 |
Depreciation | 48,614 | 69,598 |
Net income (loss) | 1,688,147 | 70,848 |
Segment assets | 6,081,485 | $ 12,590,478 |
Corporate, Infrastructure and Other [Member] | ||
Revenues | 0 | |
Intangible assets amortization | 0 | |
Depreciation | 0 | |
Net income (loss) | (19,458,635) | |
Segment assets | $ 13,740,892 |
17. Earnings per share (Basic_3
17. Earnings per share (Basic and Dilutive) (Details - Basic and diluted earnings per share ) - USD ($) | 12 Months Ended | |
Dec. 31, 2019 | Dec. 31, 2018 | |
Numerator: | ||
Net income (loss) | $ (16,975,742) | $ 948,915 |
Denominator: | ||
Weighted-average shares of common stock | 33,740,557 | 25,121,896 |
Dilutive effect of warrants | 0 | 2,647,461 |
Diluted weighted-average shares of common stock | 33,740,557 | 27,769,357 |
Net loss per common share from Basic | $ (0.50) | $ 0.04 |
Net loss per common share from Diluted | $ (0.50) | $ 0.03 |
17. Earnings per share (Basic_4
17. Earnings per share (Basic and Dilutive) (Details Narrative) | 12 Months Ended |
Dec. 31, 2019shares | |
Option [Member] | |
Potential dilutive shares | 2,215,500 |
Warrants [Member] | |
Potential dilutive shares | 9,800,000 |