Company Quick10K Filing
Growlife
Price0.00 EPS-0
Shares3,858 P/E-0
MCap0 P/FCF-0
Net Debt-0 EBIT-6
TEV-0 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-13
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-29
10-K 2019-12-31 Filed 2020-04-01
S-1 2019-10-21 Public Filing
10-Q 2019-09-30 Filed 2019-11-12
S-1 2019-09-04 Public Filing
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-14
10-K 2018-12-31 Filed 2019-03-08
10-Q 2018-09-30 Filed 2018-11-14
S-1 2018-08-31 Public Filing
10-Q 2018-06-30 Filed 2018-08-02
10-Q 2018-03-31 Filed 2018-05-01
10-K 2017-12-31 Filed 2018-03-28
10-Q 2017-09-30 Filed 2017-11-02
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-31
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-12
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-04-14
10-Q 2015-09-30 Filed 2015-12-01
10-Q 2015-06-30 Filed 2015-11-13
10-Q 2015-03-31 Filed 2015-10-14
10-K 2014-12-31 Filed 2015-09-30
10-Q 2014-09-30 Filed 2014-11-19
10-Q 2014-06-30 Filed 2014-08-19
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-13
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-15
10-Q 2012-06-30 Filed 2012-08-20
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-04-04
10-Q 2011-09-30 Filed 2011-11-21
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-17
10-K 2010-12-31 Filed 2011-02-02
10-K 2010-09-30 Filed 2010-12-13
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-13
10-Q 2009-12-31 Filed 2010-01-13
8-K 2020-10-14
8-K 2020-09-15
8-K 2020-08-07
8-K 2020-05-15
8-K 2020-02-28
8-K 2020-01-30
8-K 2019-11-26
8-K 2019-11-18
8-K 2019-11-14
8-K 2019-11-05
8-K 2019-10-03
8-K 2019-07-23
8-K 2019-03-08
8-K 2019-03-04
8-K 2019-02-15
8-K 2018-12-06
8-K 2018-12-06
8-K 2018-11-16
8-K 2018-11-08
8-K 2018-10-15
8-K 2018-10-15
8-K 2018-10-15
8-K 2018-09-18
8-K 2018-08-17
8-K 2018-08-10
8-K 2018-03-20
8-K 2018-03-20
8-K 2018-03-12
8-K 2018-02-16
8-K 2018-02-09
8-K 2018-02-02
8-K 2017-10-05

PHOT 10Q Quarterly Report

Item 1.        
Note 1 – Description of Business and Organization
Note 2 – Going Concern
Note 3 – Significant Accounting Policies: Adoption of Accounting Standards
Note 4 –Business Combinations, Acquisition Payable and Other Transaction
Note 5 – Inventory
Note 6 – Property and Equipment
Note 7 – Intangible Assets
Note 8 - Leases
Note 9 - Accounts Payable
Note 10 - Accrued Expenses
Note 11 – Convertible Notes Payable and Notes Payable
Note 12 – Derivative Liability
Note 13 – Related Party Transactions and Certain Relationships
Note 14 – Equity
Note 15– Stock Options
Note 17 – Commitments, Contingencies and Legal Proceedings
Note 18 – Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II.     Other Information
EX-31.1 phot_ex311.htm
EX-31.2 phot_ex312.htm
EX-32.1 phot_ex321.htm
EX-32.2 phot_ex322.htm

Growlife Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
10.03.0-4.0-11.0-18.0-25.02012201420172020
Assets, Equity
3.4-5.3-14.0-22.6-31.3-40.02012201420172020
Rev, G Profit, Net Income
2.41.71.00.2-0.5-1.22012201420172020
Ops, Inv, Fin

10-Q 1 phot_10q.htm QUARTERLY REPORT phot_10q
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-Q
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2020
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
 
Commission file number 000-50385
GrowLife, Inc. 
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
90-0821083
(I.R.S. Employer Identification No.)
 
5400 Carillon Point
Kirkland, WA 98033
(Address of principal executive offices and zip code)
 
(866) 781-5559
 (Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act: None
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐ 
 
CURRENT REQ BY SEC. Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2
 
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
 
As of November 13, 2020, there were 44,715,790 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.
 


 
 
TABLE OF CONTENTS
 
 
 
Page Number
 3
 3
 
 3
 
 4
 
 5
 
 6
 
 7
 26
 33
 33
 34
 34
 35
 43
 44
 44
 
 48
 
 
 
 
 
 
 
 
 
2
 
 
ITEM 1.        
FINANCIAL STATEMENTS
 
GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS 
 
 
 
September 30,
2020
 
 
December 31,
2019
 
ASSETS
 
 
 
 
 (Audited)
 
 
 
 
 
 
 
 
CURRENT ASSETS:
 
 
 
 
 
 
Cash and cash equivalents
 $634,664 
 $40,834 
Accounts receivable - trade, net of allowance for doubtful accounts of $5,690 as of 9/30/2020 and 12/31/2019
  326,792 
  101,806 
Inventory, net
  675,063 
  600,674 
Deposits
  18,995 
  18,995 
Total current assets
  1,655,514 
  762,309 
 
    
    
PROPERTY AND EQUIPMENT, NET
  138,618 
  166,482 
INTANGIBLE ASSETS, NET
  1,298,647 
  1,802,434 
GOODWILL
  781,749 
  781,749 
OPERATING LEASE RIGHT OF USE ASSET
  422,205 
  537,522 
TOTAL ASSETS
 $4,296,733 
 $4,050,496 
 
    
    
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
    
    
 
    
    
CURRENT LIABILITIES:
    
    
Accounts payable - trade
 $1,038,597 
 $1,157,090 
Accrued expenses
  290,891 
  259,093 
Accrued expenses - related parties
  97,061 
  31,485 
Derivative liability
  1,329,089 
  1,300,915 
Convertible notes payable
  2,786,632 
  2,884,279 
Notes payable, current portion
  941,557 
  104,144 
Acquisition of EZ-CLONE Enterprises, Inc. payable in cash
  1,026,000 
  1,026,000 
Current portion of operating lease right of use liability
  140,772 
  140,772 
Total current liabilities
  7,650,599 
  6,903,778 
 
    
    
LONG TERM LIABILITIES:
    
    
Deferred tax liability
  382,037 
  470,200 
Notes payable, less current portion
  398,679 
  - 
Long term acquisition of EZ-CLONE Enterprises, Inc. payable in common stock
  1,105,000 
  900,000 
Non-current portion of operating lease right of use liability
  305,155 
  410,734 
Total long term liabilities
  2,190,871 
  1,780,934 
 
    
    
COMMITMENTS AND CONTINGENCIES (Note 15)
  - 
  - 
 
    
    
STOCKHOLDERS' DEFICIT
    
    
Preferred stock - $0.0001 par value, 10,000,000 shares authorized, no shares
    
    
 issued and outstanding at 9/30/2020 and 12/31/2019, respectively
  - 
  - 
Common stock - $0.0001 par value, 120,000,000 shares authorized, 38,905,790 and 28,677,147
    
    
shares issued and outstanding at 9/30/2020 and 12/31/2019, respectively
  387,293 
  386,269 
Additional paid in capital
  145,495,095 
  143,441,047 
Accumulated deficit
  (151,427,125)
  (148,461,532)
Total stockholders' deficit
  (5,544,737)
  (4,634,216)
 
    
    
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
 $4,296,733 
 $4,050,496 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3
 
 
GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Three Months Ended,
 
 
Nine Months Ended,
 
 
 
September 30,
2020
 
 
September 30,
2019
 
 
September 30,
2020
 
 
September 30,
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NET REVENUE
 $1,415,999 
 $2,298,792 
 $4,927,636 
 $6,743,804 
COST OF GOODS SOLD
  919,421 
  1,552,892 
  3,049,782 
  4,551,223 
GROSS PROFIT
  496,578 
  745,900 
  1,877,854 
  2,192,581 
GENERAL AND ADMINISTRATIVE EXPENSES
  1,249,077 
  2,366,085 
  3,741,325 
  6,548,810 
OPERATING LOSS
  (752,499)
  (1,620,185)
  (1,863,471)
  (4,356,229)
 
    
    
    
    
OTHER INCOME (EXPENSE):
    
    
    
    
Change in fair value of derivative
  130,268 
  (147,331)
  (28,174)
  361,179 
Interest expense, net
  (324,752)
  (182,323)
  (765,999)
  (409,666)
Loss on debt conversions
  (143,799)
  (132,131)
  (435,111)
  (1,706,740)
Gain on extinguishment of debt
  - 
  - 
  39,000 
  - 
Total other expense, net
  (338,283)
  (461,785)
  (1,190,284)
  (1,755,227)
 
    
    
    
    
LOSS BEFORE INCOME TAXES
  (1,090,782)
  (2,081,970)
  (3,053,755)
  (6,111,456)
 
    
    
    
    
Income taxes - current benefit
  29,388 
  - 
  88,163 
  - 
 
    
    
    
    
NET LOSS
  (1,061,394)
  (2,081,970)
  (2,965,592)
  (6,111,456)
 
    
    
    
    
Net loss attrituable to noncontrolling interest in EZ-CLONE Enterprises, Inc.
  - 
  82,219 
  - 
  88,938 
 
    
    
    
    
NET LOSS ATTRIBUTABLE TO GROWLIFE, INC. AND SUBSIDIARIES
 $(1,061,394)
 $(1,999,751)
 $(2,965,592)
 $(6,022,518)
COMMON SHAREHOLDERS
    
    
    
    
 
    
    
    
    
Basic and diluted loss per share
 $(0.03)
 $(0.08)
 $(0.08)
 $(0.25)
 
    
    
    
    
Weighted average shares of common stock outstanding- basic and diluted
  36,670,186 
  25,408,052 
  36,385,060 
  24,664,128 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4
 
 
GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Total
 
 
 
 Common Stock
 
 
 Additional Paid
 
 
 Accumulated
 
 
 Stockholders'
 
 
 
 Shares
 
 
 Amount
 
 
 in Capital
 
 
 Deficit
 
 
 (Deficit)
 
Balance as of January 1, 2019
  22,917,327 
 $343,749 
 $139,331,067 
 $(141,176,087)
 $(1,501,271)
Stock based compensation for stock options
  - 
  - 
  16,016 
  - 
  16,016 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for debt conversion
  - 
  - 
  - 
  - 
  - 
Shares issued for services rendered
  139,441 
  2,092 
  163,308 
  - 
  165,400 
Shares issued for convertible note and interest conversion
  561,041 
  8,416 
  726,731 
  - 
  735,147 
Shares issued for purchase of warrant
  833,333 
  12,500 
  987,500 
  - 
  1,000,000 
Noncontrolling interest in EZ-Clone Enterprises, Inc.
  - 
  - 
  - 
  (25,528)
  (25,528)
Net loss for the three months ended March 31, 2019
  - 
  - 
  - 
  (2,338,325)
  (2,338,325)
Balance as of March 31, 2019
  24,451,143 
  366,757 
  141,248,622 
  (143,539,940)
  (1,924,561)
Stock based compensation for stock options
  - 
  - 
  16,231 
  - 
  16,231 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for services rendered
  8,448 
  126 
  8,908 
  - 
  9,034 
Shares issued for convertible note and interest conversion
  579,078 
  8,685 
  589,413 
  - 
  598,098 
Warrant exercise
  26,111 
  392 
  (392)
  - 
  - 
Noncontrolling interest in EZ-Clone Enterprises, Inc.
  - 
  - 
  - 
  32,247 
  32,247 
Net loss for the three months ended June 30, 2019
  - 
  - 
  - 
  (1,690,941)
  (1,690,941)
Balance as of June 30, 2019
  25,064,781 
  375,960 
  141,886,782 
  (145,198,634)
  (2,935,892)
Stock based compensation for stock options
  - 
  - 
  16,356 
  - 
  16,356 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for convertible note and interest conversion
  623,140 
  9,347 
  422,784 
  - 
  432,131 
Shares issued for convertible note and commitment shares
  33,333 
  500 
  24,500 
  - 
  25,000 
Noncontrolling interest in EZ-Clone Enterprises, Inc.
  - 
  - 
  - 
  81,999 
  81,999 
Net loss for the three months ended September 30, 2019
  - 
  - 
  - 
  (2,081,970)
  (2,081,970)
 
    
    
    
    
    
Balance as of September 30, 2019
  25,721,254 
 $385,807 
 $142,374,422 
 $(147,198,605)
 $(4,438,376)
 
    
    
    
    
    
Balance as of January 1, 2020
  28,677,147 
 $386,269 
 $143,441,047 
 $(148,461,532)
 $(4,634,216)
Stock based compensation for stock options
  - 
  - 
  13,439 
  - 
  13,439 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for convertible note and interest conversion
  605,294 
  61 
  149,510 
  - 
  149,571 
Warrant exercise
  146 
  - 
  460 
  - 
  460 
Fractional shares issued related to reverse stock split
  15 
  - 
  - 
  - 
  - 
Net loss for the three months ended March 31, 2020
  - 
  - 
  - 
  (1,293,675)
  (1,293,675)
Balance as of March 31, 2020
  29,282,602 
  386,330 
  143,628,456 
  (149,755,207)
  (5,740,421)
Stock based compensation for stock options
  - 
  - 
  13,439 
  - 
  13,439 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for services rendered
  40,000 
  4 
  11,797 
  - 
  11,801 
Shares issued for convertible note and interest conversion
  3,991,108 
  400 
  835,007 
  - 
  835,407 
Warrant exercise
  8 
  - 
  25 
  - 
  25 
Net loss for the three months ended June 30, 2020
  - 
  - 
  - 
  (610,524)
  (610,524)
Balance as of June 30, 2020
  33,313,718 
  386,734 
  144,512,724 
  (150,365,731)
  (5,466,273)
Stock based compensation for stock options
  - 
  - 
  12,708 
  - 
  12,708 
Stock based compensation for warrants
  - 
  - 
  24,000 
  - 
  24,000 
Shares issued for convertible note and interest conversion
  5,592,072 
  559 
  945,664 
  - 
  946,223 
Net loss for the three months ended September 30, 2020
  - 
  - 
  - 
  (1,061,394)
  (1,061,394)
Balance as of September 30, 2020
  38,905,790 
 $387,293 
 $145,495,096 
 $(151,427,125)
 $(5,544,737)
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5
 
 
GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
Nine Months Ended,
 
 
 
September 30,
2020
 
 
September 30,
2019
 
 
 
 
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 
 
Net loss
 $(2,965,592)
 $(6,022,518)
Adjustments to reconcile net loss to net cash (used in)
    
    
operating activities
    
    
Depreciation
  27,864 
  68,655 
Restructuring Expense - stores & flooring
  - 
  555,895 
Amortization of intangible assets
  503,787 
  855,771 
Stock based compensation
  111,586 
  120,603 
Common stock issued for services
  11,801 
  174,435 
Non cash interest and amortization of debt discount
  793,970 
  185,032 
Change in fair value of derivative liability
  28,174 
  (361,179)
Loss on debt conversions
  396,110 
  1,706,740 
Noncontrolling interest in EZ-CLONE Enterprises, Inc.
  - 
  88,938 
Changes in operating assets and liabilities:
    
    
Accounts receivable
  (224,986)
  (409,575)
Inventory
  (74,389)
  86,982 
Prepaids costs
  - 
  (37,459)
Deposits
  - 
  8,500 
Right of use, net
  9,738 
  9,738 
Accounts payable
  (79,494)
  336,010 
Accrued expenses
  97,766 
  110,811 
Deferred revenue
  - 
  (89,504)
Change in deferred taxes
  (88,163)
  - 
 CASH (USED IN) OPERATING ACTIVITIES
  (1,451,828)
  (2,612,125)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Investment in purchased assets
  - 
  (5,319)
NET CASH (USED IN) INVESTING ACTIVITIES:
  - 
  (5,319)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES:
    
    
Repayment of convertible notes payable
  (167,846)
  (659,205)
Proceeds from Crossover Capital Fund I LLC Secured Advance Note
  - 
  250,000 
Proceeds from notes payable
  2,213,019 
  900,637 
Repayment on capital lease
  - 
  (7,293)
Proceeds from the issuance of common stock
  485 
  - 
NET CASH PROVIDED BY FINANCING ACTIVITIES
  2,045,658 
  484,139 
 
    
    
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  593,830 
  (2,133,305)
 
    
    
CASH AND CASH EQUIVALENTS, beginning of period
  40,834 
  2,334,377 
 
    
    
CASH AND CASH EQUIVALENTS, end of period
 $634,664 
 $201,072 
 
    
    
Supplemental disclosures of cash flow information:
    
    
 
    
    
Non-cash investing and financing activities:
    
    
Shares issued for convertible note and interest conversion
 $1,049,506 
 $745,000 
Issuance of shares for issuance costs
 $349,020 
 $- 
Shares issued for purchase of warrant from CANX USA LLC
 $- 
 $1,000,000 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
6
 
 
GROWLIFE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The accompanying unaudited consolidated condensed financial statements have been prepared by GrowLife, Inc. (“the Company”, “us,” “we,” or “our”) in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of our management, all adjustments, consisting of only normal recurring accruals, necessary for a fair presentation of the financial position, results of operations, and cash flows for the fiscal periods presented have been included.
 
These financial statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report filed on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2020. The results of operations for the three or nine months ended September 30, 2020 are not necessarily indicative of the results expected for the full fiscal year, or for any other fiscal period. 
 
NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION
 
GrowLife, Inc. (“GrowLife” or the “Company”) is incorporated under the laws of the State of Delaware and is headquartered in Kirkland, Washington. The Company was founded in 2012 with the Closing of the Agreement and Plan of Merger with SGT Merger Corporation.
 
On June 7, 2013, GrowLife Hydroponics completed the purchase of Rocky Mountain Hydroponics, LLC, a Colorado limited liability company (“RMC”), and Evergreen Garden Center, LLC, a Maine limited liability company (“EGC”). The effective date of the purchase was June 7, 2013. This is our commercial business.
 
The Company primarily sells its products through its wholly owned subsidiary, GrowLife Hydroponics, Inc. GrowLife companies distribute and sell over products through its e-commerce distribution channels, www.shopgrowlife.com, www.growlifeinc.com, and www.greners.com, and through its direct sales force. GrowLife and its business units are organized and directed to operate strictly in accordance with all applicable state and federal laws.
 
On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation (the “Agreement”).  On November 5, 2019, the Company amended the Agreement with one 24.5% shareholder of EZ-CLONE Enterprises, Inc. (“EZ-CLONE”), to extend the date to purchase the remaining 49% of stock of EZ-CLONE in exchange for a 20% extension fee (a total of $171,000 for the 49% or $85,500 for each 24.5% shareholder) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). The Company did not close the purchase of the remaining 49% of stock of EZ-CLONE by the extended deadline.
 
On September 15, 2020, the Company received notice that William Blackburn and Brad Mickelsen (“Plaintiffs”), minority shareholders of EZ-CLONE Enterprises, Inc., a majority owned subsidiary of the Company, filed a complaint against the Company and its officers Marco Hegyi and Mark Scott (“Officers”), in the Superior Court of California, County of Sacramento (“Complaint”) for claims related to breach under the Purchase and Sale Agreement dated October 15, 2018 between the Company and Plaintiffs. See Note 17 for description of Legal Proceedings.
 
As of September 30, 2020, the Company has recorded a liability of $2,131,000 for acquisition payable of which a $1,105,000 is payable in stock and $1,026,000 is payable in cash.
 
As of March 4, 2019, the Company began to trade on the Pink Sheet stocks system. Our bid price had closed below $0.01 for more than 30 consecutive calendar days. As of March 17, 2020, the Company commenced trading on the OTCQB Market ("OTCQB") after successfully up-listing from the OTC Pink Market.
 
On October 9, 2019, the Company approved the reduction of authorized capital stock, whereby the total number of the Company’s authorized common stock decreased from 6,000,000,000 by a ratio of 1 for 50, to 120,000,000 shares. On November 20, 2019, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware. As a result of the reduction, the Company an aggregate 130,000,000 authorized shares consisting of: (i) 120,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share.
 
The reverse stock split of 1 for 150 was effective at the open of business on November 27, 2019 whereupon the shares of common stock began trading on a split-adjusted basis. The Company’s CUSIP number for the Company’s common stock changed to 39985X203. All warrant, option, share and per share information in this Form 10-Q gives retroactive effect to the 1-for-150 reverse split with all numbers rounded up to the nearest whole share.
 
 
7
 
 
NOTE 2 GOING CONCERN
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses of $2,860,592 and $7,374,383 and $11,473,136 for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively. Net cash used in operating activities was $1,451,828, $2,909,811 and $3,854,505 for the nine months ended September 30, 2020 and the years ended December 31, 2019 and 2018, respectively.
 
The Company anticipates that it will record losses from operations for the foreseeable future. As of September 30, 2020, the Company’s accumulated deficit was $151,322,125. The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern. The audit report prepared by the Company’s independent registered public accounting firm relating to our consolidated financial statements for the year ended December 31, 2019 includes an explanatory paragraph expressing the substantial doubt about the Company’s ability to continue as a going concern.
 
The Company believes that its cash on hand will be sufficient to fund our operations only until December 31, 2020. The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected.
 
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS
 
Basis of Presentation - The accompanying consolidated financial statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).
 
Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned and majority-owned subsidiaries. Inter-Company items and transactions have been eliminated in consolidation. Non-controlling interest represents the portion of ownership which the Company does not own.
 
Cash and Cash Equivalents - We classify highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit.  At September 30, 2020, the Company had uninsured deposits in the amount of $384,664.
 
Accounts Receivable and Revenue – The company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which requires the application of the five-step-principles-based-accounting-model for revenue recognition. These steps include (1) a legally enforceable contract, written or unwritten is identified; (2) performance obligations in the contracts are identified; (3) the transaction price reflecting variable consideration, if any, is identified; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when the control of goods is transferred to the customer at a particular time or over time. Our hydroponic sales are cash or credit card. Our EZ-CLONE sales include credit cash, payments in advance, 3% discount upon receipt and, we extend thirty day terms to select customers. Accounts receivable are reviewed periodically for collectability. As of September 30, 2020 and December 31, 2019, the Company has an allowance for doubtful accounts totaling $5,690.
 
Sales Returns - We allow customers to return defective products when they meet certain established criteria as outlined in our sales terms and conditions. It is our practice to regularly review and revise, when deemed necessary, our estimates of sales returns, which are based primarily on actual historical return rates. We record estimated sales returns as reductions to sales, cost of goods sold, and accounts receivable and an increase to inventory. Returned products which are recorded as inventory are valued based upon the amount we expect to realize upon its subsequent disposition. As of September 30, 2020 and December 31, 2019, there was a reserve for sales returns of $20,000, respectively, which is minimal based upon our historical experience.
 
 
8
 
 
Inventories - Inventories are recorded on a first in first out basis Inventory consists of raw materials, work in process and finished goods and components sold by EZ-CLONE to it distribution customers. The Company reviews its inventory on a periodic basis to identify products that are slow moving and/or obsolete, and if such products are identified, the Company records the appropriate inventory impairment charge at such time.
 
Property and Equipment – Equipment consists of machinery, equipment, tooling, computer equipment and leasehold improvements, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally 3-10 years, except for leasehold improvements which are depreciated over the lesser of the life of the lease or 10 years. 
 
Long Lived Assets – The Company reviews its long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.
 
Intangible Assets – Intangible assets are capitalized and amortized on a straight-line basis over their estimated useful life, if the life is determinable. If the life is not determinable, amortization is not recorded. We regularly perform reviews to determine if facts and circumstances exist which indicate that the useful lives of our intangible assets are shorter than originally estimated or the carrying amount of these assets may not be recoverable. When an indication exists that the carrying amount of intangible assets may not be recoverable, we assess the recoverability of our assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Such impairment test is based on the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Impairment, if any, is based on the excess of the carrying amount over the estimated fair value of those assets.
 
Goodwill-The Company reviews its acquired goodwill for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. In reviewing its goodwill, the Company performs a qualitative analysis to determine if it is more-likely-than-not that the goodwill is impaired. If the qualitative analysis indicates that goodwill is likely impaired, the Company calculates the fair value of its goodwill by allocating the fair value of the business unit containing the goodwill to all its tangible and intangible assets and liabilities, with the residual fair value allocated to goodwill. The excess, if any, of the goodwill carrying value in excess of its fair value would be recognized as an impairment loss. Management has concluded that, based on a qualitative analysis, it is more-likely-than-not that goodwill has not been impaired as of September 30, 2020 and December 31, 2019.
 
Fair Value Measurements and Financial Instruments  ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value 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.  This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value.  The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).  The hierarchy consists of three levels:
 
Level 1 – Quoted prices in active markets for identical assets and liabilities;
 
Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and.
 
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
 
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of September 30, 2020 and December 31, 2019 are based upon the short-term nature of the assets and liabilities. 
 
Derivative Financial Instruments –Pursuant to ASC 815 “Derivatives and Hedging”, the Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company then determines if embedded derivative must bifurcated and separately accounted for. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a Black-Scholes-Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
 
 
9
 
 
Stock Based Compensation – We have share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options to purchase shares of our common stock at the fair market value at the time of grant. Stock-based compensation cost is measured by us at the grant date, based on the fair value of the award, over the requisite service period using an estimated forfeiture rate. For options issued to employees, we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit.  Grants of stock options and stock to non-employees and other parties are accounted for in accordance with the ASC 718.
 
Convertible Securities – Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to September 30, 2015. We will evaluate our contracts based upon the earliest issuance date.
 
Net Loss Per Share - Under the provisions of ASC Topic 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The common stock equivalents have not been included because their impact is antidilutive.
 
As of September 30, 2020, there are also (i) stock option grants outstanding for the purchase of 506,667 common shares at a $1.496 average exercise price; and (ii) warrants for the purchase of 2,418,680 shares of common shares at a $3.465 average exercise price. In addition, we have an unknown number of common shares to be issued under the Crossover, 12% convertible promissory note financing and Labrys agreements in the case of default. In addition, we have an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements because the number of shares ultimately issued to Chicago Venture depends on the price at which Chicago Venture converts its debt to shares and exercises its warrants. The lower the conversion or exercise prices, the more shares that will be issued to Chicago Venture upon the conversion of debt to shares. We will not know the exact number of shares of stock issued to Chicago Venture until the debt is actually converted to equity.
 
As of September 30, 2019, there are also (i) stock option grants outstanding for the purchase of 550,000 common shares at a $1.491 average exercise price; (ii) warrants for the purchase of 2,418,680 common shares at a $3.465 average exercise price; and (iii) 789,565 shares related to convertible debt that can be converted at $0.38 per share.
 
In addition, we have an unknown number of common shares to be issued under the Crossover financing agreements in the case of default. In addition, we have an unknown number of common shares to be issued under the Chicago Venture, Iliad and St. George financing agreements because the number of shares ultimately issued to Chicago Venture depends on the price at which Chicago Venture converts its debt to shares and exercises its warrants. The lower the conversion or exercise prices, the more shares that will be issued to Chicago Venture upon the conversion of debt to shares. We will not know the exact number of shares of stock issued to Chicago Venture until the debt is actually converted to equity.
 
Dividend Policy - The Company has never paid any cash dividends and intends, for the foreseeable future, to retain any future earnings for the development of our business. Our future dividend policy will be determined by the board of directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.
 
Use of Estimates - In preparing these consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in our consolidated financial statements relate to the valuation of long-lived assets, estimates of sales returns, inventory reserves and accruals for potential liabilities, and valuation assumptions related to derivative liability, equity instruments and share based compensation. 
 
Recent Accounting Pronouncements
 
The Company has not adopted any new accounting pronouncements. A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.
 
 
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NOTE 4 –BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND OTHER TRANSACTION
 
Acquisition of EZ-CLONE Enterprises, Inc.
 
On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc. (“EZ-CLONE”), a California corporation (the “Agreement”).  The total purchase price was $4 million of which $1,500,000 is payable in cash and $2.5 million payable in stock. At closing, we paid 51% of this amount totaling $2,040,000 via a (i) a cash payment of $645,000; and (ii) the issuance of 715,385 restricted shares of our common stock valued $1,395,000. The Agreement called for the Company, upon delivery of the remaining 49% of EZ-Clone stock, to acquire such stock within one year for $1,960,000, payable as follows: (i) a cash payment of $855,000; and (ii) the issuance of Company’s common stock at a value of $1,105,000.
 
On November 5, 2019, the Company amended the Agreement with one 24.5% shareholder of EZ-CLONE to extend the date to purchase the remaining 49% of stock of EZ-CLONE in exchange for a 20% extension fee (a total of $171,000 for the 49% or $85,500 for each 24.5% shareholder) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). The Company did not close the purchase of the remaining 49% of stock of EZ-CLONE by the extended deadline.
 
On September 15, 2020, the Company received notice that William Blackburn and Brad Mickelsen (“Plaintiffs”), minority shareholders of EZ-CLONE Enterprises, Inc., a majority owned subsidiary of the Company, filed a complaint against the Company and its officers Marco Hegyi and Mark Scott (“Officers”), in the Superior Court of California, County of Sacramento (“Complaint”) for claims related to breach under the Purchase and Sale Agreement dated October 15, 2018 between the Company and Plaintiffs. See Note 17 for description of Legal Proceedings.
 
As of September 30, 2020 and December 31, 2019, the Company has recorded a liability of $2,131,000 for acquisition payable of which a $1,105,000 is payable in stock and $1,026,000 is payable in cash.
 
This acquisition has accelerated the Company’s revenue growth, increased the Company gross margins and added additional manufacturing and research and development personnel.
 
The Company accounted for the acquisition in accordance with ASC 805, “Business Combinations”. ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date.
 
For accounting purposes, from the October 15, 2018 acquisition date and through November 4, 2019, the Company consolidated EZ-Clone given their control and treated its ability to acquire the remaining 49% interest in EZ-Clone as a de facto option to buy and has thus categorized it as a non-controlling interest until November 5, 2019 when the amended purchase agreement obligates the Company to purchase the remaining 49%. Effective in the quarter beginning October 1, 2019, the Company for accounting purposes, considers EZ-Clone to be 100% owned and thus eliminated the non-controlling interest and recorded an acquisition payable related to the balance owed. As of December 31, 2019, the Company has an acquisition payable totaling $1,926,000, of which $1,026,000 is current and $900,000 is categorized as long term since stock is expected to be issued to settle this and will not utilize current assets. The total liability consists of the discounted value of the future payments of $1,960,000 and the $171,000 extension fee payable. The Company accreted the difference between the carrying value of the acquisition payable and the contractual obligations as interest expense through July 2020 when payment was due. The Company recorded the $171,000 as a financing fee and expensed it as interest expense in 2019. During the fourth quarter of 2019, the Company recorded a noncash financing charge as interest expense totaling approximately $410,000 to recognize the acquisition payable and to eliminate the non-controlling interest. During the nine months ended September 30, 2020 the Company recognized an additional $205,000 of interest expense to accrete the acquisition payable to $1,105,000.
 
As of the acquisition date in October 2018, the Company recognized approximately $3.4 million of intangible assets and began amortizing them over 3 years. In the fourth quarter of 2019, the Company completed its evaluation of assets acquired and finalized its asset valuation. The finalized valuation resulted in lower intangible assets from the original assessment, allocating some of the intangible to Goodwill and determined that the life of definite life intangibles to be 5 years (See Note 7). The Company adjusted the cost basis and accumulated amortization, reducing both, but did not change 2019 amortization expense that had been recorded through September 30, 2019 which was in excess of $800,000.The change in the purchase accounting also resulted in the recording of a deferred tax liability and the lowering of non-controlling interest by $587,750 and such reclassification was made to the December 31, 2018 balance sheet. During the nine months ended September 30, 2020, the Company recorded a tax benefit of $88,163 related to book versus tax basis difference from the purchase accounting.
 
 
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The summary of assets acquired and liabilities assumed is based upon the Company final evaluation done in the fourth quarter of 2019 and is detailed below.
 
Intangible assets
 $2,351,000 
Goodwill
  781,749 
Net working capital
  551,000 
Propety and equipment
  318,000 
Deferred tax liability
  (587,750)
 
 $3,413,999 
 
The fair value of the intangible assets associated with the assets acquired was $2,351,000 estimated by using a discounted cash flow approach based on future economic benefits. In summary, the estimate was based on a projected income approach and related discounted cash flows over five years, with applicable risk factors assigned to assumptions in the forecasted results.
 
NOTE 5 – INVENTORY
 
Inventory as of September 30, 2020 and December 31, 2019 consisted of the following:
 
 
 
September 30,
 
 
December 31,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Raw materials
 $486,024 
 $329,482 
Work in process
  85,293 
  49,253 
Finished goods
  21,581 
  92,703 
Inventory deposits
  82,166 
  129,236 
   Total
 $675,063 
 $600,674 
 
Raw materials consist of supplies for product lines at EZ-CLONE.
 
Finished goods inventory relates to product lines at EZ- CLONE.
 
NOTE 6 – PROPERTY AND EQUIPMENT
 
Property and equipment as of September 30, 2020 and December 31, 2019 consists of the following:
 
 
 
September 30,
 
 
December 31,
 
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
Machinery, equipment and tooling
 $356,867 
 $356,867 
Computer equipment
  16,675 
  16,675 
Leasehold improvements
  14,702 
  14,702 
     Total property and equipment
  388,244 
  388,244 
Less accumulated depreciation and amortization
  (249,626)
  (221,763)
     Net property and equipment
 $138,618 
 $166,482 
 
Total depreciation expense was $27,864 and $68,655 for the nine months ended September 30, 2020 and 2019, respectively. All equipment is used for manufacturing, selling, general and administrative purposes and accordingly all depreciation is classified in cost of goods sold, selling, general and administrative expenses.
 
 
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NOTE 7 – INTANGIBLE ASSETS
 
Intangible assets as of September 30, 2020 and December 31, 2019 consisted of the following: 
 
 
 
Estimated Useful Lives
 
 
September 30,
2020
 
 
December 31,
2019
 
 
 
 
 
 
 
 
 
 
 
Customer Lists
 
5 Years
 
 $1,297,000 
 $1,297,000 
Intellectual Property
 
5 Years
 
  1,054,000 
  1,054,000 
less accumulated amortization
 
 
 
  (1,052,353)
  (548,566)
Net Intangible assets-definitive life
 
 
 
  1,298,647 
  1,802,434 
 
 
 
    
    
Goodwill-indefinite life
    N/A 
  781,749 
  781,749 
 
       
    
    
Total intangible assets and goodwill
       
 $2,080,396 
 $2,584,183 
 
As of the acquisition date in October 2018, the Company originally recognized approximately $3.4 million of intangible assets and began amortizing them over 3 years. In the fourth quarter of 2019, the Company completed its evaluation of assets acquired and finalized its asset valuation. The finalized valuation resulted in lower intangible assets from the original assessment, allocated some of the intangible to Goodwill and determined that the life of definite life intangibles to be 5 years. In the 4th quarter of 2019, The Company adjusted the cost basis and accumulated amortization, reducing both, but did not change 2019 amortization expense that had been recorded through September 30, 2019 which was in excess of $800,000.
 
Total amortization expense was $503,787 and $855,771 for the nine months ended September 30, 2020 and 2019, respectively.
 
NOTE 8- LEASES
 
The Company previously entered into operating leases for retail and corporate facilities. These leases have terms which range from two to five years, and often include options to renew. These operating leases are listed as separate line items on the Company's December 31, 2018 Consolidated Balance Sheet and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as separate line items on the Company's December 31, 2018 Consolidated Balance Sheet. Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized right-of-use assets and lease liabilities for operating leases of approximately $1,378,000 on January 1, 2019. Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term. During the three months ended September 30, 2019 the Company cancelled all but one lease and has recognized the rent and termination fees related to the cancelled leases as an expense in the quarter ended September 30, 2019. As of September 30, 2020 and December 31, 2019, total right-of-use assets and operating lease liabilities for remaining long term lease was $445,927 and $481,120, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized approximately $167,000 in total lease costs for the lease.
 
Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.
 
Information related to the Company's operating right-of-use assets and related lease liabilities as of and for the nine months ended September 30, 2020 were as follows:
 
Cash paid for ROU operating lease liability $157,500  
Weighted-average remaining lease term 3 years
Weighted-average discount rate 10%
 
Year Ended
 
 
 
September 30, 2020
 
$
 
2021
 $216,300 
2022
  222,792 
2023
  117,984 
 
    
 
  557,076 
Imputed interest
  (111,149)
Total lease liability
 $445,927 
 
 
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NOTE 9- ACCOUNTS PAYABLE
 
Accounts payable were $1,038,597 and $1,157,090 as of September 30, 2020 and December 31, 2019, respectively. Such liabilities consisted of amounts due to vendors for inventory purchases, audit, legal and other expenses incurred by the Company.
 
NOTE 10- ACCRUED EXPENSES
 
Accrued expenses were $290,891 and $259,093 as of September 30, 2020 and December 31, 2019, respectively. Such liabilities consisted of amounts due to sales tax, payroll and restructuring expense liabilities. As of September 30, 2019, the Company closed retail stores in Portland, Maine, Encino, California and Calgary, Canada. The Company is negotiating with the landlords and the Company has recorded restructuring reserves of $209,577 as of September 30, 2020 and December 31, 2019, respectively.
 
NOTE 11 – CONVERTIBLE NOTES PAYABLE AND NOTES PAYABLE
 
Convertible notes payable as of September 30, 2020 consisted of the following:
 
 
 
Principal
 
 
Accrued
Interest
 
 
Debt
Discount
 
 
Balance
As of
September 30,
2020
 
Convertible Notes Payable-
 
 
 
 
 
 
 
 
 
 
 
 
10% OID Convertible Promissory Notes
 $2,040,907 
 $427,400 
 $- 
 $2,468,307 
Secured Advance Note
  87,526 
  10,251 
  - 
  97,777 
12% Convertible Promissory Notes
  221,100 
  7,759 
  (8,311)
  220,548 
Total Convertible Notes Payable, short term
 $2,349,533 
 $445,410 
 $(8,311)
 $2,786,632 
 
Convertible notes payable as of December 31, 2019 consisted of the following:
 
 
 
Principal
 
 
Accrued
Interest
 
 
Debt
Discount
 
 
Balance
As of
December 31,
2019
 
Convertile Notes Payable-
 
 
 
 
 
 
 
 
 
 
 
 
10% OID Convertible Promissory Notes
 $2,195,007 
 $220,980 
 $- 
 $2,415,987 
Secured Advance Note
  205,228 
  - 
  - 
  205,228 
12% Convertible Promissory Notes
  281,600 
  3,055 
  (21,591)
  263,064 
 
 $2,681,835 
 $224,035 
 $(21,591)
 $2,884,279 
 
10% OID Convertible Promissory Notes
 
Funding from Chicago Venture Partners, L.P. (“Chicago Venture”), Iliad Research and Trading, L.P. (“Iliad”) and Odyssey Research and Trading, LLC, (“Odyssey”). The Company typically issues original issuance discount notes with these parties that has a stated interest rate of typically 10%. Accrued interest represents the interest to be accreted over the remaining term of the notes. These notes contain terms and conditions that are deemed beneficial conversion features and the Company recognizes a derivative liability related to these terms until the notes are converted. Upon the conversion of these notes, the Company records a loss on debt conversion and reduces their derivative liability. The notes may be converted to common stock after six months until they are converted.
 
As of December 31, 2019, the outstanding principal balance due to Chicago Venture, Iliad and Odyssey was $2,195,007 and accrued interest was $220,980, which results in a total amount of $2,415,987.
 
During the year ended December 31, 2019, Chicago Venture and Iliad converted principal and accrued interest of $1,357,872 into 3,120,521 shares of our common stock at a per share conversion price of $0.766 with a fair value of $2,284,081. The Company recognized $926,208 loss on debt conversions during the year ended December 31, 2019.
 
As of September 30, 2020, the outstanding principal balance due to Chicago Venture, Iliad and Odyssey was $1,650,007 and accrued interest was $423,888, which results in a total amount of $2,073,895.
 
 
14
 
 
During the nine months ended September 30, 2020, the Company received loans of $500,000 from Chicago Venture. Also, Chicago Venture converted principal and accrued interest of $600,000 into 4,882,919 shares of our common stock at a per share conversion price of $0.123 with a fair value of $1,006,518. The Company recognized $287,466 loss on debt conversions during the nine months ended September 30, 2020.
 
On September 1, 2020, Iliad sold a Note for $500,000 to Silverback Capital Corporation. As of September 30, 2020, the outstanding principal balance due to Silverback was $390,900 and accrued interest was $3,512, which results in a total amount of $394,412. During the nine months ended September 30, 2020, Silverback converted principal and accrued interest of $109,100 into 1,000,000 shares of our common stock at a per share conversion price of $0.109 with a fair value of $158,000. The Company recognized $44,900 loss on debt conversions during the nine months ended September 30, 2020.
 
Securities Purchase Agreement, Secured Promissory Notes and Security Agreement with Chicago Venture Partners, L.P (Chicago Venture or CVP)
 
On January 30, 2020, the Company executed the following agreements with Chicago Venture: (i) Securities Purchase Agreement; (ii) Secured Convertible Promissory Notes (“Notes”); and (iii) Security Agreement (collectively the “Chicago Venture Agreements”). The Company entered into the Chicago Venture Agreements with the intent to acquire working capital to grow the Company’s businesses.
 
The total amount of funding under the CVP Agreements is $500,000 in various tranches. The Notes carry an original issue discount of $50,000 and a transaction expense amount of $5,000, for total debt of $555,000 (“Debt”). The Company agreed to reserve 53,333 shares of its common stock for issuance upon conversion of the Debt, if that occurs in the future. If not converted sooner, the Debt is due on or before January 29, 2021. The Debt carries an interest rate of ten percent (10%). The Debt is convertible, at CVP’s option, into the Company’s common stock at $0.30 per share subject to adjustment as provided for in the Notes. The Company received approximately $500,000 of funding under the CVP agreements in 2020.
 
The Company’s obligation to pay the Debt, or any portion thereof, is secured by all of the Company’s assets.
 
Secured Advance Note with Crossover Capital Fund I LLC (“Crossover”)
 
On September 20, 2019, the Company closed a Secured Advance Note with Crossover Capital Fund I LLC (the “Crossover Note”). The Company entered into the Crossover Note with the intent to acquire working capital to grow the Company’s businesses. The total amount of funding under the Crossover Note is $250,000. The Crossover Note carries an original issue discount of $57,400 and a transaction expense amount of $7,000, for total debt of $308,400. On December 22, 2019, the Note increased by $25,700. The original issue discount was immediately recorded as interest expense due to the note maturity being less than one year. The Company agreed to reserve three times the number of shares based on the conversion value in case of default under the Crossover Note, if that occurs in the future. The Crossover Note is due in nine months and is repayable weekly at $9,205. The Crossover Note is convertible into the Company’s common stock at the market value share price subject to adjustment as provided for in the Crossover Note in the case of default. The Company’s obligation to pay the Crossover Note, or any portion thereof, is secured by all of the Company’s assets. As of December 31, 2019, the outstanding principal balance due Crossover was $205,228. The Company also issued 33,333 shares of common stock to Crossover as a commitment fee that was valued at fair market value at $25,000 or $0.75 per share and expensed as interest expense during the year ended December 31, 2019.
 
On January 14, 2020, the Note increased by $25,700. On August 31, 2020, Crossover converted debt and accrued interest of $95,000 into 500,000 shares of common stock at $0.19 per share. As of September 30, 2020, $66,412 was recorded for late and default fees. As of September 30, 2020, the outstanding principal balance due to Crossover was $87,526 and accrued interest was $10,251, which results in a total amount of $97,777. The Company recognized no loss on debt conversions during the nine months ended September 30, 2020.
 
The Company’s obligation to pay the Debt, or any portion thereof, is secured by all of the Company’s assets.
 
12% Convertible Promissory Notes
 
The Company entered into Convertible Promissory Notes with PowerUp Lending Group Ltd on November 18, 2019 for $140,800 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $125,000, and recorded interest expense of $2,037, a transaction expense amount of $3,000 and amortization of debt discount of $15,191. The Company recorded as interest expense in 2019 the value of the beneficial conversion feature of $46,933 related to the potential conversion at a discount after six months. During the nine months ended September 30, 2020, the Company recorded interest expense of $5,643 and amortization of debt discount of $10,409. During the nine months ended September 30, 2020, the Company issued 1,004,625 shares of the Company’s common stock at $0.148 related to conversion of principal and interest under the $140,800 Promissory Note.
 
 
15
 
 
The Company entered into Convertible Promissory Notes with PowerUp Lending Group Ltd on December 9, 2019 for $140,800 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $125,000, and recorded interest expense of $1,018, a transaction expense amount of $3,000 and amortization of debt discount of $14,418. The Company recorded as interest expense in 2019 the value of the beneficial conversion feature of $46,933 related to the potential conversion at a discount after six months. During the nine months ended September 30, 2020, the Company recorded interest expense of $22,001 and amortization of debt discount of $11,182. During the nine months ended September 30, 2020, the Company repaid $85,000 and issued 628,659 shares of the Company’s common stock at $0.125 related to conversion of principal and interest under the remaining $78,819 Promissory Note.
 
The Company entered into Convertible Promissory Note with PowerUp Lending Group Ltd on January 14, 2020 for $58,300 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $50,000, and recorded interest expense of $1,495, a transaction expense amount of $3,000 and beneficial conversion feature of $19,433 related to the potential conversion at a discount after six months. During the nine months ended September 30, 2020, the Company recorded interest expense of $3,180 and amortization of debt discount of $5,300. During the nine months ended September 30, 2020, the Company issued 510,271 shares of the Company’s common stock at $0.12 related to conversion of principal and interest under the remaining $61,480 Promissory Note.
 
The Company entered into Convertible Promissory Notes with PowerUp Lending Group Ltd on June 1, 2020 for $140,800 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $125,000, and recorded interest expense of $1,389, a transaction expense amount of $3,000 and amortization of debt discount of $14,910. The Company recorded as interest expense in 2020 the value of the beneficial conversion feature of $46,933 related to the potential conversion at a discount after six months. During the nine months ended September 30, 2020, the Company recorded interest expense of $5,647 and amortization of debt discount of $8,540.
 
The Company entered into Convertible Promissory Notes with PowerUp Lending Group Ltd on July 13, 2020 for $80,300 to fund short-term working capital. The Notes accrues interest at a rate of 12% per annum and became due in one year and are convertible into common stock at 75% of market value after six months. The Company received cash of $70,000, and recorded interest expense of $2,112, a transaction expense amount of $3,000 and an original interest discount of 7,300. The Company recorded amortization of debt discount of $3,209. The Company recorded as interest expense in 2020 the value of the beneficial conversion feature of $26,767 related to the potential conversion at a discount after six months.
 
During the nine months ended September 30, 2020, PowerUp Lending Group Ltd converted principal and accrued interest of $288,779 into 2,143,555 shares of our common stock at a per share conversion price of $0.135 with a fair value of $410,029. The Company recognized $107,746 loss on debt conversions during the nine months ended September 30, 2020.
 
Notes Payable
 
Notes payable as of September 30, 2020 consisted of the following:
 
 
 
Principal
 
 
Accrued
Interest
 
 
Debt
Discount
 
 
Balance
As of
September 30,
2020
 
Notes Payable-
 
 
 
 
 
 
 
 
 
 
 
 
1% Note Payble under Paycheck Protection Program
 $565,829 
 $2,529 
 $- 
 $568,358 
3.75% Economic Injury Disaster Loan
  299,800 
  3,204 
  - 
  303,004 
12% Self-Amortizing Promissory Note
  750,000 
  7,644 
  (392,914)
  364,730 
Parties related to shareholders of EZ-CLONE Enterprises, Inc.
  104,144 
  - 
  - 
  104,144 
Total Notes Payable
  1,719,773 
  13,377 
  (392,914)
  1,340,236 
Less Long Term Notes Payable
  (401,883)
  3,204 
  - 
  (398,679)
Short Term Notes Payable
 $1,317,890 
 $16,581 
 $(392,914)
 $941,557 
 
 
16
 
 
Notes payable as of December 31, 2019 consisted of the following:
 
 
 
Principal
 
 
Accrued
Interest
 
 
Debt
Discount
 
 
Balance
As of
December 31,
2020
 
Notes Payable -
 
 
 
 
 
 
 
 
 
 
 
 
Parties related to shareholders of EZ-CLONE Enterprises, Inc.
 $104,144 
 $- 
 $- 
 $104,144 
 
On April 17, 2020, the Company received $362,500 under the Paycheck Protection Program of the U.S. Small Business Administration’s (SBA) 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). During the nine months ended September 30, 2020, the Company recorded interest expense of $1,688 at 1%. The Company is utilizing the funds in accordance with the legal requirements and expects this loan to be forgiven during 2020.
 
On May 7, 2020, EZ-CLONE received $203,329 under the Paycheck Protection Program of the U.S. Small Business Administration’s 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). During the nine months ended September 30, 2020, the Company recorded interest expense of $841 at 1%. The Company is utilizing the funds in accordance with the legal requirements and expects this loan to be forgiven during 2020.
 
On June 19, 2020, the Company received $299,800 under the Economic Injury Disaster Loan Program of the U.S. Small Business Administration’s 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). Repayment terms on the loans are over a 30-year term at 3.75%. In addition, the loan contains a 12-month payment deferral beginning on the loan date. There is no prepayment penalty on an EIDL loan. During the nine months ended September 30, 2020, the Company recorded interest expense of $3,204. These loans were long term as of September 30, 2020.
 
12% Self-Amortization Promissory Note with Labrys Fund, L.P, a Delaware limited partnership (“Labrys”)
 
On August 31, 2020, we executed the following agreements with Labrys: (i) Securities Purchase Agreement; and (ii) Self-Amortization Promissory Note (“Note”); (collectively the “Labrys Agreements”). The Company entered into the Labrys Agreements with the intent to acquire working capital to grow the Company’s businesses and complete the EZ-CLONE Enterprises, Inc. acquisition.
 
The total amount of funding under the Labrys Agreements is $632,750. The Notes carry an original issue discount of $75,000, a transaction expense amount of $8,500, and a fee to J. H. Darbie & Co. of $33,750, for total debt of $750,000 (“Debt”). The Note has an amortization schedule of $250,000 on November 30, 2020 and $51,042 at each month end from December 2020 through November 30, 2021. The Company issued commitment shares of 1,662,000 shares related to the Labrys Agreements at $0.21 or $349,020. We agreed to reserve 5,043,859 shares of its common stock for issuance if any Debt is converted. The Debt is due on or before November 30, 2021. The Debt carries an interest rate of twelve percent (12%). In the case of default, the debt is convertible into the Company’s common stock at the closing price the day before the conversion, subject to adjustment as provided for in the Note.
 
As of September 30, 2020, the outstanding principal balance due Labrys was $750,000, accrued interest was $7,644 and the unamortized debt discount of $392,914, which results in a total amount of $364,730. During the nine months ended September 30, 2020, the Company recorded interest expense of $7,644 and amortization of debt discount of $74,250.
 
EZ-CLONE has $104,144 due to relatives of the two selling shareholders as of September 30, 2020 and December 31, 2019, respectively.
 
 
17
 
 
NOTE 12 – DERIVATIVE LIABILITY
 
The Convertible Notes payable include a conversion feature that pursuant ASC 815 “Derivatives and Hedging”, has been identified as an embedded derivative financial instrument and which the Company accounts for under the fair value method of accounting.  
 
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20. Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method. The debt is convertible at the lesser of 65% of the fair value of the Company’s common stock or $1.35 requiring the conversion feature to be bifurcated from the host debt contract and accounting for separately as a derivative, resulting in periodic revaluations. The notes underlying the derivatives are short term in nature and generally converted to stock in less than one year. The derivative is valued at period end with the key inputs being current stock price and the conversion feature.
 
There was a derivative liability of $1,329,088 and $1,300,915 as of September 30, 2020 and December 31, 2019, respectively. For the nine months ended September 30, 2020 and 2019, the Company recorded non-cash expense $28,173 and non-cash income of $361,179 related to the “change in fair value of derivative” expense related to the Chicago Venture and Iliad financing. These were the only changes in level 3 fair value instruments during such periods.
 
Derivative liability as of September 30, 2020 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying
 
 
 
Fair Value Measurements Using Inputs
 
 
Amount at
September 30,
 
Financial Instruments
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Instruments
 $- 
 $- 
 $1,329,088 
 $1,329,088 
 
    
    
    
    
Total
 $- 
 $- 
 $1,329,088 
 $1,329,088 
 
Derivative liability as of December 31, 2019 was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
Carrying
 
 
 
  Fair Value Measurements Using Inputs
 
 
Amount at
December 31,
 
Financial Instruments
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
  2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Instruments
 $- 
 $- 
 $1,300,915 
 $1,300,915 
 
    
    
    
    
Total
 $- 
 $- 
 $1,300,915 
 $1,300,915 
 
NOTE 13 – RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS
 
Since January 1, 2019, the Company engaged in the following reportable transactions with our directors, executive officers, holders of more than 5% of our voting securities, and affiliates or immediately family members of our directors, executive officers and holders of more than 5% of our voting securities.
 
 
18
 
 
Certain Relationships
 
Please see the transactions with Chicago Venture Partners, L.P. discussed in Notes 11 and 12.
 
Related Party Transactions
 
Transactions with Katherine McLain
 
On February 22, 2019, the Company issued 54,054 shares of the Company’s common stock to Katherine McLain valued at $1.11 per share or $60,000. This issuance was an annual award for independent director services. On April 16, 2020, the Company issued 20,000 shares of the Company’s common stock to Katherine McLain valued at $0.295 per share or $5,900. This issuance was an annual award for independent director services.
 
Transaction with Thom Kozik
 
On February 22, 2019, the Company issued 54,054 shares of the Company’s common stock to Mr. Kozik valued at $1.11 per share or $60,000. On April 16, 2020, the Company issued 20,000 shares of the Company’s common stock to Thom Kozik valued at $0.295 per share or $5,900. This issuance was an annual award for independent director services.
 
Notes Payable to Related Parties
 
EZ-CLONE has $104,144 due to relatives of the two selling shareholders as of September 30, 2020 and December 31, 2019, respectively.
 
NOTE 14 – EQUITY
 
Authorized Capital Stock
 
On October 9, 2019, the Company approved the reduction of authorized capital stock, whereby the total number of the Company’s authorized common stock decreased from 6,000,000,000 by a ratio of 1 for 50, to 120,000,000 shares. On November 20, 2019, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware. As a result of the reduction, we have an aggregate 130,000,000 authorized shares consisting of: (i) 120,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share.
 
The reverse stock split of 1 for 150 was effective at the open of business on November 27, 2019 whereupon the shares of the Company’s common stock began trading on a split-adjusted basis. Our CUSIP number will change to 39985X203.
 
Non-Voting Preferred Stock
 
Under the terms of our articles of incorporation, our board of directors is authorized to issue shares of non-voting preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of non-voting preferred stock.
 
The purpose of authorizing our board of directors to issue non-voting preferred stock and determine our rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of non-voting preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. There are no shares of non-voting preferred stock presently outstanding and we have no present plans to issue any shares of preferred stock.
 
 
19
 
 
Capital Stock Issued and Outstanding
 
As of September 30, 2020, the Company had issued and outstanding securities of 38,905,790 shares of common stock.
 
Voting Common Stock
  
Holders of the Company’s common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. On all other matters, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote is required for approval, unless otherwise provided in our articles of incorporation, bylaws or applicable law. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.
 
In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.
 
Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect. 
 
The Company has compensated consultants and service providers with restricted common stock during the development of our business and when our capital resources were not adequate to provide payment in cash.
 
During the nine months ended September 30, 2020, the Company had the following issuances of unregistered equity securities to accredited investors unless otherwise indicated:
 
Debt and accrued interest of $1,092,879 was converted into 8,526,474 shares of our common stock at an average per share conversion price of $0.128.
 
The Company issued 15 shares related to a previous reverse stock split.
 
The Company issued 154 shares of common stock related to the exercise of warrants for $485, or $3.151 per share.
 
On April 16, 2020, the Company issued 20,000 shares of the Company’s common stock each to Katherine McLain and Thom Kozik, directors valued at $0.295 per share or $5,900. This issuance was an annual award for independent director services.
 
On August 31, 2020, the Company issued commitment shares of 1,662,000 shares related to the Labrys Agreements at $0.21 or $349,020.
 
 
20
 
 
Warrants
 
The Company no warrant activity during the nine months ended September 30, 2020.
 
A summary of the warrants issued as of September 30, 2020 is as follows:
 
 
 
September 30, 2020
 
 
 
 
 
 
Weighted
 
 
 
 
 
 
Average
 
 
 
 
 
 
Exercise
 
 
 
Shares
 
 
Price
 
Outstanding at January 1, 2020
  2,418,834 
 $3.465 
Issued
  - 
 $- 
Exercised
  (154)
 $(3.151)
Forfeited
  - 
 $- 
Expired
  - 
 $- 
Outstanding at September 30, 2020
  2,418,680 
 $3.465 
Exerciseable at September 30, 2020
  2,312,168 
 $- 
 
A summary of the status of the warrants outstanding as of September 30, 2020 is presented below:
 
 
 
September 30, 2020
 
 
 
Weighted
 
 
Weighted
 
 
 
 
 
Weighted
 
 
 
Average
 
 
Average
 
 
 
 
 
Average
 
 
Number of
 
 
Remaining
 
 
Exercise
 
 
Shares
 
 
Exercise
 
 
Warrants
 
 
Life
 
 
Price
 
 
Exerciseable
 
 
Price
 
  366,667 
  5.91 
 $1.500 
  366,667 
 $1.500 
  320,000 
  4.10 
  1.800 
  213,333 
  1.800 
  1,407,428 
  1.08 
  3.150 
  1,407,582 
  3.150 
  324,586 
  2.25 
  7.500 
  324,586 
  7.500 
  - 
  - 
  - 
  - 
  - 
  2,418,680 
  2.00 
 $3.465 
  2,312,168 
 $3.374 
 
Warrants had no intrinsic value as of September 30, 2020.
 
The warrants were valued using the following assumptions:
 
Dividend yield
0%
Expected life
1-5 Years
Expected volatility
70-200%
Risk free interest rate
0.78-2.6%
 
 
21
 
 
NOTE 15– STOCK OPTIONS
 
Description of Stock Option Plan
 
The Company has 1,333,333 shares available for issuance under the First Amended and Restated 2017 Stock Incentive Plan. The Company has outstanding unexercised stock option grants totaling 506,667 shares at an average exercise price of $1.496 per share as of September 30, 2020. The Company filed registration statements on Form S-8 to register 1,333,333 shares of our common stock related to the 2017 Stock Incentive Plan and First Amended and Restated 2017 Stock Incentive Plan.
 
Determining Fair Value under ASC 718
 
The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding.  The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.
 
Stock Option Activity
 
The Company had the following stock option transactions during the nine months ended September 30, 2020:
 
During the nine months ended September 30, 2020, executives and employees forfeited stock option grants for 43,333 shares with an exercise price of $1.431 per share.
 
There are currently 506,667 options to purchase common stock at an average exercise price of $1.496 per share outstanding as of September 30, 2020 under 2017 Stock Incentive Plan and First Amended and Restated 2017 Stock Incentive Plan. The Company recorded $39,587 and $48,693 of compensation expense, net of related tax effects, relative to stock options for the nine months ended September 30, 2020 and 2019 and in accordance with ASC 718. As of September 30, 2020, there is approximately $29,051, net of forfeitures, of total unrecognized costs related to employee granted stock options that are not vested. These costs are expected to be recognized over a period of approximately 2.98 years. 
 
Stock option activity for the nine months ended September 30, 2020 and the year ended December 31, 2019 were as follows:
 
 
 
Options
 
 
Weighted Average
 
 
Option
 
 
 
Shares
 
 
Exercise Price
 
 
$
 
Outstanding as of January 1, 2019