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COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS
6 Months Ended
Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

NOTE 12 – COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

 

Legal Proceedings

 

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of the Company’s business. Although we cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and may be adjusted from time to time according to developments.

 

As of September 30, 2019, the Company closed retail stores in Portland, Maine, Encino, California and Calgary, Canada. The Company has recorded restructuring reserves related to the store closures. The Company cannot determine the outcome of these proceedings.

 

On April 23, 2021, the Company was notified that it was in default on its notes held by Silverback Capital Corporation. The reason for the default was the Company’s inability to provide the reserve share requirement as specified in the notes. The penalty for the reserve share default was an increase in the outstanding note balances by 15%, an increase in the conversion discount by 5%, and a default interest rate on the outstanding note balances of 22%. The company recorded such amounts as debt extinguishment and as all amount were considered due on demand, such amount was expensed.

 

As a result of the reserve share default, on May 7, 2021, Silverback demanded immediate payment in full of all their notes. On May 10, 2021, when Silverback had not been paid in full, Silverback presented another default notice for lack of payment. The penalty for the non-payment default was an increase in the outstanding note balances by another 15%, an additional increase in the conversion discount by 5%, and a default interest rate on the outstanding note balances of 22%. The company recorded such amount as debt extinguishment and as all amounts were considered due in demand, such amount was immediately expensed.

 

On May 10, 2023, Mr. Mickelson filed a Motion for Summary Judgment in the original lawsuit against Growlife and the former CEO, seeking 100% of the damages claimed for breach of contract, and is no longer pursuing rescission. Growlife filed its opposition to the complaint on June 9, 2023. Growlife intends to vigorously defend itself against the Motion.