XML 38 R22.htm IDEA: XBRL DOCUMENT v3.3.1.900
16. SUBSEQUENT EVENTS
12 Months Ended
Dec. 31, 2015
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

The Company evaluates subsequent events, for the purpose of adjustment or disclosure, up through the date the financial statements are available.

 

Subsequent to December 31, 2015, the following material transactions occurred:

 

Resumed Trading of our Common Stock

 

On February 18, 2016, our common stock resumed unsolicited quotation on the OTC Bulletin Board after receiving clearance from the Financial Industry Regulatory Authority (“FINRA”) on our Form 15c2-11.  The Company is currently taking the appropriate steps to uplist to the OTCQB Exchange and resume priced quotations with market makers as soon as it is able.

 

Equity Issuances

 

On January 4, 2016, the Company issued 3,000,000 shares of its common stock to an entity affiliated with Mark E. Scott, the Company’s Chief Financial Officer, pursuant to a conversion of debt for $30,000. The shares were valued at the fair market price of $0.01 per share.

 

On January 16, 2016, the Company issued 1,400,000 shares of its common stock to a former consultant pursuant a conversion of debt for $40,000. The shares were valued at the fair market price of $0.01 per share.

 

On January 27, 2016, the Company issued 1,500,000 shares of its common stock to Michael E. Fasci, a Board Director, pursuant to a service award for $15,000. The shares were valued at the fair market price of $0.01 per share.

 

During March 2016, Holder of the Company’s Convertible Notes Payables, converted principal and accrued interest of $608,905 into 86,986,437 shares of the Company’s common stock at a per share conversion price of $0.007.

 

The Company issued $2 million in common stock or 115,141,048 shares of the Company’s common stock on April 6, 2016 pursuant to the settlement of the Consolidated Class Action and Derivative Action lawsuits alleging violations of federal securities laws that were filed against the Company in United States District Court, Central District of California. The Company accrued $2,000,000 as loss on class action lawsuits and contingent liabilities during the year ending December 31, 2015.

 

Stock Option Vesting

 

On February 18, 2016, an entity affiliated with Mark E. Scott, the Company’s Chief Financial Officer, had a two million share stock option grant issued at $0.01 per share vest immediately upon the Company securing a market maker with an approved 15c2-11 resulting in the Company’s relisting on OTCBB.

 

Dissolution of Certain Non-Operating Subsidiaries

 

The Company determined that certain wholly-owned subsidiaries were unnecessary for the ongoing operations of the Company’s business and elected to dissolve these entities and/or surrender their foreign status in certain jurisdictions for the purpose of reducing unnecessary compliance costs.

 

The Company is dissolving SG Technologies Corp., a Nevada corporation, and is surrendering its qualification to do business in California due to the fact that the Company no longer operates any business under this wholly-owned subsidiary.

 

The Company is dissolving Phototron, Inc. and GrowLife Productions, Inc., all California corporations, due to the fact that the Company no longer operates any business under these wholly-owned subsidiaries.

 

The Company is dissolving Business Bloom, Inc., a California corporation, and is withdrawing its foreign entity status in Colorado due to the fact that the Company no longer operates any business under this wholly-owned subsidiary.

 

The Company is surrendering its qualification to do business in California due to the fact that the Company has moved its headquarters to Seattle, Washington and is no longer required to register as a foreign entity in California.

 

Potential Convertible Note Defaults

 

Several of the Company’s convertible promissory notes remain outstanding beyond their respective maturity dates. This may trigger an event of default under the respective agreements. The Company is working with these noteholders to convert their notes into common stock and intends to resolve these outstanding issues as soon as practicable.

 

Enactment of Heightened Corporate Governance Measures Pursuant to Derivative Action Settlement

 

In connection with the settlement of the Derivative Actions related to alleged violations of federal securities laws, the Company agreed to expansive corporate governance measures.

 

During 2015 and 2016, the Company has enacted and continues to enact heightened corporate governance measure pursuant to the Derivative Action Settlement.  The Company plans to hold a special shareholder meeting in the coming months to further implement measures associated with the Derivative Action Settlement.

 

Employment and Consulting Agreements Defaults

 

The Company owes Marco Hegyi approximately $53,287 in payroll and expenses as of December 31, 2015 and is in default under the Employment Agreement with Mr. Hegyi.

 

The Company owes Mark Scott approximately $71,537 in payroll and expenses as of December 31, 2015 and is in default under the Consulting Agreement with Mr. Scott.

 

Expiration of Stock Option Grants

 

Mr. Belmont resigned January 13, 2016 and an option to purchase five million shares of the Company’s common stock under the Company’s 2011 Stock Incentive Plan expired on April 13, 2016.

 

Entry into Securities Purchase Agreement

 

On April 5, 2016, the Company entered into and closed a Securities Purchase Agreement and related agreements (the “Transaction Documents”) with an accredited investor (the “Purchaser”) whereby the Company agreed to sell, and the Purchaser agreed to purchase an unsecured convertible promissory note in the original principal amount of $2,755,000 (the “Note”) (collectively, the “Transaction”).

 

In connection with the Transaction, the Company was provided $350,000 in cash as well as a series of twelve Secured Investor Notes for a total Purchase Price of $2,500,000.  The Note carries an Original Issue Discount (“OID”) of $250,000 and the Company agreed to pay $5,000 to cover Purchaser’s legal fees, accounting costs and other transaction expenses.

 

The Secured Investor Notes are payable as follows: 1) $50,000 upon filing of a Registration Statement on Form S-1 (the “Registration Statement”), 2) $100,000 upon effectiveness of the Registration Statement, and 3) up to $200,000 per month over the 10 months following effectiveness at the sole discretion of the Company, subject to certain conditions.  The Company shall file the Registration Statement within forty-five (45) days of the Closing and will register shares of its common stock for the benefit of Purchaser in exchange for the payments under the Secured Investor Notes.

 

The Purchaser has the option to convert the Note at 65% of the average of the three (3) lowest volume weighted average prices in the twenty (20) Trading Days immediately preceding the applicable conversion (the “Conversion Price”). However, in no event will the Conversion Price be less than $0.02 or greater than $0.09.  In addition, beginning on the date that is the earlier of six (6) months or five (5) days after the Registration Statement becomes effective, and on the same day of each month thereafter, the Company will re-pay the Note in monthly installments in cash, or, subject to certain Equity Conditions, in the Company’s common stock at 65% of the average of the three (3) lowest volume weighted average prices  in the twenty (20) Trading Days immediately preceding the applicable conversion (the “Installment Conversion Price”).