XML 31 R18.htm IDEA: XBRL DOCUMENT

13. SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2016

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

Subsequent to March 31, 2016, the following material transactions occurred:

Equity Issuances

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.

On April 15, 2016, the Company issued 1,000,000 shares of its common stock to an entity affiliated with Marco Hegyi, our Chief Executive Officer, pursuant to a conversion of debt for $20,000. The shares were valued at the fair market price of $0.02 per share.

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 will 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.

Employment and Consulting Agreements Defaults

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

The Company owes Mark Scott approximately $53,537 in payroll and expenses and is in default under the Consulting Agreement with Mr. Scott.

Stock Option Grants

An entity controlled by Mr. Scott had a two million share stock option vest on April 18, 2016 upon the Company securing a market maker with an approved 15c2-11 resulting in the Company’s relisting on OTCBB.

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 with Chicago Venture Partners, L.P.

On April 5, 2016, the Company closed a Securities Purchase Agreement and related agreements with Chicago Venture Partners, L.P., an accredited investor whereby the Company agreed to sell, and Chicago Venture Partners agreed to purchase an unsecured convertible promissory note in the original principal amount of $2,755,000.

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: (i) $50,000 upon filing of a Registration Statement on Form S-1 (the “Registration Statement”); (ii) $100,000 upon effectiveness of the Registration Statement; (iii) 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 filed the Registration Statement within forty-five (45) days of the Closing and agreed to register shares of its common stock for the benefit of Chicago Venture Partners in exchange for the payments under the Secured Investor Notes.

Chicago Venture Partners 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.

Amended Transactions TCA Global Credit Master Fund LP

Previously, the Company, its subsidiaries and TCA had entered into a Securities Purchase Agreement dated as of April 30, 2015, but made effective as of July 9, 2015, a Supplemental Securities Purchase Agreement effective as of August 6, 2015, and an Amended and Restated Securities Purchase Agreement dated as of October 27, 2015 whereby the Company agreed to sell and TCA agreed to purchase an aggregate of $1,050,000 in original face amount of Senior, Secured, Convertible Redeemable Debentures.

First Amendment to Amended and Restated Securities Purchase Agreement

Effective as of May 4, 2016, the Company, its subsidiaries and TCA entered into a First Amendment to Amended and Restated Securities Purchase Agreement whereby the parties agreed to amend the terms of their existing purchase agreement in exchange for forbearance on existing defaults by the Company.

Due to the Company being in default on its repayment obligations under the Purchase Agreement and related documents, the parties agreed to restructure the Purchase Agreement whereby TCA agreed to forbear from enforcement of the Company defaults and to restructure a payment schedule for repayment of TCA under the Purchase Agreement.

Specifically, the First Amendment to Amended and Restated Securities Purchase Agreement made the following material modifications to the existing Purchase Agreement:

●	The existing Debentures were modified as described in more detail below.

●	Payments on the Debentures are expected to be made by (i) certain debt purchase agreement(s) to be entered into by TCA; (ii) under the parties S-1 transaction with Chicago Venture Partners, LP; or (iii) by the Company directly.

●	The maturity date was extended to April 28, 2018.

●	TCA agreed that it shall not enforce and shall forbear from pursuing enforcement of any existing defaults by the Company unless and until a future Company default occurs.

Second Replacement Debentures A and B

In connection with the First Amendment to Amended and Restated Securities Purchase Agreement, the parties also agreed upon amended terms related to their outstanding Debentures.

Effective as of May 4, 2016, the Company issued Second Replacement Debenture A in the principal amount of $150,000 and Second Replacement Debenture B in the principal amount of $2,681,209.82 (collectively, the “Second Replacement Debentures”).

Per the First Amendment to Amended and Restated Securities Purchase Agreement, the Second Replacement Debentures were combined, and apportioned into two separate replacement debentures. The Second Replacement Debentures were intended to act in substitution for and to supersede the Debentures in their entirety. It was the intent of the Company and TCA that while the Second Replacement Debentures replace and supersede the Debentures, in their entirety, they were not in payment or satisfaction of the Debentures, but rather were the substitute of one evidence of debt for another without any intent to extinguish the old.

The Second Replacement Debentures contemplate TCA entering into debt purchase agreement(s) with third parties whereby TCA may, at its election, sever, split, divide or apportion the Second Replacement Debentures to accomplish the repayment of the balanced owed to TCA by Company.

The Second Replacement Debenture are convertible at 85% of the lowest daily volume weighted average price (“VWAP”) of the Company’s common stock during the five (5) business days immediately prior to a conversion date.

In connection with the above agreements, the parties acknowledged and agreed that certain advisory fees previously paid to TCA as provided in the Purchase Agreement in the amount of $1,500,000 have been added and included within the principal balance of the Second Replacement Debentures. The conversion price discount on the Second Replacement Debentures will not apply to the amount of advisory fees added to the Second Replacement Debentures. TCA is also surrendering its Series B Preferred Stock in exchange for the $1,500,000 balance evidenced by said preferred stock being added to the Second Replacement Debenture.