0001493152-19-018482.txt : 20191127 0001493152-19-018482.hdr.sgml : 20191127 20191127113119 ACCESSION NUMBER: 0001493152-19-018482 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20170630 FILED AS OF DATE: 20191127 DATE AS OF CHANGE: 20191127 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Notis Global, Inc. CENTRAL INDEX KEY: 0001547996 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 453992444 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-54928 FILM NUMBER: 191254553 BUSINESS ADDRESS: STREET 1: 633 WEST 5TH STREET STREET 2: 28TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 BUSINESS PHONE: 8007621452 MAIL ADDRESS: STREET 1: 633 WEST 5TH STREET STREET 2: 28TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90071 FORMER COMPANY: FORMER CONFORMED NAME: Medbox, Inc. DATE OF NAME CHANGE: 20120420 10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended June 30, 2017
   
  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 000-54928

 

NOTIS GLOBAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   30-0893689

State or Other Jurisdiction of

Incorporation or Organization

  I.R.S. Employer
Identification No.
     
65 Mechanic Street, Red Bank, New Jersey   07701
Address of Principal Executive Offices   Zip Code

 

[*]

 

Registrant’s Telephone Number, Including Area Code

 

1715 Highway 35 North, Suite 101, Middletown, NJ 07748

 

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None   None   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 [X]

 

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 [X]

 

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 of the Exchange Act.

 

Large accelerated filer [  ] Accelerated filer [  ]
   
Non-accelerated filer [X] Smaller reporting company [X]
   
Emerging growth company [X]  

 

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 in Rule 12b-2 of the Act). Yes [  ] No [X]

 

As of November 26, 2019, the Company had 10,000,000,000 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

   
 

 

NOTIS GLOBAL, INC.

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements  
     
  Report of Independent Registered Public Accounting Firm  
     
  Condensed Consolidated Balance Sheets as of June 30, 2017 (Unaudited) and December 31, 2016 3
     
  Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) – Three and six months ended June 30, 2017 and 2016 (Unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows –Six months ended June 30, 2017 and 2016 (Unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (Unaudited) 6
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
     
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk  
     
ITEM 4. Controls and Procedures  
     
PART II – OTHER INFORMATION  
     
ITEM 1. Legal Proceedings  
     
ITEM 1A. Risk Factors 37
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
     
ITEM 3.

Defaults Upon Senior Securities

49
     
ITEM 4. Mine Safety Disclosures 49
     
ITEM 5. Other Information 49
     
ITEM 6. Exhibits 49
     
SIGNATURES 50

 

2
 

 

NOTIS GLOBAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   June 30, 2017   December 31, 2016 
   (unaudited)     
Assets          
Current assets          
Cash  $27,660   $23,967 
Capitalized agricultural costs   419,736    160,131 
Prepaid expenses and other current assets   78,845    92,976 
Assets of discontinued operations   570    2,522 
Total current assets   526,811    279,596 
           
Property and equipment, net   6,528,730    6,712,369 
Total assets  $7,055,541   $6,991,965 
           
Liabilities and Stockholders’ Deficit          
Current liabilities          
Accounts payable  $7,519,416   $6,009,827 
Accrued expenses   3,748,439    2,187,393 
Accounts payable and accrued expenses - related parties   566,276    727,893 
Liabilities of discontinued operations   918,644    1,020,127 
Current portion of notes payable, net   4,168,112    3,367,478 
Notes payable – related parties   289,866    289,866 
Convertible notes payable, net   16,676,617    8,645,442 
Convertible notes payable – related parties   105,000    105,000 
Due on demand note   312,431    - 
Share restriction liability   60,374    - 
Derivative liability   51,912,638    15,635,947 
Warrant liability   2,341,355    14,430 
Total current liabilities   88,619,168    38,003,403 
           
Notes payable, less current portion   -    4,093,272 
Total liabilities   88,619,168    42,096,675 
Commitments and contingencies (Note 9)          
Stockholders’ deficit          
Preferred stock, $0.001 par value: 10,000,000 authorized; 0 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively   -    - 
Common stock, $0.001 par value: 10,000,000,000 authorized, 9,961,300,000 and 9,942,223,868 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively   9,961,300    9,942,224 
Additional paid-in capital   45,381,067    46,606,283 
Treasury stock   -   (1,209,600)
Accumulated deficit   (136,905,994)   (90,443,617)
Total stockholders’ deficit   (81,563,627)   (35,104,710)
Total liabilities and stockholders’ deficit  $7,055,541   $6,991,965 

 

See notes to condensed consolidated financial statements.

 

3
 

 

NOTIS GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

 

   For the three months ended   For the six months ended 
   June 30,   June 30, 
   2017   2016   2017   2016 
                 
Revenue   46,805    122,347    136,195    261,575 
                     
Operating expenses                    
Cost of revenues   28,204    171,556    92,889    271,319 
General and administrative   1,174,764    2,493,001    2,275,267    6,087,056 
Total operating expenses   1,202,968    2,664,557    2,368,156    6,358,375 
Loss from operations   (1,156,163)   (2,542,210)   (2,231,961)   (6,096,800)
                     
Other income (expense)                    
Interest expense, net   (3,156,195)   (1,551,458)   (12,374,667)   (6,182,966)
Change in fair value of derivative liabilities   (32,634,820)   9,940,307    (31,978,525)   18,819,893 
Change in fair value of warrant liability   950,726    441,148    950,127    997,121 
Gain on sale of assets of subsidiary   -    10,995    -    10,995 
Gain on sale of interest in subsidiary   -    331,000    -    630,571 
Loss on failed business combination   (201,610)   -    (1,001,520)   - 
Other income (expense)   -    (7,769)   183,000    (30,555)
Total other income (expense)   (35,041,899)   9,164,223    (44,221,585)   14,245,059 
                     
Net income (loss) from continuing operations   (36,198,062)   6,622,013    (46,453,546)   8,148,259 
                     
Discontinued operations                    
Net loss from discontinued operations   (5,636)   (73,443)   (8,831)   (351,887)
                     
Income (loss) before provision for income taxes   (36,203,698)   6,548,570    (46,462,377)   7,796,372 
                     
Net income (loss)  $(36,203,698)  $6,548,570   $(46,462,377)  $7,796,372 
                     
Loss per share attributable to common stockholders                    
Basic and diluted loss per share – continuing operations   (0.00)   0.01    (0.00)   0.02 
Basic and diluted loss per share from discontinued operations   (0.00)   (0.00)   (0.00)   (0.00)
Basic and diluted loss per share  $(0.00)  $0.01   $(0.00)  $0.02 
Weighted average shares outstanding                    
Basic   9,944,548,868    701,378,818    9,944,166,271    506,569,535 
Diluted   9,944,548,868    10,739,100,799    9,944,166,271    5,605,827,806 
                     
Other comprehensive income (loss)                    
Net income (loss)   (36,203,698)   6,548,570    (46,462,377)   7,796,372 
Unrealized gain from marketable securities   -    -    -    18,981 
Comprehensive income (loss)  $(36,203,698)  $6,548,570   $(46,462,377)  $7,815,353 

 

See notes to condensed consolidated financial statements.

 

4
 

 

NOTIS GLOBAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   Six months ended June 30, 
   2017   2016 
Cash flows from operating activities          
Net income (loss)   (46,462,377)   7,796,372 
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization   183,639    14,991 
Change in fair value of marketable securities   -    18,981 
Change in fair value of derivative liability   31,978,525    (18,819,893)
Change in fair value of warrant liability   (950,127)   (997,121)
Amortization of debt discount   2,389,599    2,613,227 
Financing costs   3,652,068    3,060,579 
Note principal increase upon default   

4,080,377

    - 
Loss on failed business combination   1,001,520    - 
Stock based compensation   331,852    644,523 
Loss on sale of assets of subsidiary   -    178,032 
Bad debt   -    70,000 
Changes in operating assets and liabilities:          
Accounts receivable   -    (19,468)
Inventory   -    (33,411)
Capitalized agricultural costs   (259,605)   - 
Deposits in escrow   -    (10,000)
Prepaid expenses and other current assets   14,131    (181,349)
Deferred costs   -    (193,846)
Deposits and other assets, net of reserve of $115,000 and $115,000, respectively   

-

    (7,486)
Deposits and other assets, net of reserve   -    7,486 
Accounts payable   1,610,805    3,591,528 
Accrued expenses   -    229,611 
Accounts payable and other accrued expenses - related parties   -    (95,431)
Other accrued expenses   1,561,046    - 
Accrued expenses - related parties   (161,617)   - 
Accrued legal contingencies   -    6,255 
Net cash used in operating activities   (1,030,164)   (2,126,420)
           
Changes related to discontinued operations   (99,531)   (354,548)
           
Cash flows from investing activities          
Payments made for investment in PCH   

(588,063

)   - 
Issuance of note receivable   -    (10,000)
Proceeds from the sale of property and equipment, net   -    35,000 
Proceeds received for sale of rights and assets        91,814 
Net cash provided by (used in) by investing activities   (588,063)   116,814 
           
Cash flows from financing activities          
Cash overdraft   -    13,656 
Proceeds from issuance of notes payable   95,527    569,000 
Proceeds from issuance of notes payable, related party   -    41,667 
Payments on notes payable   (28,960)   (223,347)
Payments on notes payable - related party   -    (2,500)
Proceeds from issuance of demand loan   312,431    - 
Exercise of employee stock options   -    16,000 
Proceeds from issuance of convertible notes payable, net of fees   1,706,000    1,815,811 
Proceeds from issuance of convertible notes payable from related parties, net   -    105,000 
Payments on convertible notes payable   (363,547)   - 
Net cash provided by financing activities   1,721,451    2,335,287 
           
Net change in cash and cash equivalents   3,693    (28,867)
Cash, beginning of year   23,967    52,834 
Cash, end of year  $27,660   $23,967 
           
Supplemental disclosures of cash flow information:          
           
Cash paid for interest  $101,779   $38,595 
           
Non-cash investing and financing activities:          
Common stock issued upon debt conversion  $-   $12,947,334 
Account payable assigned to note payable - related party  $-   $292,366 
Account payable assigned to convertible note payable - related party  $-   $50,000 
Account payable assigned to convertible notes payable  $173,812   $576,250 
Account payable assigned to note payable  $7,500      
Issuance of warrants in connection with convertible debentures  $3,009,034   $- 
Exchange of notes payable and accrued interest to convertible notes  $-   $753,122 
Exchange of convertible notes payable and accrued interest to convertible notes  $-   $5,970,910 
Advances on machinery paid directly by lender  $-   $161,401 
OID - notes payable  $12,759   $239,496 
OID - convertible notes payable  $-   $157,487 
Convertible notes payable assigned to notes payable  $3,966,199   $1,431,401 
Cancellation of notes payable for land  $-   $208,605 
Debt discount additions for notes payable  $646,098   $3,615,351 
Exchange of notes payable to related party to convertible notes payable related party  $-   $2,500 
Investor contribution  $-   $324,754 
Unrealized gain on marketable securities  $-   $6,601 
Common stock issued for settlements 

$

2,000

  

$

- 
Treasury stock 

$

1,209,600  

$

- 
Share Restriction Liability 

$

12  

$

- 

 

See notes to condensed consolidated financial statements.

 

5
 

 

NOTIS GLOBAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 – BUSINESS ORGANIZATION, NATURE OF OPERATIONS

 

Business Description

 

Notis Global, Inc. (formerly Medbox, Inc.), which is incorporated in the state of Nevada (the “Company”), provides specialized services to the hemp and marijuana industry, distributes hemp product processed by contractual partners and through June 30, 2017, owned independently and through affiliates, real property and licenses that it leased and assigned or sublicensed to partner cultivators and operators in return for a percentage of revenues or profits from sales and operations. Prior to 2016, through its consulting services, the Company worked with clients who sought to enter the medical and cultivation marijuana markets in those states where approved. In 2015, the Company expanded into hemp cultivation with the acquisition of a 320-acre farm (the “Farm”) in Colorado by the Company’s wholly-owned subsidiary, EWSD I, LLC (“EWSD”). The farm was operated by an independent farming partner until the relationship was terminated in May 2016 (Note 3). In addition, through its wholly-owned subsidiary, Vaporfection International, Inc. (“VII”), the Company sold a line of vaporizer and accessory products online and through distribution partners. On March 28, 2016, the Company sold the assets of VII and exited the vaporizer and accessory business. As of December 31, 2016, the Company was headquartered in Los Angeles, California. As of the date of filing of this Quarterly Report, the Company was headquartered in Middletown, New Jersey.

 

Effective January 28, 2016, the Company changed its legal corporate name from Medbox, Inc., to Notis Global, Inc. The name change was effected through a parent/subsidiary short-form merger pursuant to Section 92A.180 of the Nevada Revised Statutes. Notis Global, Inc., the Company’s wholly-owned Nevada subsidiary formed solely for the purpose of the name change, was merged with and into the Company, with Notis Global, Inc. as the surviving entity. The merger had the effect of amending the Company’s Articles of Incorporation to reflect the new legal name of the Company. There were no other changes to the Company’s Articles of Incorporation. The Company’s Board of Directors approved the name-change.

 

Notis Global, Inc., operates the business directly and through the utilization of three primary operating subsidiaries, as follows:

 

EWSD I, LLC, a Delaware limited liability company that owns property in Colorado.
   
Pueblo Agriculture Supply and Equipment, LLC, a Delaware limited liability company that was established to own extraction equipment.
   
Shi Cooperative, LLC, a Colorado limited liability company that contracts with third-party farmers to cultivate hemp in, among other areas, Colorado, Nevada, and Oklahoma.

 

San Diego Sunrise, LLC, a California corporation to hold San Diego, California dispensary operations. (As of June 30, 2016, the Company sold its interest in San Diego Sunrise, LLC.
   
Prescription Vending Machines, Inc., a California corporation, d/b/a Medicine Dispensing Systems in the State of California (“MDS”), which previously distributed our Medbox product and provided related consulting services.
   
Vaporfection International, Inc., a Florida corporation through which we distributed our medical vaporizing products and accessories. (All the assets of which were sold during the three months ended March 31, 2016).
   
Medbox Property Investments, Inc., a California corporation specializing in real property acquisitions and leases for dispensaries and cultivation centers. This corporation currently owns no real property.

 

During December 2016 the Company’s Board of Directors and management completed a strategic shift and completely exited the vapor and medical cannabis dispensing line.

 

On April 15, 2016, at a special meeting of the stockholders of the Company, the stockholders of the Company holding a majority of the total shares of outstanding common stock (the “Common Stock”) of the Company voted to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock from 400,000,000 to 10,000,000,000 (the “Certificate of Amendment”). The Certificate of Amendment was filed with the Nevada Secretary of State and was declared effective on April 18, 2016.

 

6
 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

 

The Condensed Consolidated Financial Statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. During the six months ended June 30, 2017, the Company had a net loss from operations of approximately $46.5 million, negative cash flow from operations of $1.0 million and negative working capital of $88.1 million. During the year ended December 31, 2016, the Company had a net loss of approximately $17.7 million, negative cash flow from operations of $3.5 million and negative working capital of $38 million. The Company will need to raise capital in order to fund its operations. On September 22, 2016, the Company received notice of an Event of Default and Acceleration from one of its lenders regarding a Promissory Note issued on March 14, 2016. As of the date of this filing, the Company is in default on all notes outstanding. The Company is unable to predict the outcome of these matters; however, legal action taken by the Company’s lenders could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and its ability to raise funds in the future. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The Condensed Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

  

The Company expects that the acquisition of EWSD, which owns a 320-acre farm in Pueblo, Colorado, will generate recurring revenues for the Company through farming hemp, extracting and selling CBD oil, and collecting fees from production related to extracting CBD oil for other farmers, while controlling the full production cycle to ensure consistent quality. Lastly, management is actively seeking additional financing over the next few months to fund operations.

 

The Company will continue to execute on its business model by attempting to raise additional capital through the sales of debt or equity securities or other means. However, there is no guarantee that such financing will be available on terms acceptable to the Company, or at all. It is uncertain whether the Company can obtain financing to fund operating deficits until profitability is achieved. This need may be adversely impacted by: unavailability of financing, uncertain market conditions, the success of the crop growing season, the demand for CBD oil, the ability of the Company to obtain financing for the equipment and labor needed to cultivate hemp and extract the CBD oil, and adverse operating results. The outcome of these matters cannot be predicted at this time.

 

On May 24, 2016, the Company received a notice from the OTC Markets Group, Inc. (“OTC Markets”) that the Company’s bid price was below $0.01 and that the Company did not meet the Standards for Continued Eligibility for OTCQB pursuant to OTC Markets’ Standards. If the bid price did not close at or above $0.01 for ten consecutive trading days by November 20, 2016, the Company would be moved to the OTC Pink marketplace. Additionally, on September 9, 2016, the Company received notice from OTC Markets that it would move the Company’s listing from the OTCQB market to OTC Pink marketplace, if the Company did not file its Quarterly Report on Form 10-Q for the period ended June 30, 2016 by September 30, 2016. On or about October 1, 2016, the Company moved to the OTC Pink marketplace. These actions might also impact the Company’s ability to obtain funding.

 

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

 

Principles of Consolidation

 

The Condensed Consolidated Financial Statements include the accounts of Notis Global, Inc. and its wholly-owned subsidiaries, as named in Note 1 above. All intercompany transactions have been eliminated in consolidation.

 

7
 

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i) Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
   
(ii) Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
   
(iii) Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
   
(iv) Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Discontinued Operations

 

US GAAP requires the results of operations of a component of an equity that either has been disposed of or is classified as held for sale to be reported as discontinued operations in the Condensed Consolidated Financial Statements if the sale or disposition represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

 

Concentrations of Credit Risk

 

The Company maintains cash balances at several financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

 

Fair Value of Financial Instruments

 

Pursuant to ASC No. 825, Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheets. The carrying value of cash, accounts receivable, capitalized agriculture costs, inventory, accounts payable and accrued expenses, notes payable, related party notes payable, provision for customer refunds and short-term loans payable approximate fair value due to the short period to maturity of these instruments.

 

Embedded derivative – The Company’s convertible notes payable include embedded features that require bifurcation due to a reset provision and are accounted for as a separate embedded derivative.

 

The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on a Monte Carlo Simulation model (“MCS”). The MCS model was used to simulate the stock price of the Company from the valuation date through to the maturity date of the related debenture and to better estimate the fair value of the derivative liability due to the complex nature of the convertible debentures and embedded instruments. Management believes that the use of the MCS model compared to the Black-Scholes-Merton model as previously used would provide a better estimate of the fair value of these instruments

 

The Company valued these embedded derivatives using a “with-and-without method,” where the value of the Convertible Debentures including the embedded derivatives, is defined as the “with”, and the value of the Convertible Debentures excluding the embedded derivatives, is defined as the “without.” This method estimates the value of the embedded derivatives by observing the difference between the value of the Convertible Debentures with the embedded derivatives and the value of the Convertible Debentures without the embedded derivatives. The Company believes the “with-and-without method” results in a measurement that is more representative of the fair value of the embedded derivatives.

 

For each simulation path, the Company used the Geometric Brownian Motion (“GBM”) model to determine future stock prices at the maturity date. The inputs utilized in the application of the GBM model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate.

 

8
 

 

For the six months ended June 30, 2017, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on an internally calculated adjustment to the MCS valuation determined at December 31, 2016. This adjustment took into consideration the changes in the assumptions, such as market value and expected volatility of the Common Stock and the discount rate used in the June 30, 2017, valuation as compared to December 31, 2016. The Company believes this methodology results in a reasonable fair value of the embedded derivatives for the interim period.

 

Warrants

 

The Company reexamined the determination made as of March 31, 2016, that it did not have sufficient authorized shares available for all of their outstanding warrants to be classified in equity at June 30, 2016 and concluded there still were insufficient authorized shares (Note 7). Therefore, the Company recognized a warrant liability as of December 31, 2016. The Company estimated the fair value of the warrant liability based on the Black-Scholes-Merton model. The key assumptions used consist of the price of the Company’s stock, a risk-free interest rate based on the average yield of a one to three-year Treasury note (based on remaining term of the related warrants) and expected volatility of the Common Stock over the remaining life of the warrants.

 

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.
   
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
   
Level 3 Significant unobservable inputs that cannot be corroborated by market data.

 

The assets or liabilities’ fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis:

 

   Total  

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

  

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
June 30, 2017                
Warrant liability   2,341,355    -    -    2,341,355 
Derivative liability   51,912,638               -                -    51,912,638 
                     
Total liabilities  $54,253,993   $-   $-   $54,253,993 

 

December 31, 2016  Total  

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

  

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

  

Significant

Unobservable

Inputs

(Level 3)

 
                 
Warrant liability   14,430              14,430 
Derivative liability   15,635,947               -               -    15,635,947 
                     
Total liabilities  $15,650,377   $-   $-   $15,650,377 

 

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The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

   For the six months ended June 30, 2017 
   Total 
January 1, 2017   15,650,377 
Initial recognition of conversion feature   4,298,166 
Initial recognition of warrant liability   3,277,052 
Change in fair value of conversion feature   31,978,525 
Change in fair value of warrant liability   (950,127)
      
Ending Balance, June 30, 2017   54,253,993 

 

Revenue Recognition

 

Revenues from Cannabidiol oil product

 

The Company recognizes revenue from the sale of Cannabidiol oil products (“CBD oil”) upon shipment, when title passes, and when collectability is reasonably assured.

 

Cost of Revenue

 

Cost of revenue consists primarily of expenses associated with the delivery and distribution of the Company’s products and services. Under the Company’s prior business model, the Company only began capitalizing costs when it obtained a license and a site for operation of a customer dispensary or cultivation center. The previously capitalized costs are charged to cost of revenue in the same period that the associated revenue is earned. In the case where it is determined that previously inventoried costs are in excess of the projected net realizable value of the sale of the licenses, then the excess cost above net realizable value is written off to cost of revenues. Cost of revenues also includes the rent expense on master leases held in the Company’s name, which are subleased to the Company’s operators. In addition, cost of revenue related to the Company’s vaporizer line of products consists of direct procurement cost of the products along with costs associated with order fulfillment, shipping, inventory storage and inventory management costs.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2017 and December 31, 2016, the Company held no cash equivalents.

 

The Company’s policy is to place its cash with high credit quality financial instruments and institutions and limit the amounts invested with any one financial institution or in any type of instrument. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash.

 

Accounts Receivable and Allowances

 

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of June 30, 2017 and December 31, 2016, there was an allowance for doubtful accounts of $0.

 

Inventory

 

The Company utilizes lower of standard cost or net realizable value method. During the six months ended June 30, 2017 the Company recorded an impairment of $0 that was recorded to cost of revenues.

 

Capitalized agricultural costs

 

Capitalized agricultural costs consists of pre-harvest agricultural costs, including irrigation, fertilization, seeding, laboring, other ongoing crop and land maintenance activities and work-in-progress activities. All capitalized agricultural costs are accumulated and capitalized as incurred. The Company has reflected the capitalized agriculture costs as a current asset as the growing cycle of the crops are estimated to be six months to a year.

 

Basic and Diluted Net Income/Loss Per Share

 

Basic net loss per share of Common Stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share of Common Stock is determined using the weighted-average number of shares of Common Stock outstanding during the period, adjusted for the dilutive effect of Common Stock equivalents. In periods when losses are reported, which is the case for the six months ended June 30, 2017 presented in these Condensed Consolidated Financial Statements, the weighted-average number of shares of Common Stock outstanding excludes Common Stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2016, the Company had approximately 67,466,000 warrants to purchase common stock outstanding as of June 30, 2016, which were not included in the computation of diluted loss per share, as based on their exercise prices they would all have an anti-dilutive effect on net loss per share. The Company also had outstanding at June 30, 2016 approximately $7,309,000 in convertible debentures, respectively, that are convertible at the holders’ option at a conversion price of the lower of $0.75 or 51% to 60% of either the lowest trading price or the VWAP over the last 20 to 30 days prior to conversion (subject to reset upon a future dilutive financing), whose underlying shares were not included in a computation of diluted loss per share due to the net loss.

 

10
 

 

The Company had the following Common Stock equivalents at June 30, 2017:

 

   June 30, 2017 
Warrants   11,765,757,081 
Convertible notes – related party   10,500,000 
Convertible notes   204,397,932,874 
Totals   216,174,189,955 

 

Property and Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses accelerated depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Vehicles  5 years 
Furniture and Fixtures  3 - 5 years 
Office equipment  3 years 
Machinery  2 years 
Buildings  10 - 39 years 

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the Condensed Consolidated Financial Statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities are classified as current and non-current based on their characteristics. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.

 

Commitments and Contingencies

 

Certain conditions may exist as of the date the Condensed Consolidated Financial Statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

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If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Condensed Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

 

The Company accrues all legal costs expected to be incurred per event. For legal matters covered by insurance, the Company accrues all legal costs expected to be incurred per event up to the amount of the deductible.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of the standard on its ongoing financial reporting.

 

In February 2016, the FASB issued “Leases (Topic 842)” (ASU 2016-02). This update amends leasing accounting requirements. The most significant change will result in the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current guidance. The new guidance will also require significant additional disclosures about the amount, timing, and uncertainty of cash flows from leases. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018, which for the Company is December 31, 2018, the first day of its 2019 fiscal year. Upon adoption, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted, and a number of optional practical expedients may be elected to simplify the impact of adoption. The Company is currently evaluating the impact of adopting this guidance. The overall impact is that assets and liabilities arising from leases are expected to increase based on the present value of remaining estimated lease payments at the time of adoption.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The adoption did not have a material effect on its financial position or results of operations or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11 , “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which we adopted for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of adopting this guidance.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of adopting this guidance.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company is currently evaluating the impact of adopting this guidance.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

 

12
 

 

Management’s Evaluation of Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date of June 30, 2017, through the date which the Condensed Consolidated Financial Statements were issued. Based upon the review, other than described in Note 15 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

 

NOTE 3 – INVENTORY AND CAPITALIZED AGRICULTURAL COSTS

 

Inventories and capitalized agricultural costs are generally kept for a short period of time.

 

Finished goods are comprised of CBD Isolate and CBD Distillate. The company did not have any finished goods as of June 30, 2017 and December 31, 2016.

 

Growing costs, also referred to as cultural costs, consist of cultivation, fertilization, labor costs and soil improvement, pest control and irrigation.

 

Biomass are comprised of labor and equipment expenses incurred to harvest and deliver crops to the packinghouses.

 

Raw materials include all purchasing costs.

 

Inventory at June 30, 2017 and December 31, 2016 consisted of the following:

 

   June 30, 2017   December 31, 2016 
Biomass  $419,736   $160,131 
           
Less Discontinued Operations   -    - 
           
Total inventory, net  $419,736   $160,131 

 

13
 

 

NOTE 4 – PCH INVESTMENT

 

Effective as of March 21, 2017, through a series of related transactions, Notis intended to acquire, indirectly, an aggregate of 459,999 of the then-issued and outstanding shares of capital stock (the “PCH To-Be-Purchased Shares”) of PCH Investment Group, Inc., a California corporation (“PCH”) for a proposed purchase price of $300,000.00 in cash and the proposed issuance of shares of Common Stock. The PCH To-Be-Purchased Shares represented 51% of the outstanding capital stock of PCH. In connection with the Company’s then-intended acquisition of the PCH To-Be-Purchased Shares, the Company (or its affiliates) was also to be granted an indirect option to acquire the remaining 49% (the “PCH Optioned Shares”) of the capital stock of PCH. The option was to expire on February 10, 2019 (the “PCH Optioned Shares Expiry Date”).

 

Located in San Diego, California, PCH was a management services business that focused on the management of cannabis production and manufacturing businesses. On November 1, 2016, PCH entered into a Management Services Agreement (the “PCH Management Agreement”) with California Cannabis Group (“CalCan”) and Devilish Delights, Inc. (“DDI”), both of which then were California nonprofit corporations in the cannabis production and manufacturing business (“their business”). CalCan and Mr. Pyatt represented that CalCan was then licensed by the City of San Diego, California, to cultivate cannabis and manufacture cannabis products, as well as to sell, at wholesale, the cultivated and manufactured products at wholesale to legally operated medical marijuana dispensaries. The PCH Management Agreement provided that PCH was responsible for the day-to-day operations and business activities of their business. In that context, PCH was to be responsible for the payment of all operating expenses of their business (including the rent and related expenditures for CalCan and DDI) from the revenue generated by their business, or on an out-of- pocket basis if the revenue should be insufficient. In exchange for PCH’s services and payment obligations, PCH was to be entitled to 75% of the gross profits of their business. The PCH Management Agreement did not provide for any gross profit milestone during its first 12 months; thereafter, it provided for an annual $8 million gross profit milestone, with any amount in excess thereof to be carried forward to the next annual period. In the event that, during any annual period, the gross profit thereunder was less than $8 million (including any carry-forward amounts), then, on a one- time basis, PCH would have been permitted to carry-forward such deficit to the following annual period. If, in that following annual period, the gross profit was to have exceeded $6 million, then PCH would have been entitled to an additional “one-time basis” carry-forward of a subsequent deficit. The term of the PCH Management Agreement was for five years, subject to two extensions, each for an additional five-year period, in all cases subject to earlier termination for an uncured material breach by PCH of its obligations thereunder. Mr. Pyatt, the Company’s then- current Chief Operating Officer and Senior Vice President, Government Affairs, was also then a member of the Board of Directors of CalCan and DDI.

 

Pursuant to a Securities Purchase Agreement, that was made and entered into as of March 16, 2017 (five days before the presumed closing of the transaction; the “SPA”), “PASE” was to have acquired the PCH To-Be-Purchased Shares from the three PCH shareholders: (i) Mystic, LLC, a California limited liability company that Mr. Goh, the Company’s then-Chief Executive Officer, formed and controlled for his investments in cannabis projects, (ii) Mr. Pyatt, and (iii) Mr. Kaller, then the general manager of PCH (collectively, the “PCH Shareholders”).

 

As a condition to the Lender entering into the Note Purchase Agreement and the PCH-Related Note (both as noted below) and providing any additional funding to the Company in connection with its intended acquisition of the PCH To-Be-Purchased Shares, the Board ratified the forms of employment agreements for Mr. Goh, as the Company’s then-Chief Executive Officer, and for Clint Pyatt, as the Company’s then-prospective President. If the agreements became effective, and following the second anniversary thereof, the terms were to have become “at- will.” In addition to payment of a base salary, the agreements provided for certain cash, option, and equity bonuses, in each case to become subject both to each individual and to the Company meeting certain performance goals to be acknowledged by them and to be approved by a disinterested majority of the Board.

 

14
 

 

Due to the nature of the above-described intended transaction, and the related parties involved with PCH, the Company formed a special committee of its Board to consider all of the aspects thereof, as well as the related financing proposed to be provided by the Lender. The special committee consisted of three of the four directors: Ambassador Ned L. Siegel, Mitch Lowe, and Manual Flores. In the context of the special committee’s charge, it engaged an otherwise independent investment banking firm (the “Banker”) to analyze the potential acquisition of the PCH To-Be-Purchased Shares through the SPA (noted above) and the Stock Purchase Option Agreement (the “PCH Option Agreement”; the parties to which are PASE, PCH, the PCH Shareholders, as noted below), the related financing agreements (all as noted below), other related business and financial arrangements, and the above-referenced employment agreements. After the Banker completed its full review of those agreements and its own competitive analysis, it provided its opinion that the consideration to be paid in connection with the acquisition of the PCH To- Be-Purchased Shares and the terms of the PCH-Related Note were fair to the Company from a financial point of view. Following the Banker’s presentation of its analysis and opinion, and the special committee’s own analysis, the special committee unanimously recommended to the full Board that all of such transactions should be approved and that the Company could consummate the acquisition of the PCH To-Be-Purchased Shares, accept the option to acquire the PCH Optioned Shares, enter into the PCH-Related Note, the documents ancillary thereto, and the Employment Agreements.

 

In connection with the Company’s intended acquisition of the PCH To-Be-Purchased Shares and the Company’s intended option to acquire the PCH Optioned Shares, PASE, EWSD, PCH, and the Company entered into a Convertible Note Purchase Agreement (the “Note Purchase Agreement”) with a third-party lender (the “PCH Lender”). Concurrently, PASE and the Company (with EWSD and PCH as co-obligors) entered into a related 10% Senior Secured Convertible Promissory Note (the “PCH-Related Note”) in favor of the PCH Lender. The initial principal sum under the PCH-Related Note was $1,000,000.00 and it bears interest at the rate of 10% per annum. Principal and interest are subject to certain conversion rights in favor of the PCH Lender. So long as any principal is outstanding or any interest remains accrued, but unpaid, at any time and from time to time, at the option of the PCH Lender, any or all of such amounts may be converted into shares of Common Stock. Notwithstanding such conversion right, and except in the circumstance described in the next sentence, the PCH Lender may not exercise its conversion rights if, in so doing, it would then own more than 4.99% of the Company’s issued and outstanding shares of Common Stock. However, upon not less than 61 days’ notice, the PCH Lender may increase its limitation percentage to a maximum of 9.99%. The PCH Lender’s conversion price is fixed at $0.0001 per share. Principal and accrued interest may be pre-paid from time to time or at any time, subject to 10 days’ written notice to the PCH Lender. Any prepayment of principal or interest shall be increased to be at the rate of 130% of the amount so to be prepaid and, during the 10-day notice period, the PCH Lender may exercise its conversion rights in respect of any or all of the amounts otherwise to be prepaid.

 

In a series of other loan transactions prior to the intended closing of the acquisition of the PCH To-Be-Purchased Shares, a different third party lender (the “Ongoing Lender”) had lent to the Company, in five separate tranches, an aggregate amount of approximately $414,000 (the “Pre-acquisition Loans”), that, in turn, the Company lent to PCH to use for its working capital obligations. Upon the purported closing of the acquisition of the PCH To-Be-Purchased Shares and, pursuant to the terms of the PCH-Related Note, the PCH Lender lent to the Company (i) approximately $86,000, that, in turn, the Company lent to PCH to use for its additional working capital obligations, (ii) $300,000 for the purported acquisition of the PCH To-Be-Purchased Shares, and (iii) $90,000 for various transaction-related fees and expenses. Immediately subsequent to the closing of the purported acquisition of the PCH To-Be-Purchased Shares, the PCH Lender lent to the Company (x) approximately $170,000 for the Company’s operational obligations and (y) approximately $114,000 for the Company partially to repay an equivalent amount of the Pre-acquisition Loans.

 

In connection with the Pre-acquisition Loans and the PCH-Related Note, the makers and co-obligors thereof entered into an Amended and Restated Security and Pledge Agreement in favor of the Lender, pursuant to which such parties, jointly and severally, granted to the Lender a security interest in all, or substantially all, of their respective property. Further, PCH entered into a Guarantee in favor of the PCH Lender in respect of the other parties’ obligations under the PCH-Related Note. PCH’s obligation to the PCH Lender under these agreements is limited to a maximum of $500,000.

 

As of the intended closing of the acquisition of the PCH To-Be-Purchased Shares, the Company paid $300,000 to the PCH Shareholders. If that transaction had closed, the Company would also have become obligated to issue to the PCH Shareholders 1,500,000,000 shares (the “Purchase Price Shares”) of Common Stock. That number of issuable shares was to be subject to certain provisions detailed in the PCH-Related Note, which are summarized herein.

 

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Notwithstanding the number of issuable shares referenced above, the number of issued Purchase Price Shares was to have been equal to 15% of the then-issued and outstanding shares of Common Stock at the time that the Company exercised its option to acquire the PCH Optioned Shares under the PCH Option Agreement. Further, in the event that the Company were to have issued additional equity securities prior to the date on which it in fact had issued the Purchase Price Shares at a price per share that was less than the value referenced above, the PCH Shareholders would have been entitled to “full ratchet” anti-dilution protection in the calculation of the number of Purchase Price Shares to be issued (with the exception of a recapitalization by the Lender to reduce the Company’s overall dilution).

 

If the Company did not exercise the intended option to acquire the PCH Optioned Shares prior to PCH Optioned Shares Expiry Date, the PCH Shareholders would have had the right to reacquire the PCH To-Be-Purchased Shares from the Company for the same cash consideration ($300,000.00) that was to have been paid to them for those shares. Further, if the Company were to be in default of its material obligations under the SPA, or if PASE were the subject of any bankruptcy proceedings, then the PCH Shareholders have the same reacquisition rights noted in the preceding sentence.

 

Pursuant the PCH Option Agreement, PASE was granted the option to purchase all 49%, but not less than all 49%, of the PCH Optioned Shares. The exercise price for the PCH Optioned Shares is an amount equivalent to five times PCH’s “EBITDA” for the 12-calendar month period, on a look-back basis, that concludes on the date of exercise of the Option, less $10.00 (which was the purchase price of the option). The calculation of the 12-month EBITDA was to be determined by PASE’s (or its) then-currently engaged independent auditors. If the Company were to exercise the option prior to the first anniversary of the closing of the acquisition of the PCH To-Be-Purchased Shares, then the exercise price for the PCH Optioned Shares was to be based on the EBITDA for the entire 12-calendar month period that commenced with the effective date of the PCH Option Agreement.

 

PCH Investment Group, Inc. – San Diego Project Termination

 

On March 27, 2017, the Company filed a Current Report on Form 8-K to announce the above-described series of events. Subsequently, it became clear to the Company that the PCH Parties failed to make key closing deliveries, including, without limitation, actual transfer of the PCH To-Be-Purchased Shares, the PCH Lease (as defined below) and related marijuana licenses. Thereafter, the parties entered into litigation and eventual settlement as described below.

 

The Settlement Agreement and Mutual General Release

 

The Company, PACE, and EWSD (collectively, the “Notis Parties”) and PCH, Messrs. Pyatt, Kaller, and Goh (solely in connection with his status as an equity holder of PCH, collectively, the “PCH Individuals”; and, with PCH, collectively, the “PCH Parties”) entered into a Settlement Agreement and Mutual General Release, with an effective date of August 16, 2017 (the “Settlement Agreement”), inter alia, to “unwind” the SPA’s intended transactions, to confirm that the transactions never officially closed, and to enter into a series of mutual releases with such parties. Some of the salient recitals from the Settlement Agreement are:

 

1. One or both of the PCH Lender and the Ongoing Lender (collectively, the “Notis Lenders”) and PCH have certain disagreements in respect of their respective rights and obligations in and related to certain of the SPA and related documents;
   
2. Some or all of the Notis Parties and the Notis Lenders, on the one hand, and PCH and the PCH Individuals, on the other hand, have certain disagreements in respect of the conduct of PCH’s business;
   
3. Some or all of the Notis Parties and PCH have certain disagreements in respect of the ownership and possessory right of certain of the furniture and equipment utilized by PCH on its own behalf or on behalf of others in respect of the conduct of PCH’s business located at 9212 Mira Este Court, San Diego, California (the location for the “PCH Lease”);
   
4. The Notis Parties and the PCH Parties have certain disagreements in respect of their respective rights and obligations in and related to the SPA;

 

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5. PCH and Trava LLC, a Florida limited liability company and a material lender to PCH, have certain disagreements in respect of their respective rights and obligations in and related to the PCH / Trava Master Service Agreement (as defined in the Settlement Agreement);
   
6. Notis and Mr. Pyatt have certain disagreements in respect of their respective rights and obligations in and related to the Pyatt Employment Agreement (as defined in the Settlement Agreement), as manifested in part by Mr. Pyatt’s filing of the Pyatt Labor Complaint (as defined in the Settlement Agreement);
   
7. The Notis Parties and the PCH Parties have certain disagreements in respect of the Notis Parties and the PCH Parties’ respective conduct in connection with PCH’s rights and obligations in and related to the PCH / SDO Master Service Agreement (as defined in the Settlement Agreement);
   
8. The Notis Lenders and PCH have certain disagreements in respect of the PCH’s conduct in connection with PCH’s rights and obligation in and related to certain of the Notis Financing Documents (as defined in the Settlement Agreement);
   
9. The Notis Lenders and PCH have certain disagreements in respect of the ownership and possessory rights of certain of the Equipment (as defined in the Settlement Agreement); and
   
10. Some or all of the Notis Parties and the PCH Individuals, among others, have certain disagreements in respect of the operation of the PCH Shareholder/Buy-Sell Agreement (as defined in the Settlement Agreement).

 

See, also, Change of Officers and Directors in connection with the severance by each of Messrs. Pyatt and Goh of their respective employment and directorship relationships with us.

 

In connection with the PCH investment, the Company recorded $1,001,520 as a loss in connection with the failed and unconsummated business combination for the period ended June 30, 2017. The $1,001,520 is the amount the Company invested in the PCH transaction.

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITY

 

Convertible notes payable consists of: 

 

   June 30, 2017   December 31, 2016 
   (unaudited)     
Investor #1  $14,357,804   $6,642,745 
Investor #2   2,089,133    1,857,146 
Investor #3   293,009    231,142 
Investor #4   1,636,312    - 
Investor #5   300,000    - 
    18,675,258    8,731,033 
Less discounts   (1,999,641)   (85,591)
           
Less current maturities   16,676,617    8,645,442 
           
Convertible notes payable, net of current maturities  $   $ 

 

Investor #1

 

During the year ended December 31, 2016 the Company issued 30 convertible notes to third-party lenders totaling $9,700,170. The Company received cash of $2,695,000 and original issue discounts of $119,737. The lender also paid $161,401 on advancements on fixed assets and consolidated principal and interest of $6,818,744. These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 13, 2016 through September 9, 2017. This note is secured by the Company’s assets. The convertible notes convert at a fixed rate of $0.75 or a 49% to 40% discount with a lookback of 30 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

During the six months ended June 30, 2017 the company issued 16 convertible notes to third-party lenders totaling $968,897. The company received cash of $506,000 and paid $413,457 from the PCH-Related Note. (See Note 4). These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between August 31, 2017 through December 28, 2018. The notes convert at a fixed rate of $0.0001 or a 50% discount with a lookback of 30 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of the Investor #1’s convertible notes during the six months ended June 30, 2017, gave rise to a derivative liability of $1,283,028. $475,901 of which was recorded as a debt discount. The debt discount is charged to accretion of debt discount and issuance cost ratably over the term of the convertible note.

 

During the six months ended June 30, 2017 the Company went into default on all of Investor #1’s convertible notes. These notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%-30%. The increase of principal of $3,418,510 was recorded to interest expense.

 

Upon default, 18 promissory notes held by Investor #1 became convertible. The Company reclassed $3,691,199 from notes payable to convertible notes payable.

 

Investor #2

 

During the year ended December 31, 2016, the Company issued two convertible notes to third-party lenders totaling $278,000. The Company received cash of $235,000 and the lender paid $43,000 on behalf of the Company for vendor liabilities. These convertible notes accrue interest at a rate of 5% per annum and mature with interest and principal both due between July 13, 2016 through April 30, 2017. This note is secured by the Company’s assets. The convertible notes convert at a fixed rate of $0.75 or a 49% discount with a lookback of 20 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

Upon default, the promissory note held by Investor #2 became convertible. The Company reclassed $275,000 from notes payable to convertible notes payable.

  

At June 30, 2017, the Company was in default on all the convertible debentures with Investor #2.

 

Investor #3

 

During the year ended December 31, 2016, the Company issued two convertible notes to third-party lenders totaling $282,500. The Company received cash of $236,500, original issue discounts of $34,750 and the lender paid $11,250 on behalf of the Company for vendor liabilities. These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between September 14, 2016 through August 20, 2017. This note is secured by the Company’s assets. These notes are convertible upon default at a rate of $0.75 or a 49% discount with a lookback of 30 trading days.

 

Due to the fact that these notes have an option to convert at a variable amount upon default, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

During the six months ended June 30, 2017 Investor #3 notes were increased by $61,867

 

Investor #4

 

During the six months ended June 30, 2017 the Company issued 2 convertible notes to third party lenders totaling $1,136,312. The Company received cash of $1,000,000, and the lender paid $136,312 on behalf of the company for vendor liabilities. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due on June 30, 2018. These notes are convertible upon default at a rate of $0.0001.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of the Investor #4 notes during the six months ended June 30, 2017, gave rise to a derivative liability of $2,027,407. In addition, the Company issued warrants to purchase 10,000,000,000 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $0.0001 per share for a period of four years from the issue date. The Company recorded a $2,979,231 debt discount relating to the warrants issued to the investor. The debt discounts are charged to accretion of debt discount and issuance cost ratably over the term of the convertible note.

 

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During the six months ended June 30, 2017 the Company went into default on all notes from Investor #4. The notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%. The increase of principal of $500,000 was recorded to interest expense.

 

Investor #5

 

During the six months ended June 30, 2017 the company issued 2 convertible notes to third party lenders totaling $200,000. The company received cash of $200,000. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between April 27, 2018 through May 08, 2018. The notes convert at a fixed rate of $0.0002.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of Investor #5’s convertible notes during the six months ended June 30, 2017, gave rise to a derivative liability of $438,196, of which $170,198 was recorded as a debt discount. In addition, the Company issued warrants to purchase 200,000,000 shares of Common Stock. The warrant entitles the holder to purchase shares of Common Stock at a purchase price of $0.0001 per share for a period of four years from the issue date. The Company recorded a $29,802 debt discount relating to the warrants issued to the investor. The debt discounts are charged to accretion of debt discount and issuance cost ratably over the term of the convertible notes.

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #4’s convertible notes. These notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%. The increase of principal of $100,000 was recorded to interest expense.

 

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NOTE 6 – NOTES PAYABLE

 

Notes payable consists of:

 

   June 30, 2017   December 31, 2016 
Southwest Farms (Note 3)  $3,571,136   $3,590,241 
East West Secured Development (Note 3)   493,129    503,031 
Investor #1 (Note 9)   103,847    3,691,200 
Investor #2   -    275,000 
    4,168,112    8,059,472 
Less discounts   -   (598,721)
Plus premium   -    - 
           
    4,168,112    7,460,751 
Less current maturities   4,168,112    3,367,479 
           
   $-   $4,093,272 

 

Southwest Farms

 

During the six months ended June 30, 2017 the Company repaid $19,057 in principal.

 

East West Secured Development

 

During the six months ended June 30, 2017 the Company repaid $9,903 in principal.

 

Investor #1

 

During the year ended December 31, 2016, the Company issued 18 notes to third-party lenders totaling $3,691,199. The Company received cash of $1,095,741, original issue discounts of $996,199 and the lender paid $145,000 on behalf of the Company for vendor liabilities. These notes accrue interest at a rate between 5% to 10% per annum and mature with interest and principal both due between December 12, 2016 through November 18, 2017. This note is secured by the Company’s assets. These notes are convertible upon default at a rate of $0.75 or a 40% discount with a lookback of 20 trading days.

 

During the six months ended June 30, 2017, the Company issued 4 notes to third-party lenders totaling $103,847. The Company received cash of $95,527, original issue discounts of $819 and the lender paid $7,500 on behalf of the Company for vendor liabilities. These notes mature from March 2017 to August 2017.

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #1’s notes. The notes now accrue interest at a rate of 24% per annum.

 

Upon default, 18 promissory notes held by Investor #1 became convertible. The Company reclassed $3,691,199 from notes payable to convertible notes payable.

 

Investor #2

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #2’s notes. The notes now accrue interest at a rate of 24% per annum. Upon default, the promissory note held by Investor #2 became convertible. The Company reclassed $275,000 from notes payable to convertible notes payable.

 

NOTE 7 – Stockholders’ Deficit

 

Preferred Stock

 

The Series A Preferred Stock has special voting rights when voting as a class with the Common Stock as follows: (i) the holders of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of the Corporation’s Series A Preferred Stock and Common Stock (collectively, the “Common Stock”) on a Fully-Diluted Basis (as hereinafter defined), as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.00000025; and (ii) the holders of Common Stock shall have one vote per share of Common Stock held as of such date. “Fully-Diluted Basis” mean that the total number of issued and outstanding shares of Common Stock shall be calculated to include (a) the shares of Common Stock issuable upon exercise and/or conversion of all of the following securities (collectively, “Common Stock Equivalents”): all outstanding (a) securities convertible into or exchangeable for Common Stock, whether or not then convertible or exchangeable (collectively, “Convertible Securities”), (b) subscriptions, rights, options and warrants to purchase shares of Common Stock, whether or not then exercisable (collectively, “Options”), and (c) securities convertible into or exchangeable or exercisable for Options or Convertible Securities and any such underlying Options and/or Convertible Securities.

 

As of June 30, 2017and 2016, there were no shares of Series A Preferred Stock outstanding.

 

Common Stock

 

On January 20, 2017, the Company issued 2,000,000 shares of Common Stock to in connection with the settlement of the Crystal v. Medbox, Inc. litigation. The Company did not receive any proceeds from such issuance. The Company issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

 

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Share-based awards, restricted stock and restricted stock units (“RSUs”)

 

A summary of the activity related to RSUs for the three months ended June 30, 2017 and 2016 is presented below:

 

Restricted stock units (RSUs)  Total shares   Grant date fair value 
RSUs non-vested at January 1, 2017   7,142,856   $0.51 - $1.88 
RSUs granted   250,975,000   $0.0002 - $0.0003 
RSUs vested   (258,117,856)  $0.0002 - $1.88 
RSUs forfeited   -   $- 
           
RSUs non-vested June 30, 2017   -   $- 

 

A summary of the expense related to restricted stock, RSUs and stock option awards for the three and six months ended June 30, 2017 and 2016 is presented below:

 

  

Three months ended

June 30, 2017

 
RSUs  $50,293 
      
Total  $50,293 

 

  

Year ended

December 31, 2016

 
RSUs  $261,196 
Common stock   539,246 
      
Total  $800,442 

 

Warrant Activities

 

The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes-Merton model.

 

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The assumptions used for warrants granted during the six months ended June 30, 2017 are as follows:

 

   June 30, 2017 
Exercise price  $0.0001 
Expected dividends   0%
Expected volatility   249.30 – 284.72%
Risk free interest rate   1.44 – 1.54%
Expected life of warrant   4 years 

 

The following is a summary of the Company’s warrant activity:

 

       Weighted   Weighted 
       Average   Average 
       Exercise   Remaining Days 
   Warrants   Price   Price 
             
Outstanding – December 31, 2016   65,757,081   $0.11   $1.97 
Granted   11,800,000,000    0.0001    4.00 
Exercised   -    -    - 
Forfeited/Cancelled   (100,000)   -    - 
Outstanding – June 30, 2017   11,765,757,081   $0.0007   $3.73 

 

At June 30, 2017, the aggregate intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

 

During the six months ended June 30, 2017, there were no warrants exercised.

 

The Company adopted a sequencing policy that reclassifies contracts, with the exception of stock options, from equity to assets or liabilities for those with the earliest inception date first. Any future issuance of securities, as well as period-end reevaluations, will be evaluated as to reclassification as a liability under the sequencing policy of earliest inception date first until all of the convertible debentures are either converted or settled.

 

For warrants issued in 2015, the Company determined that the warrants were properly classified in equity as there is no cash settlement provision and the warrants have a fixed exercise price and, therefore, result in an obligation to deliver a known number of shares.

 

The Company reevaluated the warrants as of June 30, 2017 and determined that they did not have a sufficient number of authorized and unissued shares to settle all existing commitments, and the fair value of the warrants for which there was insufficient authorized shares, were reclassified out of equity to a liability. Under the sequencing policy, of the approximately 11,765,757,081 warrants outstanding at June 30, 2017. The fair value of these warrants was re-measured on June 30, 2017 using the Black Scholes Merton Model, with key valuation assumptions used that consist of the price of the Company’s stock on June 30, 2017, a risk-free interest rate based on the average yield of a 2 or 3 year Treasury note and expected volatility of shares of Common Stock, resulting in the fair value for the Warrant liability of approximately $2,341,355. The resulting change in fair value of $950,127 for the six months ended June 30, 2017, was recognized as a loss in the Consolidated Statement of Comprehensive Income(loss).

 

During the six months ended June 30, 2017, a total of 11,800,000,000 warrants were issued with convertible notes payable (See Note 7 above). The warrants have a grant date fair value of $3,009,034 using a Black-Scholes option-pricing model and the above assumptions.

 

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NOTE 10 – DISCONTINUED OPERATIONS

 

Management deemed the vapor and medical cannabis dispensing line of operations discontinued in the 4th quarter of 2016. This determination was due to poor performance and decreasing gross profit of the Company businesses and resulted in an overall halt of operations of the Company in the 4th quarter of 2016. Upon analysis of the individual business lines, the Company’s newly formed special committee decided not to continue in the vapor and medical cannabis dispensing industries.

 

On March 28, 2016, the Company sold the assets of the vapor subsidiary for $70,000. At the time of the asset disposal, it was disclosed as not a strategic shift in operations; however, with the inclusion of the medical cannabis dispensing operations, the definition of a strategic shift was met. One definition of a strategic shift is a disposal of “80 percent interest in one of two product lines that account for 40 percent of total revenue”. The disposal of both operations meets the definition of a strategic shift and should therefore be shown as discontinued operations in the Company’s Condensed Consolidated Financial Statements.

 

The following subsidiaries of the Company qualify as a discontinued operation for Notis Global.

 

Prescription Vending Machines, Inc.

 

Medbox Management Services, Inc.

 

Medbox Rx, Inc.

 

Vaporfection International, Inc.

 

MJ Property Investments, Inc.

 

22
 

 

The income (loss) from discontinued operations presented in the income statement for the six months ended June 30, 2017 and 2016, consisted of the following:

 

   For the six months ended 
   June 30, 
   2017   2016 
         
Revenue  $-   $148,839 
Revenue, related party   -    49,836 
Net revenue   -    198,675 
Cost of revenues   -    74,682 
Gross profit (loss)   -    123,993 
           
Operating expenses          
General and administrative   7,184    345,488 
Total operating expenses   7,184    345,488 
Loss from operations   (7,184)   (221,495)
           
Other income (expense)          
Interest expense, net   1,647    (8,858)
Gain on sale of assets of subsidiary   -    5,498 
Loss on sale of rights and assets   -    

(178,032

)
Other income (expense)   -    51,000
Total other income (expense)   (1,647)   130,392 
           
Net income (loss)  $(8,831)  $351,887 

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

The Company previously leased property for its day-to-day operations and facilities for possible retail dispensary locations and cultivation locations as part of the process of applying for retail dispensary and cultivation licenses.

 

Entry into Agreement to Acquire Real Property

 

On June 17, 2016, EWSD entered into a Contract to Buy and Sell Real Estate (the “Acquisition Agreement”) with Tammy J. Sciumbato and Donnie J. Sciumbato (collectively, the “Sellers”) to purchase certain real property comprised of 116 acres of agricultural land, a barn and a farmhouse in Pueblo, Colorado (the “Property”). The closing of the Acquisition Agreement was scheduled to occur on or about September 22, 2016 (the “Closing”), with possession of the land and barn occurring 12 days after the Closing and possession of the farm house occurring on or before January 1, 2017. The Sellers were to rent back the farm house from the Company until January 1, 2017. The purchase price to acquire the Property is $650,000, including $10,000 paid by the Company as a deposit into the escrow for the Property. During the third quarter of 2017 the Acquisition Agreement was cancelled and the deposit was forfeited.

 

Office Leases

 

On August 1, 2011, the Company entered into a lease agreement for office space located in West Hollywood, California through June 30, 2017 at a current monthly rate of $14,828 per month. The Company moved to different offices in Los Angeles, CA in April 2015. The sublease on the office has a term of 18 months with monthly rent of $7,486.

 

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The landlord for the West Hollywood space has filed a suit against the Company and independent guarantors on the West Hollywood lease. The Company has expensed all lease payments due under the West Hollywood lease. The Company’s liability for the West Hollywood lease will be adjusted, if required, upon settlement of the suit with the landlord. On September 8, 2016, the court approved the landlord’s application for writ of attachment in the State of California in the amount of $374,402 against Prescription Vending Machines, Inc. (“PVM”). A trial date has been set for May 2017 (Note 14). On July 18, 2017, plaintiff filed a Request for Dismissal with Prejudice of the litigation in respect of PVM.

 

Rent expense for the six months ended June 30, 2017 and 2016 was approximately $14,244 and $376,000, respectively.

 

Consulting Agreements

 

On December 7, 2015, the Company entered into a consulting agreement for marketing and PR services, for a term of six months, which was subsequently extended through August 30, 2016. Compensation under this agreement through May 30, 2016 was $25,000 per month, with twenty percent, or $5,000, of this amount to be paid in shares of Common Stock. Pursuant to the terms of the agreement, the number of shares issued is determined at the end of each quarter. Upon extension, the terms were adjusted to $15,000 per month for services, with $5,000 to be paid in shares of Common Stock. On November 30, 2017, the Court granted plaintiff’s request for a Default Judgment in the amount of $89,000. Further, the Court scheduled a hearing for December 14, 2017, in respect of expenses, attorney’s fees, and interest at a rate of 6.25%.

 

Litigation

 

On May 22, 2013, the Company, then known as Medbox , Inc., initiated litigation in the United States District Court in the District of Arizona against three stockholders of MedVend Holdings LLC (“MedVend”) in connection with a contemplated transaction that Medbox entered into for the purchase of an approximate 50% ownership stake in MedVend for $4.1 million. The lawsuit alleges fraud and related claims arising out of the contemplated transaction during the quarter ended June 30, 2013. The litigation is pending and Medbox has sought cancellation due to a fraudulent sale of the stock because the selling stockholders lacked the power or authority to sell their ownership stake in MedVend, and their actions were a breach of representations made by them in the agreement. On November 19, 2013, the litigation was transferred to United States District Court for the Eastern District of Michigan. MedVend recently joined the suit pursuant to a consolidation order executed by a new judge assigned to the matter. In the litigation, the selling stockholder defendants and MedVend seek to have the transaction performed, or alternatively be awarded damages for the alleged breach of the agreement by the Company. MedVend and the stockholder defendants seek $4.55 million in damages, plus costs and attorneys’ fees. The Company denied liability with respect to all such claims. On June 5, 2014, the Company entered into a purchase and sale agreement (the “MedVend PSA”) with PVM International, Inc. (“PVMI”) concerning this matter. Pursuant to the MedVend PSA, the Company sold to PVMI the Company’s rights and claims attributable to or controlled by the Company against those three certain stockholders of MedVend, known as Kaplan, Tartaglia and Kovan (the “MedVend Rights and Claims”), in exchange for the return by PVMI to the Company of 30,000 shares of Common Stock. PVMI is owned by Pejman Vincent Mehdizadeh, formerly the Company’s largest stockholder. On December 17, 2015, the Company entered into a revocation of the MedVend PSA, which provided that from that date forward, the Company would take over the litigation and be responsible for the costs and attorneys’ fees associated with the MedVend Litigation from December 17, 2015 forward. All costs and attorneys’ fees through December 16, 2015 will be borne by PVMI. After the filing of a motion for substitution of the Company for PVMI, Defendants agreed, via a stipulated order, to permit the substitution. The Court entered the order substituting Notis Global, Inc. for PVMI on February 17, 2016. A new litigation schedule was recently issued which resulted in an adjournment of the trial. A new trial date will be set by the court following its ruling on a motion for summary judgment filed by Defendants and MedVend, which is set for hearing on November 16, 2016. At this time, the Company cannot determine whether the likelihood of an unfavorable outcome of the dispute is probable or remote, nor can they reasonably estimate a range of potential loss, should the outcome be unfavorable. In January 2017, the Company entered into a Settlement Agreement with the three stockholders, pursuant to which we agreed to pay to them $375,000 in six payments commencing August 2017 and concluding on or before February 2020. In connection with the settlement, the Company executed a Consent Judgment in the amount of $937,000 in their favor. The Company did not make the first payment and the Consent Judgment was recorded against it on August 25, 2017. Plaintiffs have attempted to collect on the judgment and, in November 2017, garnished approximately $10,000 from the Company’s bank account.

 

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Class Settlement

 

On December 1, 2015, Medbox and the class plaintiffs in Josh Crystal v. Medbox, Inc., et al., Case No. 2:15-CV-00426-BRO (JEMx), pending before the United States District Court for the Central District of California (the “Court”) notified the Court of the settlement. The Court stayed the action pending the Court’s review of the settlement and directed the parties to file a stipulation of settlement. On December 18, 2015, plaintiffs filed the Motion for Preliminary Approval of Class Action Settlement that included the stipulation of settlement. On February 3, 2016, the Court issued an Order granting preliminary approval of the settlement. The settlement provides for notice to be given to the class, a period for opt outs and a final approval hearing. The Court originally scheduled the Final Settlement Approval Hearing to be held on May 16, 2016 at 1:30 p.m., but continued it to August 15, 2016 at 1:30 p.m. to be heard at the same time as the Final Settlement Approval Hearing for the derivative actions, discussed below. The principal terms of the settlement are:

 

  a cash payment to a settlement escrow account in the amount of $1,850,000 of which $150,000 will be paid by the Company and $1,700,000 will be paid by the Company’s insurers;
     
  a transfer of 2,300,000 shares of Common Stock to the settlement escrow account, of which 2,000,000 shares would be contributed by the Company and 300,000 shares of Common Stock by Bruce Bedrick;

 

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  the net proceeds of the settlement escrow, after deduction of Court-approved administrative costs and any Court-approved attorneys’ fees and costs would be distributed to the Class; and
     
  releases of claims and dismissal of the action.

 

By entering into the settlement, the settling parties have resolved the class claims to their mutual satisfaction. However, the final determination is subject to approval by the Federal Courts. Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. If the global settlement does not receive final court approval, it could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and its ability to raise funds in the future.

 

As of June 30, 2017, all obligations have been settled in connection with this class settlement.

 

Derivative Settlements

 

As previously announced on October 22, 2015, on October 16, 2015, the Company, in its capacity as a nominal defendant, entered into a memorandum of understanding of settlement (the “Settlements”) in the following stockholder derivative actions: (1) Mike Jones v. Guy Marsala, et al., in the U.S. District Court for Central District of California; (2) Jennifer Scheffer v. P. Vincent Mehdizadeh, et al., in the Eighth Judicial District Court of Nevada; (3) Kimberly Y. Freeman v. Pejman Vincent Mehdizadeh, et al., in the Eighth Judicial District Court of Nevada; (4) Tyler Gray v. Pejman Vincent Mehdizadeh, et al., in the U.S. District Court for the District of Nevada; (5) Robert J. Calabrese v. Ned L. Siegel, et al., in the U.S. District Court for the District of Nevada; (6) Patricia des Groseilliers v. Pejman Vincent Mehdizadeh, et al., in the U.S. District Court for the District of Nevada; (7) Michael A. Glinter v. Pejman Vincent Mehdizadeh, et al., in the Superior Court of the State of California for the County of Los Angeles (the “Stockholder Derivative Lawsuits”). In addition to the Company, Pejman Vincent Mehdizadeh, Matthew Feinstein, Bruce Bedrick, Thomas Iwanski, Guy Marsala, J. Mitchell Lowe, Ned Siegel, and C. Douglas Mitchell were named as defendants in all of the lawsuits, and Jennifer S. Love was named in all of the lawsuits but the Scheffer action (collectively, the “Individual Defendants”).

 

On December 3, 2015, the parties in the Jones v. Marsala action advised the Court of the Settlements in the Stockholder Derivative Lawsuits and that the parties would be submitting the Settlements to the Court in the Jones action for approval. The Court thereafter issued an order vacating all pending dates in the action and ordered Plaintiff to file the Stipulation and Agreement of Settlement for the Court’s approval. On December 18, 2015, plaintiffs filed the Motion for Preliminary Approval of Derivative Settlement that included the Stipulation and Agreement of Settlement. On February 3, 2016, the Court issued an Order granting preliminary approval of the Settlements.

 

By entering into the Settlements, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation.

 

Under the terms of the Settlements, the Company agrees to adopt and adhere to certain corporate governance processes in the future. In addition to these corporate governance measures, the Company’s insurers, on behalf of the Individual Defendants, will make a payment of $300,000 into the settlement escrow account and Messrs. Mehdizadeh and Bedrick will deliver 2,000,000 and 300,000 shares, respectively, of their shares of Common Stock into the Settlement escrow account. The funds and Common Stock in the Settlement escrow account will be paid as attorneys’ fees and expenses, or as service awards to plaintiffs.

 

On September 16, 2016, solely to avoid the costs, risks, and uncertainties inherent in litigation, the parties entered into a settlement regarding the Merritts Action. The settlement provides, among other things, for the release and dismissal of all asserted claims. Under the terms of the settlement, the Company agrees to adopt and to adhere to certain corporate governance processes in the future. In addition to these corporate governance measures, the Company will make a payment of $135,000 in cash to be used to pay Merritts’ counsel for any attorneys’ fees and expenses, or as service awards to Merritts, that are approved and awarded by the Court. The Settlements have been approved by the court.

 

As of June 30, 2017, all obligations have been settled in connection with this class settlement.

 

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SEC Investigation

 

In October 2014, the Board appointed a special committee (the “Special Committee”) to investigate issues arising from a federal grand jury subpoena pertaining to the Company’s financial reporting which was served upon the Company’s predecessor independent registered public accounting firm as well as certain alleged wrongdoing raised by a former employee of the Company. The Company was subsequently served with two SEC subpoenas in early November 2014. The Company is fully cooperating with the grand jury and SEC investigations. In connection with its investigation of these matters, the Special Committee in conjunction with the Audit Committee initiated an internal review by management and by an outside professional advisor of certain prior period financial reporting of the Company. The outside professional advisor reviewed the Company’s revenue recognition methodology for certain contracts for the third and fourth quarters of 2013. As a result of certain errors discovered in connection with the review by management and its professional advisor, the Audit Committee, upon management’s recommendation, concluded on December 24, 2014 that the Condensed Consolidated Financial Statements for the year ended December 31, 2013 and for the third and fourth quarters therein, as well as for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, should no longer be relied upon and would be restated to correct the errors. On March 6, 2015 the audit committee determined that the Condensed Consolidated Financial Statements for the year ended December 31, 2012, together with all three, six and nine month financial information contained therein, and the quarterly information for the first two quarters of the 2013 fiscal year should also be restated. On March 11, 2015, the Company filed its restated Form 10 Registration Statement with the SEC with restated financial information for the years ended December 31, 2012 and December 31, 2013, and on March 16, 2015, the Company filed amended and restated quarterly reports on Form 10-Q, with restated financial information for the periods ended March 31, June 30 and September 30, 2014, respectively.

 

In March 2016, the staff of the Los Angeles Regional Office of the U.S. Securities and Exchange Commission advised counsel for the Company in a telephone conversation, followed by a written “Wells” notice, that it is has made a preliminary determination to recommend that the Commission file an enforcement action against the Company in connection with misstatements by prior management in the Company’s financial statements for 2012, 2013 and the first three quarters of 2014. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any violations of law have occurred. Rather, it provides the Company with an opportunity to respond to issues raised by the Staff and offer its perspective prior to any SEC decision to institute proceedings.

 

In March 2017, the SEC and the Company settled this matter. The Company consented to the entry of a final judgment permanently enjoining it from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-11, and 13a-13 thereunder. In connection with the settlement, the Company did not have any monetary sanctions or penalties assessed against it.

 

Other litigation

 

Whole Hemp complaint

 

A complaint was filed by Whole Hemp Company, LLC d/b/a Folium Biosciences (“Whole Hemp”) on June 1, 2016, naming Notis Global, Inc. and EWSD (collectively, “Notis”), as defendants in Pueblo County, CO district court. The complaint alleges five causes of action against Notis: misappropriation of trade secrets, civil theft, intentional interference with prospective business advantage, civil conspiracy, and breach of contract. All claims concern contracts between Whole Hemp and Notis for the Farming Agreement and the Distributor Agreement.

 

The court entered an ex parte temporary restraining order on June 2, 2016, and a modified temporary restraining order on July 14, 2016, enjoining Notis from disclosing, using, copying, conveying, transferring, or transmitting Whole Hemp’s trade secrets, including Whole Hemp’s plants. On June 13, 2016, the court ordered that all claims be submitted to arbitration, except for the disposition of the temporary restraining order.

 

On August 12, 2016, the court ordered that all of Whole Hemp’s plants in Notis’ possession be destroyed, which occurred by August 24, 2016, at which time the temporary restraining order was dissolved and the parties will soon file a motion to dismiss the district court action. On June 29, 2017, the parties jointly stipulated to the dismissal of all claims and counterclaims with prejudice.

 

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Notis commenced arbitration in Denver, CO on August 2, 2016, seeking injunctive relief and alleging breaches of the contracts between the parties. Whole Hemp filed is Answer and counterclaims on September 6, 2016, asserting similar allegations that were asserted to the court.

 

On September 30, 2016, the arbitrator held an initial status conference and agreed to allow EWSD and Notis to file a motion to dismiss some or all of Whole Hemp’s claims by no later than October 28, 2016. The parties were also ordered to make initial disclosures of relevant documents and persons with knowledge of relevant information by October 21, 2016.

 

In light of the court order to destroy all Whole Hemp plants, the Company has immediately expensed all Capitalized agricultural costs of $73,345 related to Whole Hemp plants. As of December 31, 2016, the Company capitalized $160,131 that related to Whole Hemp plants.

 

As noted above, the Company’s long-term strategy is to maintain tight control of its supply chain. The continuing default by Whole Hemp was conductive to the Company’s efforts to eliminate outside vendors in the supply chain and control production from “Seed to Sale.” The Company’s decision to terminate the Whole Hemp Agreements comports with its long-term strategy to maintain tight control of its supply chain.

 

West Hollywood Lease

 

The lease for the former office at 8439 West Sunset Blvd. in West Hollywood, CA has been partially subleased. The Company plans to sublease the remainder of the office in West Hollywood, CA and continues to incur rent expense while the space is being marketed. The landlord for the prior lease filed a suit in Los Angeles Superior Court in April 2015 against the Company for damages they allege have been incurred from unpaid rent and otherwise. In January 2016, the landlord filed a first amended complaint adding the independent guarantors under the lease as co-defendants and specifying damages claim of approximately $300,000. On September 8, 2016, the court approved Mani Brothers’ application for writ of attachment in the State of California in the amount of $374,402 against Prescription Vending Machines, Inc. (“PVM”). On March 16, 2017, the Company and Mani Brothers agree to settle the amount owed if the Company paid $40,000 before July 2017. The Company paid the $40,000 in four monthly payments commencing in April 2017. On July 24, 2017, the case was dismissed against the Company.

 

Los Angeles Lease

 

The Company’s former landlord, Bank Leumi, filed an action against the Company in Los Angeles Superior Court for breach of lease on August 31, 2016, seeking $29,977 plus fees and interest, in addition to rent payment for September 2016. The Company filed a response to the complaint on September 21, 2016, and a case management conference is scheduled for December 9, 2016. In November 2016, the parties entered into a Settlement Agreement and General Release, pursuant to which the Company agreed to an eight-payment plan in favor of the Bank, commencing December 2016 and terminating July 2017. All of the payments, which aggregated $46,522 for rent, fees, and costs, have been made.

 

Jeffery Goh

 

We are a party to certain litigation that was filed by Jeff Goh, one of our former directors and executive officers in Superior Court for the state of California, County of Orange, styled JEFF GOH, an individual, Plaintiff, vs. MEDBOX HOLDINGS, INC., a Nevada corporation; NOTIS GLOBAL, INC., a Nevada corporation; and DOES 1 through 100, inclusive, Defendants, Case No. 30-2018-01014038-CU-BC-CJC. We intend to file such motions as may currently be required in this matter and, thereafter, litigate vigorously against Mr. Goh.

 

Pueblo Farm – Management Services Agreement

 

On May 31, 2017, the Company, and two of its subsidiaries, EWSD and Pueblo Agriculture Supply and Equipment LLC, and Trava LLC, a Florida limited liability company that has lent various sums to the Company (“Trava”; referenced above as the “PCH Lender”), entered into a Management Services Agreement (the “MS Agreement”) in respect of the Company’s hemp grow-and-extraction operations located in Pueblo, Colorado (the “Pueblo Farm”). The MS Agreement has a 36-month term with two consecutive 12-month unilateral options exercisable in the sole discretion of Trava. Pursuant to the provisions of the MS Agreement, Trava shall collect all revenue generated by the Pueblo Farm operations. Further, Trava is to satisfy all of the Pueblo Farm-related past due expenses and, subject to certain limitations, to pay all current and future operational expenses of the Pueblo Farm operations. Finally, commencing October 2017, Trava is obligated to make the monthly mortgage payments on the Pueblo Farm, although the Company remains responsible for any and all “balloon payments” due under the mortgage. On a cumulative calendar monthly cash-on-cash basis, Trava is obligated to tender to the Company or, at the Company’s option, to either or both of those subsidiaries, an amount equivalent to 51% of the net cash for each such calendar month. Such monthly payments are on the 10th calendar day following the end of a calendar month for which such tender is required. At the end of the five-year term (assuming the exercise by Trava of each of the two above-referenced options), Trava has the unilateral right to purchase the Pueblo Farm operation at a four times multiple of its EBITDA (calculated at the mean average thereof for each of the two option years).

 

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Commencing in September 2017 in connection with Trava’s monthly lending to the Company funds sufficient for the Pueblo Farm’s monthly operational expenses of the Pueblo Farm operations, the Company amended the MA Agreement to provide that, from time to time, Trava may exercise its rights to convert some or all of the notes that evidence its lending of funds into shares of Common Stock at a fixed conversion price of $.0001 pre-share. If Trava converts, in whole or in part, any one or more of such notes, then (unless (i) thereafter, the Company is unable to accommodate any future such conversions because of a lack of authorized, but unissued or unreserved, shares or (ii) the public market price for a share of Common Stock becomes “no bid”), Trava shall continue to exercise its conversion rights in respect of all of such notes (to the 4.9% limitations set forth therein) and shall diligently sell the shares of Common Stock into which any or all of such notes may be converted (collectively, the “Underlying Shares”) in open market or other transactions (subject to any limitations imposed by the Federal securities laws and set forth in any “leak-out” type of arrangements in respect of the “underlying shares” to which Trava is a party).

 

Trava acknowledged that any proceeds derived by it from such sales of the underlying shares shall, on a dollar-for-dollar basis, reduce the Company’s financial obligations under the notes. Once Trava has received sufficient proceeds from such sales to reduce the aggregate obligations thereunder to nil (which reductions shall include any and all funds that Trava may have otherwise received in connection with the respective rights and obligations of the parties to the MSA), then the MSA shall be deemed to have been cancelled without any further economic obligations between Trava and the Company and Trava’s purchase right shall, accordingly, be extinguished.

 

NOTE 10 – SUBSEQUENT EVENTS

 

The Company evaluates events that have occurred after the balance sheet date of June 30, 2017, through the date which the Consolidated Financial Statements were issued. Based upon the review, other than described in Note 13 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the Consolidated Financial Statements.

 

Subsequent to June 30, 2017, the Company issued 31 convertible notes to third party lenders totaling $3,209,109. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 2018 through September 2020.

 

Subsequent to June 30, 2017, the Company issued 2 notes to third party lenders totaling $115,000. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between November 2018 through May 2019.

 

Subsequent to June 30, 2017, the Company settled Investor #2 notes with a principal balance of $2,595,895 for $2,350,000. The Company is currently in default on the settlement agreement.

 

Southwest Farms Note Modification

 

On June 20, 2018, Shi Farms entered into a loan modification agreement (the “Agreement”) to extend the term of the EWSD Secured Note. Pursuant to the Agreement, the maturity date of the EWSD Secured Note is extended to August 1, 2020, and Shi Farms will continue to make payments in the same manner as previously required through and including July 1, 2020, with the final balloon payment due and payable on August 1, 2020. Additionally, on May 31, 2019, Shi Farms paid Southwest Farms an additional required principal payment of $250,000, which does not reduce any regularly scheduled payments, but will reduce the final balloon payment.

 

Office Lease

 

On January 25, 2019, the Company entered into a seven-year operating lease for approximately 1,840 square feet of office space for employees in Red Bank, New Jersey. Currently, the Company is operating out of a temporary space while the full space is prepared. The monthly rent is $1,200 for the temporary space which ends August 30, 2019. The minimum monthly lease payments, once the space is complete, will be $3,000.

 

Canbiola Joint Venture

 

On July 11, 2019, NY – SHI, LLC, a New York limited liability company (“NY – SHI”), and Shi Farms (collectively, the “Company Subs”) entered into a joint venture agreement (the “Joint Venture Agreement”) with Canbiola Inc., a Florida corporation (“Canbiola”), and NY Hemp Depot, LLC, a Nevada limited liability company (“Canbiola Sub”). The purpose of the joint venture is to develop and implement a business model referred to as the “Depot Model” to aggregate and purchase fully-grown, harvested industrial hemp from third-party farmers in the State of New York to be processed in any processing facility chosen by NY – SHI (the “Joint Venture”).

 

Pursuant to the Joint Venture Agreement, the Company Subs will jointly seek farmers to grow and cultivate industrial hemp in the State of New York for the Joint Venture. In addition, the Joint Venture may sell to the farmers feminized hemp seeds, clone plants, and additional materials required to grow and cultivate industrial hemp and provide to the farmers the initial training reasonably required for them to grow industrial hemp.

 

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Canbiola Sub is responsible for securing the building on behalf of the Joint Venture in the State of New York to house certain of the operations of the business of the Joint Venture (the “NY Hemp Depot Facility”). Canbiola Sub will manage and direct the day-to-day operations of the Joint Venture and provide farmer recruitment services. NY – SHI is responsible for providing to the Joint Venture technical expertise regarding the growth and cultivation of industrial hemp, a license from the New York State Department of Agriculture and Markets that permits the growth of industrial hemp (the “Cultivating License”), and the farmer recruitment services.

 

Upon the execution of the Joint Venture Agreement, Canbiola Sub delivered to NY – SHI a cash payment of $500,000 and, on July 22, 2019, Canbiola issued and delivered $500,000 in value of Canbiola’s common stock (a total of 12,074,089 shares) to NY– SHI, upon NY – SHI’s amendment of the Cultivating License to add the NY Hemp Depot Facility. Additionally, SHI Farms has agreed to sell certain isolate to Canbiola or its designated affiliate at the cost of processing the isolate from biomass and granted Canbiola Sub an interest in the one and one-half percent payments due to SHI Farms in connection with its agreements with Mile High Labs.

 

The “gross profits” from the Joint Venture, which are defined as gross revenues less certain direct operational costs, will be distributed quarterly in arrears with the first distribution scheduled to be made on March 31, 2020, of which 70% is to be distributed to Canbiola Sub and 30% is to be distributed to NY – SHI.

 

Aeon Investment and Royalty Agreement

 

On March 12, 2018, Shi Farms entered into an investment and royalty agreement (the “March 2018 Aeon Agreement”) with Aeon Funds, LLC (“Aeon”), whereby Aeon committed to use its best efforts to invest $1 million in Shi Farms. These funds will be used for growing and harvesting 100 acres of industrial hemp at the Farm from March 1, 2018 through November 30, 2019 (the “2018-2019 Crop”), and thereafter, for processing and marketing Shi Farms’ products.

 

Pursuant to the terms of the March 2018 Aeon Agreement, Shi Farms will pay royalties to Aeon in an amount equal to 50% of gross sales of product from the 2018-2019 Crop until the principal investment is fully repaid. Shi Farms will then pay 20% of gross sales of the 2018-2019 Crop to Aeon until gross sales equal $10 million. Once gross sales exceed $10 million, Shi Farms will pay Aeon 10% of gross sales. Payments will be made monthly until all products from the 2018-2019 harvest are sold. The March 2018 Aeon Agreement provides that the Company will also issue to Aeon shares of Common Stock valued at $100,000 and grants Aeon a five-year right of first negotiation, in the event Shi Farms seeks additional financing.

 

As of July 31, 2019, in connection with the March 2018 Aeon Agreement, Shi Farms had received an investment of $1,000,000.00 from Aeon and has repaid $1,374,892.91 of that investment.

 

AAG Harvest 2019 Revenue Sharing Agreement

 

On May 1, 2019, Shi Farms entered into a revenue sharing agreement (the “RS Agreement”) with AAG Harvest 2019, LLC, a Delaware limited liability company (“AAG Harvest”), whereby AAG Harvest agreed to invest a portion of the proceeds from its offering of limited liability company interests in Shi Farms. The RS Agreement provides that AAG Harvest will use its best efforts to provide up to $3,910,000 of funding (the “Funding”) to Shi Farms, and allows funding to increase to $7,100,000 by mutual agreement of Shi Farms and AAG Harvest. Shi Farms will use the funding to grow and harvest approximately 1,200 acres of industrial hemp at the Farm in Pueblo, Colorado, its co-op location in Oklahoma, and its co-op location in Southern Colorado from approximately May 2019 through November 2019 (the “2019 Crop”).

 

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In exchange for the investment, AAG Harvest will receive payments equal to 25% of Shi Farms’ gross sales of the 2019 Crop until AAG Harvest has received an amount equivalent to the amount of capital raised by AAG Harvest to fund the Funding (approximately 118% of the Funding). After AAG Harvest has received this amount, Shi Farms will pay 12.5% of gross sales of the 2019 Crop to AAG Harvest. Payments to AAG Harvest are due within 45 days of each calendar quarter until the 2019 Crop is entirely sold.

 

As of August 22, 2019, in connection with the RS Agreement, Shi Farms has received funding of $2,854,775 from AAG Harvest.

 

Preferred Units Placement Agreement

 

On November 19, 2018, Shi Farms entered into an agreement with AEON Capital, Inc. (“Aeon Capital”), whereby Aeon Capital provided placement agent services with respect to certain preferred membership units of the Company. In consideration for the services provided, Shi Farms has agreed to pay Aeon Capital a cash fee of up to 10% of the gross proceeds from the sale of units to investors introduced by Aeon Capital, and 2.5% of the gross proceeds from the sale of units to investors introduced by the Company. In connection with this agreement, Aeon Capital has placed $3,915,000 in preferred membership units, for which Shi Farms has paid fees of $193,490.

 

Mile High Labs – Partner Farm and Supply Agreements

 

Partner Farm Agreement

 

On May 10, 2019, Shi Farms entered into a partner farm agreement (the “Partner Farm Agreement”) with Mile High Labs, Inc., a Colorado corporation (“Mile High”), whereby Shi Farms has agreed to produce, sell and/or deliver certain dried hemp products (the “Product”) to Mile High, and Mile High has agreed to purchase such Product from Shi Farms and/or provide certain processing services (the “Processing Services”). Among other obligations, Shi Farms has agreed to provide a physical location to perform such Processing Services on the Farm, the infrastructure necessary to access the Farm and the construction of certain structures for the purpose of conducting the Processing Services on the Farm. Among other obligations, Mile High is required to provide, transport and install all necessary equipment to operate the processing facilities located on the Farm, subject to the terms and provisions therein. Mile High has also agreed to provide Shi Farms with priority processing services for the Product specified in the Partner Farm Agreement, of up to 25% of the production capacity of the processing facilities operated by Mile High on the Farm. The Partner Farm Agreement will have an initial term of five years and shall renew automatically thereafter for one-year increments and is terminable by either Mile High or Shi Farms upon 60 days’ written notice. Shi Farms will receive 20% of all sales of the Product and Mile High will receive 80% of the sales price, subject to the payment schedule and terms attached thereto.

 

Supply Agreement

 

In connection with, and pursuant to, the Partner Farm Agreement, Shi Farms also entered into a supply agreement (the “Supply Agreement”), on May 10, 2019, with Mile High, whereby Shi Farms will produce and sell to Mile High, and Mile High will purchase and accept from Shi Farms, the Products enumerated in the Partner Farm Agreement and the Supply Agreement in quantities specified in the two agreements and by Mile High. Pursuant to the Supply Agreement, Mile High and Shi Farms have agreed, among other things, to sell the Product as partners and to co-brand the finished Product. Should Mile High establish a cooperative advertising and promotional program, Shi Farms will be required to pay additional fees. The initial term of the Supply Agreement is five years and shall renew automatically thereafter for one-year increments and is terminable by either Mile High or Shi Farms upon 60 days’ written notice.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, Notis Global’s audited annual financial statements and the related notes thereto as filed with the Securities and Exchange Commission (“SEC”) on January 8, 2019. This discussion contains certain forward-looking statements that involve risks and uncertainties, as described under the heading “Forward-Looking Statements” in this quarterly report. Actual results could differ materially from those projected in the forward-looking statements. For additional information regarding these risks and uncertainties, please see the disclosure under the heading “Risk Factors” elsewhere in this quarterly report.

 

We believe that our assumptions are based upon reasonable data derived from and known about our business and operations and the business and operations of the Company. No assurances are made that actual results of operations or the results of our future activities will not differ materially from its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s products and services and competition.

 

Overview

 

Historically, we established joint ventures and entered into operating and management agreements with our partners and acted as a distributor of hemp products processed by our contractors. We previously generated revenue from various sources on a “one-time basis” for services that we provided to clients in helping them obtain licenses, build out and open dispensaries and cultivation centers. Prior to 2017, we sold a line of portable vaporizers and accessories under the brand name Vaporfection. We discontinued these business operations in 2016 to focus on our current business in the industrial hemp industry.

 

Based upon our knowledge and expertise in the regulation of the industrial hemp industry, our business plan involves creating a sustainable business model to grow crops and manufacture products from hemp farmland and to market, sell, and distribute hemp derivative products such as CBD distillate and isolate, while exploring other business opportunities that complement our core business.

 

We operate through the following subsidiaries:

 

  Shi Farms, which cultivates and processes industrial hemp at a 320-acre farm in Pueblo, Colorado;
     
  NY – SHI, which conducted our pilot study in New York and will be our joint venture partner with Canbiola and Canbiola Sub;
     
 

SHI Cooperative, which contracts with third-party farmers to cultivate hemp in, among other areas, Colorado, Nevada, and Oklahoma;

     
  Pueblo Agriculture Supply and Equipment LLC “PASE”, which owns dehydration equipment;
     
  SOCO Processing, which will construct a pre-processing plant as part of the Partner Farm Agreement and Supply Agreement with Mile High; and
     
  Rock Acquisition Corporation, which will manage land containing potential sand and gravel assets in Pueblo, Colorado, under a mining permit with the State of Colorado.

 

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Comparison of the three months ended June 30, 2017 and 2016

 

The Company reported a consolidated net loss of approximately $36.2 million for the three months ended June 30, 2017 and consolidated net income of approximately $6.5 million for the three months ended June 30, 2016. The fluctuation of approximately $42.8 million was due to a decrease in the change in fair value of the derivative liabilities of approximately $42.5 million. This was offset by an increase in change in fair value of warrant liability.

 

Revenue

 

Revenue was $46,805 for the three months ended June 30, 2017, compared to $122,347 for the three months ended June 30, 2016. The decrease of approximately $75,542 in total revenue was due to the shift in its business plan. The Company’s revenues declined as they anticipated the sale of hemp and its derivative products.

 

Cost of revenue

 

Cost of revenues decreased by approximately $143,352 for the three months ended June 30, 2017, as compared to the same period of 2016 because our revenues declined for the same period. Our CBD oil sale program launched in the first quarter of 2016 and the Company incurred cost of revenue related to procurement of CBD oils in the amount of approximately $28,204 during the three months ended June 30, 2017, as compared to $93,000 for the same period of 2016.

 

Operating Expenses

 

Operating expenses consist of all other costs incurred during the period, other than cost of revenue. The Company incurred approximately $1.2 million in operating expenses for the three months ended June 30, 2017, compared to approximately $2.5 million for the three months ended June 30, 2016. The decrease of approximately $1.3 million was primarily due to the decrease in general and administrative expenses that amount due to the closing of the Company’s headquarter office in Los Angeles, California, as well as the Company’s revised business plan resulting in certain discontinued operations. General and administrative expenses consist primarily of salary costs, including stock-based compensation, professional costs, including the costs associated with being a public company and consultants, rent, and other costs.

 

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Other Expense

 

Other expense decreased by approximately $44.2 million, primarily from the decrease on change in fair value of derivative liabilities, gain on sale of interest in subsidiary, and the increase of interest expense.

 

Net Loss

 

The net loss for June 30, 2017 was approximately $36.2 million compared to net income of $6 million for June 30, 2016. The decrease of approximately $42.8 million was primarily due to the increase in total other income (expense).

 

Comparison of the six months ended June 30, 2017 and 2016

 

The Company reported a consolidated net loss of approximately $46.5 million for the six months ended June 30, 2017 and consolidated net income of approximately $7.8 for the six months ended June 30, 2016. The fluctuation of approximately $54.3 million was due to a decrease in the change in fair value of the derivative liabilities of approximately $51.4 million and the increase in interest expense.

 

Revenue

 

Revenue was $136,195 for the six months ended June 30, 2017, compared to $261,575 for the three months ended June 30, 2016. The decrease of approximately $125,380 in total revenue was  due to the Company executing its business plan and increasing the size of its agricultural capacity by farming on 15 acres. The net result was an increase in biomass that we processed into CBD, which allowed us to commence sales of CBD. During the first quarter of 2017, the Company launched the Company launched its hemp cultivation business utilizing its corporate-owned farm in Pueblo, Colorado. Due to the shift in its business plan, the company’s revenues declined as they anticipated the sale of hemp and its derivative products.

 

Cost of revenue

 

Cost of revenues decreased by approximately $178,430 for the six months ended June 30, 2017 as compared to the same period of 2016 because our revenues declined for the same period. Our CBD oil sale program launched in the first quarter of 2016 and the Company incurred cost of revenue related to procurement of CBD oils in the amount of approximately $85,042 during the six months ended June 30, 2017, $122,406 as compared to for the same period of 2016.

 

Operating Expenses

 

Operating expenses consist of all other costs incurred during the period other than cost of revenue. The Company incurred approximately $2.4 million in operating expenses for the six months ended June 30, 2017 compared to approximately $6.4 for the six months ended June 30, 2016. The decrease of approximately $4.0 million was primarily due to the decrease in general and administrative expenses that amount due to the closing of the Company’s headquarter office in Los Angeles, California, as well as the Company’s revised business plan resulting in certain discontinued operations. General and administrative expenses consist primarily of salary costs, including stock-based compensation, professional costs, including the costs associated with being a public company and consultants, rent, and other costs.

 

Other Income (Expense)

 

Other expense decreased by approximately $58.5 million, primarily from the decrease on change in fair value of derivative liabilities, gain on sale of interest in subsidiary, and an increase of 5.6 million on interest expense.

 

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Net Loss

 

The net loss for June 30, 2017 was approximately $46.5 million compared to net income of $7.8 million for June 30, 2016. The decrease of approximately $54.3 million was primarily due to the increase in total other income (expense).

 

Liquidity and Capital Resources

 

As of June 30, 2017, the Company had cash on hand of approximately $27,660 compared to approximately $23,967 at December 31, 2016.

 

Cash Flow

 

During the six months ended June 30, 2017, cash was primarily used to fund operations of the Company, as well as developing the Farm.

 

   For the six months ended June 30, 
Cash flow  2017   2016 
Net cash used in operating activities  $(1,030,164)  $(2,126,420)
Net cash provided by (used in) investing activities   (588,063)   116,814 
Net cash provided by financing activities   1,721,451    2,724,133 
Cash Flows from discontinued operations   (99,531)   (767,361)
           
Net change in cash  $3,693   $(52,834)

 

Cash Flows – Operating Activities

 

During the six months ended June 30, 2017, cash flows used in operating activities were approximately $1.1 million, consisting primarily of a change in fair value of derivative liability and the increase in the note principal increase upon default.

 

Cash Flows – Investing Activities

 

During the six months ended June 30, 2017, the company had cash flows used in investing activities of $588,063 consisting of payments made for investment in PCH.

 

Cash Flows – Financing Activities

 

During the six months ended June 30, 2017, cash flows provided by financing activities were approximately $1.7 million, consisting primarily of $95,527 of gross proceeds from the issuance of notes payable, $1,706,000 gross proceeds from the issuance of convertible notes payable, these were offset by the company repaying its debt obligations of $392,507.

 

Future Liquidity and Cash Flows

 

Management believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, proceeds from current and future expected debt issuances and proceeds from future share capital issuances, if any, may not be sufficient to fund the Company’s net cash requirements through January 2018. As noted in the footnotes to the accompanying Condensed Consolidated Financial Statements, the Company recently received a Notice of Default from a creditor following non-payment of the balance under a certain promissory note at maturity thereof, pursuant to which the Company will incur penalties and an increased interest rate as well as potential legal expenses associated with the creditor’s legal actions. (See Item 1A. Risk Factors elsewhere in this document) As of the date of this filing, the Company is in technical default on all notes outstanding. The Company is unable to predict the outcome of these matters, however, legal action taken by the Company’s lenders could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and their ability to raise funds in the future. In order to execute the Company’s long-term growth strategy, which may include selected acquisitions of businesses or facilities that may bolster the Company’s CBD oil extraction business or real estate for the cultivation of hemp, the Company will need to raise additional funds through public or private equity offerings, debt financings, or other means.

 

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The Company’s financial statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. During the six months ended June 30, 2017, the Company had a net loss of approximately $46.8 million, negative cash flow from operations of $1.6 million and negative working capital of $88.4 million. The Company will need to raise capital in order to fund its operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement a business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

On July 17, 2015, the Company entered into an Agreement of Purchase and Sale of Membership Interest with East West Secured Development, LLC to purchase 100% of the membership interest of EWSD I, LLC which has entered into an agreement with Southwest Farms, Inc. to purchase certain real property comprised of 320-acres of agricultural land in Pueblo, Colorado (the “Farm”). The Farm is expected to yield revenue and profits for the Company in future years, through farming hemp, extracting CBD oil and controlling the full production cycle to ensure consistent quality.

 

With an eye focused on the future - and ultimately anticipated FDA approval of hemp and CBD oil production and sales in the United States - we are honing our focus to controlling our supply chain initially through our production on the Farm in Pueblo, Colorado. From “Seed to Sale” - Notis Global will influence its own destiny by controlling our ecosystem. We intend to oversee and execute everything from growing and cultivating the highest quality plants to managing extraction and production of our products. We believe this tight control of our supply chain will eventually be mandated by the Federal Government as a condition of legalizing hemp and CBD Oil production, manufacturing and distribution in the United States. We have elected to take action now - and intend to lead our industry by doing so. Our decision to terminate the Whole Hemp Agreement comports with our long-term strategy to maintain tight control of our supply chain.

 

Special Meeting of the Stockholders to Increase Authorized Common Stock

 

On April 15, 2016, at a special meeting of the stockholders of the Company, the stockholders of the Company holding a majority of the total shares of outstanding common stock of the Company voted to amend the Company’s Articles of Incorporation to increase the number of authorized shares of common stock of the Company from 400,000,000 to 10,000,000,000 (the “Certificate of Amendment”). The Certificate of Amendment was filed with the Nevada Secretary of State and was declared effective on April 18, 2016.

 

Additionally, management is actively seeking additional financing and expects to complete additional financing arrangements in the next few months. The Company expects that these plans will provide it the necessary liquidity to continue operations for the next 12 months.

 

The Company will continue to execute on its business model by attempting to raise additional capital through the sales of debt or equity securities or other means. However, there is no guarantee that such financing will be available on terms acceptable to the Company, or at all. If the Company is unable to obtain adequate debt or equity financing, it may be forced to slow or reduce the scope of operations and expansion, and its business would be materially affected.

 

It is uncertain whether the Company can obtain financing to fund operating deficits until profitability is achieved or until revenues increase. This need may be adversely impacted by: unavailability of financing, uncertain market conditions, the success of the crop growing season, the demand for CBD oil, the ability of the Company to obtain financing for the equipment and labor needed to cultivate hemp and extract the CBD oil, and adverse operating results. The outcome of these matters cannot be predicted at this time.

 

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Item 1A. Risk Factors.

 

Investing in our common stock involves a high degree of risk. Current investors and potential investors should consider carefully the risks and uncertainties described below together with all other information contained in this Report before making investment decisions with respect to our common stock. Our business, financial condition, and operating results can be affected by a number of factors, whether currently known or unknown, including, but not limited to, those described below, any one or more of which could, directly or indirectly, cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. If any of the following risks actually occur, our business, financial condition, results of operations, and our future growth prospects would be materially and adversely affected. Under these circumstances, the trading price and value of our common stock could decline, resulting in a loss of all or part of your investment. The risks and uncertainties described in this Report are not the only ones facing us. Additional risks and uncertainties of which we are not presently aware, or that we currently consider immaterial, may also affect our business operations.

 

Past financial performance should not be considered to be a reliable indicator of future performance, and current and potential investors should not use historical trends to anticipate results or trends in future periods.

 

Risks Related to our Securities

 

There is no assurance that we will ever have enough authorized shares of common stock to honor the conversion or exercise of its convertible notes, warrants, and other derivative securities.

 

Our Articles of Incorporation authorize 10,000,000,000 shares of common stock and 10,000,000 shares of preferred stock. As of November 26, 2019, our Board has authorized the issuance of all of the shares of Common Stock, of which shares 9,982,923,868 are held of record or in street name by our stockholders. As of such date, all of the shares of Preferred Stock remain unissued and undesignated. We may also be obligated to issue an additional 8,700,000,000 shares of common stock including shares of common stock issuable upon exercise of options and warrants and excluding shares of common stock issuable upon conversion of convertible notes. There is no assurance that we will ever have enough authorized shares of common stock to honor the exercise and conversion requests of our options and warrants.

 

We can sell additional shares of common stock or securities convertible into shares of common stock, without consulting stockholders and without offering shares to existing stockholders, which would result in dilution of existing stockholders’ interests in our company and could depress our stock price.

 

Our Board is authorized to issue our common stock and preferred stock, up to the amounts authorized. As of the date of this Report, we do not have a material number of authorized but unissued shares of common stock available for issuance. Although our Board intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any future issuance of our capital stock, the future issuance of additional shares of our common stock or preferred stock convertible into common stock would cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a material effect on the market value of the shares.

 

In order to raise capital to fund our business plan, including developing and operating the Farm, and pay for our operating expenses, we have issued convertible debentures to our lenders that are convertible into shares of our common stock at a discount to the current market prices, upon conversion by the lenders. Conversion of these debentures, if, when, and as shares of common stock become available for such conversions of these debentures by the lenders, would result in an immediate and substantial dilution to holders of our common stock and could depress the price of our common stock, having a material effect on the market value of the shares.

 

Our stock price has been extremely volatile.

 

The market price of our common stock has periodically been extremely volatile and could be subject to further significant fluctuations due to changes in sentiment in the market regarding our operations or business prospects, among other factors.

 

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Among the factors that could affect our stock price are:

 

industry trends;
   
actual or anticipated fluctuations in our quarterly financial and operating results and operating results that vary from the expectations of our management or of securities analysts and investors;
   
our failure to meet the expectations of the investment community and changes in investment community;
   
recommendations or estimates of our future operating results;
   
announcements of strategic developments, acquisitions, dispositions, financings, product developments, and other materials events by us or our competitors;
   
regulatory and legislative developments;
   
litigation;
   
general market conditions;
   
other domestic and international macroeconomic factors unrelated to our performance; and
   
additions or departures of key personnel.

 

Because our common stock is not listed on any national securities exchange, investors may find it difficult to buy and sell our shares.

 

Our common stock is not listed on any national securities exchange. Accordingly, investors may find it more difficult to buy and sell our shares than if our common stock was traded on an exchange. Although our common stock is quoted on the OTC Pink® Open Market, it is an unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than The Nasdaq Stock Market, The New York Stock Exchange, NYSE American, or other national securities exchanges. These factors may have an adverse impact on the trading and price of our common stock.

 

Sales by our stockholders of a substantial number of shares of our common stock in the public market could adversely affect the market price of our common stock.

 

A substantial portion of our total outstanding shares of common stock may be sold into the market under Rule 144 promulgated under the Securities Act. Such sales could cause the market price of our common stock to drop, even if our business is doing well. Such sales may include sales by our officers and directors, who may have entered into pre-arranged stock trading plans to sell shares of our common stock beneficially owned by them, established under Rule 10b5-1 of the Exchange Act of 1934.

 

Furthermore, the market price of our common stock could decline as a result of the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and price that we deem appropriate.

 

Our preferred stock may have rights senior to those of our common stock, which could adversely affect holders of our common stock.

 

Our Articles of Incorporation gives our Board the authority to issue additional series of preferred stock without a vote or action by our stockholders. The Board also has the authority to determine the terms of preferred stock, including price, preferences, and voting rights. The rights granted to holders of preferred stock in the future may adversely affect the rights of holders of our common stock. Any such authorized class of preferred stock may have a liquidation preference – a pre-set distribution in the event of a liquidation – that would reduce the amount available for distribution to holders of common stock or superior dividend rights that would reduce the amount of dividends that could be distributed to common stockholders. In addition, an authorized class of preferred stock may have voting rights that are superior to the voting right of the holders of our common stock.

 

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We do not expect to pay any cash dividends in the foreseeable future.

 

We intend to retain our future earnings, if any, in order to reinvest in the development and growth of our business and, therefore, do not intend to pay cash dividends on our common stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, and such other factors as our Board deems relevant. Accordingly, investors may need to sell their shares of our common stock to realize a return on their investment, and they may not be able to sell such shares at or above the price paid for them.

 

Our common stock historically has been categorized as “penny stock,” which may make it more difficult for investors to sell their shares of common stock due to suitability requirements.

 

Our common stock is categorized as “penny stock.” The Securities and Exchange Commission (the “SEC”) adopted Rule 15g-9, which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Historically, the price of our common stock has been significantly less than $5.00 per share and we did not qualify for any of the other exceptions; therefore, our common stock is considered “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors.” The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 jointly with his or her spouse. The penny stock rules require a broker-dealer buying our securities, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability and/or willingness of broker-dealers to trade our securities, either directly or on behalf of their clients, may discourage potential investor’s from purchasing our securities, or may adversely affect the ability of our stockholders to sell their shares.

 

The Financial Industry Regulatory Authority, Inc. (“FINRA”), has adopted sales practice requirements that historically may have limited a stockholder’s ability to buy and sell our common stock, which could depress the price of our common stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements historically has made it more difficult for broker-dealers to recommend that their customers buy our common stock, which could limit your ability to buy and sell our common stock, have an adverse effect on the market for our shares, and thereby depress our price per share of common stock.

 

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Anti-takeover effects of certain provisions of Nevada state law hinder a potential takeover of us.

 

Nevada has a business combination law that prohibits certain business combinations between Nevada corporations and “interested stockholders” for three years after an “interested stockholder” first becomes an “interested stockholder,” unless the corporation’s board of directors approves the combination in advance. For purposes of Nevada law, an “interested stockholder” is any person who is (i) the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the outstanding voting shares of the corporation or (ii) an affiliate or associate of the corporation and at any time within the three previous years was the beneficial owner, directly or indirectly, of ten percent or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “business combination” is sufficiently broad to cover virtually any kind of transaction that would allow a potential acquirer to use the corporation’s assets to finance the acquisition or otherwise to benefit its own interests rather than the interests of the corporation and its other stockholders.

 

The potential effect of Nevada’s business combination law is to discourage parties interested in taking control of us from doing so if these parties cannot obtain the approval of our Board. Both of these provisions could limit the price investors would be willing to pay in the future for shares of our common stock.

 

Risks Related to Our Business

 

Our success is dependent on legalizing industrial hemp.

 

Continued development of the industrial hemp market is dependent upon continued legislative authorization of industrial hemp at the both the federal and the state level. The Farm Bill was signed into law in December 2018, which contained provisions to legalize the cultivation, processing, and sale of “industrial hemp” (hemp with no more than 0.3% THC) as well as narrowly provide for specific exceptions for CBD from its Schedule I status. For non-industrial hemp and CBD generally, even in those jurisdictions in which industrial hemp has been legalized at the state level, its prescription is a violation of federal law if it does not meet this specification. Pursuant to the Farm Bill, there will be significant shared state-federal regulatory power over industrial hemp cultivation and production. For additional information, see the heading “Government Regulations.” In certain states, such as Colorado, this may be based on the specifics of the legislation passed in that state, and on local governments authorizing a sufficient number of dispensaries. The federal government may at any time choose to change federal law, and, in the past, it has investigated hemp businesses in the various states in which we do business. Moreover, a change in the federal attitude towards enforcement could cripple the industry. While there may be ample public support for certain legislative proposals, key support must be created at the legislative committee level or a bill may never advance to a vote. Any one of these factors could slow or halt the progress of further industrial hemp adoption at the governmental level, which would limit the market for our products and negatively impact our business and revenues. Further, adverse actions taken by the federal government may lead to delays on our business operations, disruptions to our revenue streams, losses of substantial assets, and substantial litigation expenses.

 

We have a limited operating history and operate in a new industry, and we may not succeed.

 

We have a limited operating history and may not succeed. We are subject to all risks inherent in a developing business enterprise. Our likelihood of continued success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with manufacturing specialty products and the competitive and regulatory environment in which we operate. For example, the industrial hemp industry is a new industry that, as a whole, may not succeed, particularly if the Federal government changes course and decides to prosecute those dealing in industrial hemp under Federal law. If that happens, there may not be an adequate market for our products. As a new industry, there are not established players on whose business models we can follow or build upon. Similarly, there is limited information about comparable companies available for potential investors to review in making a decision about whether to invest in our company. Furthermore, as the industrial hemp industry is a new market, it is ripe for technological advancements that could limit or eliminate the need for our products.

 

Furthermore, unanticipated expenses, problems, and technical difficulties may occur, and they may result in material delays in the operation of our business, in particular with respect to our new products. We may not be able to successfully address these risks and uncertainties or successfully implement our operating strategies. If we fail to do so, such failure could materially harm our business to the point of having to cease operations and could impair the value of our common stock to the point investors may lose their entire investment.

 

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There is no track record for companies pursuing our strategy and, if our strategy is unsuccessful, we will not be profitable, and our stockholders could lose their investments.

 

There is no track record for companies pursuing our business strategy, and there is no guarantee that our business strategy will be successful or profitable. If our strategy is unsuccessful, we may fail to meet our objectives and not realize the revenues or profits from the business we pursue, which may cause our value to decrease, thereby potentially causing our stockholders to lose their investments. The success of our strategy will depend on numerous factors including:

 

  the success of our cultivation operations;
     
  our ability to build a brand;
     
  our ability to establish and develop a distribution network; and
     
  our ability to obtain adequate financing to continue carry out our business plan.

 

Our growth will depend upon a series of factors including the successful cultivation and harvest of the industrial hemp we grow on our property or through the third-party contractor farmers who grow on our behalf, the ability to process the harvested hemp raw material either through our own processing plant or through a toll processor, the ability to continue to build a sales pipeline, and the ability to acquire additional acreage to expand our cultivation operation and we may be unable to consummate acquisitions on advantageous terms, or at all.

 

Our growth strategy is focused on the acquisition of specialized real estate assets on favorable terms as opportunities arise. Our ability to acquire these real estate assets on favorable terms is subject to the following risks:

 

  competition from other potential acquirers may significantly increase the purchase price of a desired property;
     
  we may not successfully purchase and lease our properties to meet our expectations;
     
  we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all;
     
  agreements for the acquisition of properties are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate; and
     
  we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, against the former owners of the properties.

 

We are subject to risks inherent in an agricultural business, including the risk of crop failure.

 

We grow industrial hemp, which is an agricultural process. As such, our business is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather (including climate change), insects, plant diseases, and similar agricultural risks. There can be no assurance that natural elements, such as insects and plant diseases, will not entirely interrupt our production activities or have an adverse effect on our business.

 

Significant interruptions in our access to certain key inputs such as raw materials, electricity, water and other utilities may impair our growing operations.

 

Our business is dependent on a number of key inputs and their related costs, including raw materials, supplies, and equipment related to our operations, as well as electricity, water, and other utilities. Any significant interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or volatile energy costs could curtail or preclude our ability to continue production. In addition, our operations would be significantly affected by a prolonged power outage. Our ability to compete and grow industrial hemp is dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components. No assurances can be given that we will be successful in maintaining our required supply of labor, equipment, parts, and components.

 

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We may acquire a property or properties “as-is,” which increases the risk of an investment that requires us to remedy defects or costs without recourse against the prior owner.

 

We may acquire properties “as is” with only limited representations and warranties from the seller regarding matters affecting the condition, use, and ownership of the property. There may also be environmental conditions associated with properties we acquire of which we are unaware despite our diligence efforts, and for which we could be liable. In particular, current and potential future facilities may present environmental concerns of which we are not currently aware. If environmental contamination exists on properties we acquire or develops after acquisition, we could become subject to liability for the contamination. As a result, if defects on any of our properties (including any building on such properties) or other matters adversely affecting the properties are discovered, including, but not limited to, environmental matters, we may not be able to pursue a claim for any or all damages against the seller, which could harm our business, financial condition, liquidity, and results of operations.

 

The Company and our clients may have difficulty accessing the service of banks, which may make it difficult for them to purchase our products and services.

 

Despite industrial hemp’s legality under federal law given above, banks may choose not to accept deposits of funds derived from industrial hemp-based businesses. On February 14, 2014, the U.S. Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks “clarifying Bank Secrecy Act (“BSA”) expectations for financial institutions seeking to provide services to hemp-related businesses.” In addition, U.S. Rep. Jared Polis (D-CO) has stated he will seek an amendment to banking regulations and laws in order to allow banks to transact business with state-authorized hemp businesses. While these are positive developments, there can be no assurance this legislation will be successful, or that, even with the FinCEN guidance, banks will decide to do business with hemp retailers. The inability of potential clients in our target markets to open accounts and otherwise use the services of banks may make it difficult for such potential clients to purchase our products and services and could materially harm our business.

 

States and municipalities in which we do, or seek to do, business may have, or may adopt, laws that adversely affect our ability to do business.

 

While the federal government has the right to regulate hemp, which it has in fact done for industrial hemp processing resulting in industrial hemp with a THC value greater than 0.3%, state and municipal governments may adopt additional laws and regulations that may negatively affect industrial hemp businesses. States that currently have laws that permit industrial hemp activity could, in the future, reverse course and adopt new laws that further negatively affect hemp businesses. Additionally, municipal governments in these states may have laws that adversely affect hemp businesses, even though there are no such laws at the state level. For example, municipal governments may have zoning laws that restrict where hemp operations can be located and the manner and size of which they can expand and operate. These municipal laws, like the federal laws, may adversely affect our ability to do business, and adverse enforcement actions under these laws may lead to costly litigation and a closure of our businesses with which we have contracts or royalty-fee structures in place, in turn, affecting our own business. Moreover, if additional states do not adopt laws that legalize certain aspects of the hemp industry, we may not be able to expand our business in the manner in which we prefer.

 

Also, given the complexity and rapid change of the federal, state, and local laws pertaining to industrial hemp, we may incur substantial legal costs associated with complying with these laws and in acquiring the necessary state and local licenses required by our business endeavors. For example, some states permit entities to enter into joint venture relationships with individual license holders that provide for revenue sharing arrangements. In other states, revenue sharing is not permitted, and we accept fixed fees for our services. State and municipal governments may also limit the number of specialized licenses available or apply stringent compliance requirements necessary to maintain the license. These developments may limit our ability to expand our negatively affect our business model.

 

42
 

 

We received an event of default regarding a promissory note and are unable to predict the outcome of this matter.

 

On September 22, 2016, we received notice of an Event of Default and Acceleration from one of our lenders regarding a promissory note issued on March 14, 2016. On October 31, 2018, affiliates of YA PN, LTD. (“YA PN”), and we, entered into a forbearance agreement regarding the promissory notes (the “Forbearance Agreement”), a security agreement, related documents and the financing arrangements described within the Forbearance Agreement pursuant to which the affiliates of YA PN agreed not to enforce certain of its claims. Of an agreed upon amount of $2,350,000, we have paid $520,000 and YA PN assigned (with our permission) $1,408,000 to various otherwise unaffiliated entities. We still owe YA PN $422,000. As of the date of this filing, we remain in default of the Forbearance Agreement. We are unable to predict the ultimate outcome of these matters; however, legal action taken by YA PN, or the assignees, could have a material adverse effect on our financial condition, results of operations, and/or cash flows and our ability to raise funds in the future. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent on our ability to raise additional capital and implement its business plan.

 

We will require additional capital to finance our operations in the future, but that capital may not be available when it is needed and could be dilutive to existing stockholders.

 

We will require additional capital for future operations. We plan to finance anticipated ongoing expenses and capital requirements with funds generated from the following sources:

 

  cash provided by operating activities;
     
  cash provided by joint venture or related transactions;
     
  available cash and cash investments; and
     
  capital raised through debt and equity offerings.

 

Current conditions in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available only on unfavorable terms. As of the date of this Report, we do not have any significant number of shares of authorized, but unissued, common stock available for sale to any prospective investors on any terms. Our ability to raise additional capital will depend on conditions, available common stock, and in the capital markets, economic conditions and a number of other factors, many of which are outside our control, and on our financial performance. Accordingly, we cannot assure you that we will be able to raise additional capital at all or on terms that are acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our liquidity, financial condition, results of operations, and prospects. Furthermore, if we raise capital by issuing stock, the holdings of our existing stockholders will be diluted, and the market price of our common stock could decline.

 

43
 

 

If we raise capital by issuing debt securities, such debt securities would rank senior to our common stock upon our bankruptcy or liquidation. If we raise capital by issuing equity securities, they may be senior to our common stock for the purposes of dividend and liquidating distributions, which may adversely affect the market price of our common stock. Finally, upon dissolution or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock.

 

We and some of our subsidiaries are currently delinquent with their respective federal and applicable state tax returns filings for the years ending December 31, 2015, 2016, 2017, and 2018 and, therefore, we may incur additional taxes, interests, penalties, and costs, which could have a material adverse effect on us and our net operating losses.

 

Although we have been experiencing recurring losses, we are obligated to file tax returns for compliance with Internal Revenue Service regulations and that of applicable state jurisdictions. Our subsidiary, Shi Farms, has approximately $3.8 million of accumulated net operating losses through the year ended December 31, 2017. This net operating loss will be eligible to be carried forward for tax purposes at federal and applicable states level, but the use of such net operating losses may be subject to restrictions under applicable tax law. A full valuation allowance has been recorded related to the deferred tax assets generated from the net operating losses. We are currently delinquent in filing our tax returns for years ended December 31, 2015, 2016, 2017, and 2018.

 

44
 

 

The success of our new and existing products and services is uncertain.

 

We have committed, and hope to continue to commit, significant resources and capital to develop and market existing product and service enhancements and new products and services. To date, we have developed into a vertically integrated industrial hemp/CBD company. We have completed two successful indoor seed production pilots. These pilots have led to us planting approximately 8 acres of outdoor feminized seed production. We have scaled from 15 to 100 to 838 acres of outdoor hemp planting over the past 3 years. During this 3-year period, we have continued to expand our wholesale sale pipeline. We continue to work towards full vertical integration through our MH Agreements with Mile High. At this time, industrial hemp and industrial hemp derived products remain products that are relatively untested, and we cannot assure you that we will achieve market acceptance for these products and services, or other new products and services that we may offer in the future. Moreover, these and other new products and services may be subject to significant competition with offerings by new and existing competitors in the business of dispensing regulated pharmaceutical products. In addition, new products, services, and enhancements may pose a variety of technical challenges and require us to attract additional qualified employees. The failure to successfully develop and market these new products, services, or enhancements or to hire qualified employees could seriously harm our business, financial condition, and results of operations. Further, there is a risk that the market price of our products could decline which in turn would decrease profit margins.

 

If we are able to expand our operations, we may be unable to manage successfully our future growth.

 

If we are able to expand our operations in the United States, as planned, we may experience periods of rapid growth, which will require additional resources. Any such growth could place increased strain on our management, operational, financial, and other resources, and we will need to train, motivate, and manage employees, as well as attract management, sales, finance and accounting, international, technical, and other professionals. In addition, we will need to expand the scope of our infrastructure and our physical resources. Any failure to expand these areas and implement appropriate procedures and controls in an efficient manner and at a pace consistent with our business objectives could have a material adverse effect on our business and results of operations.

 

We may not be able to obtain adequate insurance coverage in respect of the risks our business faces, the premiums for such insurance may not continue to be commercially justifiable, or there may be coverage limitations and other exclusions which may result in such insurance not being sufficient to cover potential liabilities that we face.

 

We currently have insurance coverage, protecting many, but not all, of our assets and operations. Our insurance coverage is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities, including potential product liability claims, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, we may be exposed to material uninsured liabilities that could impede our liquidity, profitability or solvency.

 

Our business may expose us to product liability claims for damages resulting from the manufacture of our products. Product liability claims, whether or not we are ultimately held liable for them, could have a material adverse effect on our business and results of operations.

 

We may be subject to product liability claims if any of our products are alleged to be defective or cause harmful effects. Product liability claims, or other claims related to our products, regardless of their outcome, could require us to spend significant time and money in litigation, divert management time and attention, require us to pay significant damages, harm our reputation, or hinder acceptance of our products. Any successful product liability claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable or reasonable terms. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or inhibit the commercialization of our products.

 

45
 

 

Our prior operating results are not indicative of our future results if we are able to effectuate our business plan successfully.

 

You should not consider prior operating results with respect to revenues, net income, or any other measure to be indicative of our future operating results. In 2016, we transitioned to a new business model of growing and cultivating hemp, which commenced in 2017 with our initial hemp pilot study, now totaling 830 acres as of July 2019. The timing and amount of future revenues will depend almost entirely the success of our new model and our ability to service new customers. Our future operating results will depend upon many other factors, including:

 

  state and local regulation;
     
  our ability to implement our new business model;
     
  our success in expanding our business network and managing our prospective growth;
     
  our ability to develop and market products;
     
  the ability to hire additional qualified employees and consultants; and
     
  the timing of such hiring and our ability to control costs.

 

Our lack of adequate directors’ and officers’ insurance may also make it difficult for us to retain and attract talented and skilled directors and officers.

 

We are and may in the future be subject to additional litigation, including potential class action and stockholder derivative actions. Risks associated with legal liability are difficult to assess and quantify, and their existence and magnitude can remain unknown for significant periods of time. Although we have obtained directors’ and officers’ liability (“D&O”) insurance to cover such risk exposure for our directors and officers, the amount of directors’ and potential officers’ insurance we have obtained is lower than customary for public companies. Such insurance generally pays the expenses (including amounts paid to plaintiffs, fines, and expenses including attorneys’ fees of directors and covered officers) of officers and directors who are the subject of a lawsuit as a result of their service to the Company. The amount of D&O insurance we have obtained may not be adequate to cover such expenses should such a lawsuit occur, and our deductibles are higher than we may be able to pay. While neither Nevada law nor our Articles of Incorporation or bylaws require us to indemnify or advance expenses to our officers and directors involved in such a legal action, we have agreed to indemnify our officers and directors and may agree to indemnify other officers and directors in the future. Without adequate D&O insurance, the amounts we would pay to indemnify our directors and potential officers should they be subject to legal action based on their service to the Company could have a material adverse effect on our financial condition, results of operations, and liquidity. Furthermore, our lack of adequate D&O insurance may make it difficult for us to attract and retain talented and skilled directors and officers, which could adversely affect our business.

 

If we are unable to maintain effective internal control over our financial reporting, the reputational effects could materially adversely affect our business.

 

Under the provisions of Section 404(a) of the Sarbanes-Oxley Act of 2002, as amended by the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted rules requiring public companies to perform an evaluation of Internal Control over Financial Reporting (“Internal Controls”) and to report on our evaluation in our Annual Report on Form 10-K. Our Internal Controls constitute a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. However, as discussed in greater detail in Item 9A of this Report, we identified a material weakness in our Internal Controls. If our remediation of such reported material weaknesses is ineffective, or if in the future we are unable to maintain effective Internal Controls, resulting material restatements could occur, regulatory actions could be taken, and a resulting loss of investor confidence in the reliability of our financial statements could materially adversely affect the value of our common stock. We may be required to expend substantial funds and resources in order to rectify any deficiencies in our Internal Controls. Further, if lenders lose confidence in the reliability of our financial statements it could have a material adverse effect on our ability to fund our operations.

 

46
 

 

We depend upon key personnel, the loss of whom could seriously harm our business and our prospects.

 

Our operating performance is substantially dependent on the continued services of our key personnel. The unexpected loss of the services of any of such persons could have a material adverse effect on our business, operations, financial condition, and operating results, as well as the value of our common stock.

 

We incur increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives.

 

As a public company, we will incur significant legal, accounting, and other expenses. We may also lose status as an emerging growth company, which may further increase legal, accounting, and other expenses resulting from increased disclosure and compliance obligations. Our management and other personnel have limited experience operating a public company, which may result in operational inefficiencies or errors, or a failure to improve or maintain effective internal controls over financial reporting to ensure timely and accurate reporting of operational and financial results. Our existing management team will need to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, rules and regulations will continue to increase and will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly.

 

Laws and regulations affecting the industrial hemp industry are constantly changing, which could detrimentally affect our business, and we cannot predict the impact that future regulations may have on us.

 

Local, state, and federal industrial hemp laws and regulations are broad in scope and they are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or to alter one or more of our sales or marketing practices. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our revenues, profitability, and financial condition.

 

In addition, it is possible that regulations may be enacted in the future that will be directly applicable to us and our products. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. These potential effects could include, however, requirements for the revisions to our products to meet new standards, the recall, or discontinuance of certain products, or additional record keeping and reporting requirements. Any or all of these requirements could have a material adverse effect on our business, financial condition, and results of operations.

 

We, or the industrial hemp industry more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception.

 

We believe that the industrial hemp and CBD industry is highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy, and quality of the products distributed to consumers. The perception of the industry and products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention, and other publicity (whether or not accurate or with merit) both in the United States and in other countries relating to the consumption of hemp-based products, including unexpected safety or efficacy concerns arising with respect to hemp based products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention, or other research findings or publicity will be favorable to the industrial hemp and/or CBD markets. Adverse future scientific research reports, findings, and regulatory proceedings that are, or litigation, media attention, or other publicity that is, perceived as less favorable than, or that questions, earlier research reports, findings, or publicity (whether or not accurate or with merit) could result in a significant reduction in the demand for our products. Further, adverse publicity reports or other media attention regarding the safety, efficacy, and quality of industrial hemp, or our products specifically, or associating the consumption of CBD with illness or other negative effects or events, could adversely affect us. This adverse publicity could arise even if the adverse effects associated with hemp-based products resulted from consumers’ failure to use such products legally, appropriately, or as directed.

 

47
 

 

We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.

 

The industry in which we operate in general is subject to intense and increasing competition. Some of our competitors may have greater capital resources, facilities, and diversity of product lines, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products that will directly compete with ours. Due to this potential competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no assurances that competition will not lead to reduced prices for our product. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.

 

Litigation may adversely affect our business, financial condition, and results of operations.

 

From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.

 

We may experience breaches of security at our facilities or loss as a result of the theft of our products.

 

Because of the nature of our products and the limited channels for distribution, as well as the concentration of inventory in our facilities, we are subject to the risk of theft of our products and other security breaches. A security breach could result in a significant loss of available products, expose us to additional liability under applicable regulations and to potentially costly litigation or increase expenses relating to the resolution and future prevention of similar thefts, any of which could have an adverse effect on our business, financial condition, and results of operations.

 

We may be subject to risks related to our information technology systems, including the risk that we may be the subject of a cyber-attack and the risk that we may be in non-compliance with applicable privacy laws.

 

Our operations depend, in part, on how well we and our vendors protect networks, equipment, information technology (IT) systems, and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. Any of these and other events could result in IT system failures, delays, or increases in capital expenses. Our operations also depend on the timely maintenance, upgrade, and replacement of networks, equipment, and IT systems and software, as well as preemptive expenses to mitigate the risks of failures. The failure of IT systems or a component of IT systems could, depending on the nature of any such failure, adversely impact our reputation and results of operations.

 

48
 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits.

 

Exhibit
Number
  Description
31.1   Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
     
31.2   Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
     
32.1   Certification of Principal Executive Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
     
32.2   Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

 

49
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Notis Global, Inc.
     
Date: November 26, 2019 By: /s/ Ned L. Siegel
    Ned L. Siegel
    Executive Chairman
    (Principal Executive Officer)

 

50
 

 

EX-31.1 2 ex31-1.htm

 

CERTIFICATION PURSUANT TO

 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Ned L. Siegel, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Notis Global, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 26, 2019  
     
By: /s/ Ned L. Siegel  
  Ned L. Siegel  
Title: Executive Chairman  
  (Principal Executive Officer)  

 

 
 

 

EX-31.2 3 ex31-2.htm

 

CERTIFICATION PURSUANT TO

 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Charles K. Miller, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Notis Global, Inc.;
   
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
   
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
   
4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
     
  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
     
  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
     
  d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

November 26, 2019  
     
By: /s/ Charles K. Miller  
  Charles K. Miller  
Title: Director  
  (Principal Financial and Accounting Officer)  

 

 
 

 

EX-32.1 4 ex32-1.htm

 

CERTIFICATION PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Ned L. Siegel, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Quarterly Report on Form 10-Q of Notis Global, Inc. for the period ended June 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Notis Global, Inc.

 

November 26, 2019  
   
By: /s/ Ned L. Siegel  
  Ned L. Siegel  
Title: Executive Chairman  
  (Principal Executive Officer)  

 

 
 

 

EX-32.2 5 ex32-2.htm

 

CERTIFICATION PURSUANT TO

 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned, Charles K. Miller, hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Quarterly Report on Form 10-Q of Notis Global, Inc. for the period ended June 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
2. The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Notis Global, Inc.

 

November 26, 2019  
     
By: /s/ Charles K. Miller  
  Charles K. Miller  
Title: Director  
  (Principal Financial and Accounting Officer)  

 

 
 

 

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Mehdizadeh [Member] Bedrick [Member] Plaintiff Merritts [Member] Whole Hemp Plants [Member] Bank Leumi [Member] Pueblo Farm - Management Services Agreement [Member] Loan Modification Agreement [Member] EWSD Secured Note [Member] Joint Venture Agreement [Member] Canbiola Sub [Member] NY - SHI, LLC [Member] March 2018 Aeon Agreement [Member] Aeon Funds, LLC [Member] Principal Investment Fully Repaid [Member] Gross Sales Equal $10 Million [Member] Gross Sales Exceeds $10 Million [Member] RS Agreement [Member] AAG Harvest 2019, LLC [Member] Partner Farm Agreement [Member] Mile High Labs, Inc [Member] Liability Class [Axis] Warrant Liability [Member] Derivative Liability [Member] Southwest Farms [Member] East West Secured Development [Member] 30 Convertible Notes [Member] Investor #3 [Member] 4 Notes [Member] Measurement Input Type [Axis] Expected Dividend [Member] Expected Volatility [Member] Risk Free Interest [Member] 31 Convertible Notes [Member] 2 Notes [Member] Convertible Note [Member] Exercise Price [Member] Expected Term [Member] Document And Entity Information Entity Registrant Name Entity Central Index Key Document Type Document Period End Date Amendment Flag Current Fiscal Year End Date Entity Interactive Data Current Entity Current Reporting Status Entity Filer Category Entity Small Business Flag Entity Emerging Growth Company Entity Ex Transition Period Entity Shell Company Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] Assets Current assets Cash Capitalized agricultural costs Prepaid expenses and other current assets Assets of discontinued operations Total current assets Property and equipment, net Total assets Liabilities and Stockholders' Deficit Current liabilities Accounts payable Accrued expenses Accounts payable and accrued expenses - related parties Liabilities of discontinued operations Current portion of notes payable, net Notes payable - related parties Convertible notes payable, net Convertible notes payable - related parties Due on demand note Share restriction liability Derivative liability Warrant liability Total current liabilities Notes payable, less current portion Total liabilities Commitments and contingencies (Note 9) Stockholders' deficit Preferred stock, $0.001 par value: 10,000,000 authorized; 0 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively Common stock, $0.001 par value: 10,000,000,000 authorized, 9,961,300,000 and 9,942,223,868 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively Additional paid-in capital Treasury stock Accumulated deficit Total stockholders' deficit Total liabilities and stockholders' deficit Preferred stock, par value Preferred stock, shares authorized Preferred stock, shares issued Preferred stock, shares outstanding Common stock, par value Common stock, shares authorized Common stock, shares issued Common stock, shares outstanding Income Statement [Abstract] Revenue Operating expenses Cost of revenues General and administrative Total operating expenses Loss from operations Other income (expense) Interest expense, net Change in fair value of derivative liabilities Change in fair value of warrant liability Gain on sale of assets of subsidiary Gain on sale of interest in subsidiary Loss on failed business combination Other income (expense) Total other income (expense) Net income (loss) from continuing operations Discontinued operations Net loss from discontinued operations Income (loss) before provision for income taxes Net income (loss) Loss per share attributable to common stockholders Basic and diluted loss per share - continuing operations Basic and diluted loss per share from discontinued operations Basic and diluted loss per share Weighted average shares outstanding Basic Diluted Other comprehensive income (loss) Net income (loss) Unrealized gain from marketable securities Comprehensive income (loss) Statement of Cash Flows [Abstract] Cash flows from operating activities Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization Change in fair value of marketable securities Change in fair value of derivative liability Change in fair value of warrant liability Amortization of debt discount Financing costs Note principal increase upon default Loss on failed business combination Stock based compensation Loss on sale of assets of subsidiary Bad debt Changes in operating assets and liabilities: Accounts receivable Inventory Capitalized agricultural costs Deposits in escrow Prepaid expenses and other current assets Deferred costs Deposits and other assets, net of reserve of $115,000 and $115,000, respectively Deposits and other assets, net of reserve Accounts payable Accrued expenses Accounts payable and other accrued expenses - related parties Other accrued expenses Accrued expenses - related parties Accrued legal contingencies Net cash used in operating activities Changes related to discontinued operations Cash flows from investing activities Payments made for investment in PCH Issuance of note receivable Proceeds from the sale of property and equipment, net Proceeds received for sale of rights and assets Net cash provided by (used in) by investing activities Cash flows from financing activities Cash overdraft Proceeds from issuance of notes payable Proceeds from issuance of notes payable, related party Payments on notes payable Payments on notes payable - related party Proceeds from issuance of demand loan Exercise of employee stock options Proceeds from issuance of convertible notes payable, net of fees Proceeds from issuance of convertible notes payable from related parties, net Payments on convertible notes payable Net cash provided by financing activities Net change in cash and cash equivalents Cash, beginning of year Cash, end of year Supplemental disclosures of cash flow information: Cash paid for interest Non-cash investing and financing activities: Common stock issued upon debt conversion Account payable assigned to note payable - related party Account payable assigned to convertible note payable - related party Account payable assigned to convertible notes payable Account payable assigned to note payable Issuance of warrants in connection with convertible debentures Exchange of notes payable and accrued interest to convertible notes Exchange of convertible notes payable and accrued interest to convertible notes Advances on machinery paid directly by lender OID - notes payable OID - convertible notes payable Convertible notes payable assigned to notes payable Cancellation of notes payable for land Debt discount additions for notes payable Exchange of notes payable to related party to convertible notes payable related party Investor contribution Unrealized gain on marketable securities Common stock issued for settlements Treasury stock Share Restriction Liability Reserve of deposits and other assets Organization, Consolidation and Presentation of Financial Statements [Abstract] Business Organization, Nature of Operations Accounting Policies [Abstract] Summary of Significant Accounting Policies Inventory Disclosure [Abstract] Inventory and Capitalized Agricultural Costs Investments Schedule [Abstract] PCH Investment Debt Disclosure [Abstract] Convertible Notes Payable and Derivative Liability Notes Payable Equity [Abstract] Stockholders' Deficit Discontinued Operations and Disposal Groups [Abstract] Discontinued Operations Commitments and Contingencies Disclosure [Abstract] Commitments and Contingencies Subsequent Events [Abstract] Subsequent Events Going Concern Basis of Presentation - Unaudited Interim Financial Information Principles of Consolidation Use of Estimates Discontinued Operations Concentrations of Credit Risk Fair Value of Financial Instruments Warrants Revenue Recognition Cash and Cash Equivalents Accounts Receivable and Allowances Inventory Capitalized Agricultural Costs Basic and Diluted Net Income/Loss Per Share Property and Equipment Income Taxes Commitments and Contingencies Recent Accounting Pronouncements Management's Evaluation of Subsequent Events Schedule of Fair Value Measurement on a Recurring Basis of Assets and Liabilities Schedule of Fair Value of Company's Level 3 Financial Liabilities Measured at Fair Value on a Recurring Basis Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share Schedule of Estimated Useful Lives for Significant Property and Equipment Schedule of Inventory Summary of Convertible Notes Payable Schedule of Notes Payable Schedule of Activity Related to Restricted Stock Units (RSU's) Schedule of Expense Related to Restricted Stock Schedule of Valuation Assumption for Warrants Summary of Warrant Activity Schedule of Income (Loss) from Discontinued Operation Statement [Table] Statement [Line Items] Statistical Measurement [Axis] Area of land aquired Number of operating subsidiaries Number of common shares authorized (in shares) Net income loss Cash flow from operations Working capital Debt instrument stock price Debt instrument stock price, description FDIC insured amount Cash equivalents Allowance for doubtful accounts Impairment of inventory Warrants to purchase common stock Debt conversion, shares issued at holder's option Debt instrument, conversion price Debt conversion trading price percentage Debt conversion, trading days Fair Value, by Balance Sheet Grouping [Table] Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] Total liabilities Beginning balance Initial recognition of conversion feature Initial recognition of warrant liability Change in fair value of conversion feature Ending Balance Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table] Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] Totals Property, Plant and Equipment [Table] Property, Plant and Equipment [Line Items] Estimated useful life Finished goods Inventory, Current [Table] Inventory [Line Items] Inventory, gross Less Discontinued Operations Total inventory, net Collaborative Arrangement and Arrangement Other than Collaborative [Axis] Stock acquired during period Business combination, consideration transferred Acquisition percentage Optioned shares expiry date Gross profit percentage Annual gross profit, milestone Gross profit milestone method, description Term of agreement Debt instrument, face value Debt instrument, interest rate Debt instrument, description Value of lending obligation Percentage of purchase price shares equal to stock Option agreement, description Loss on termination of the PCH transaction Schedule of Long-term Debt Instruments [Table] Debt Instrument [Line Items] 18 Promissory Notes [Member] Upon Default [Member] Principal amount Proceeds from convertible note Debt original issue discount Repayments of convertible debt Debt principal and interest Debt instrument, maturity date description Debt instrument, convertible terms of conversion Debt discount rate Derivative liability Debt discount Accrued interest, percentage Late fee, percentage Debt principal increase, percentage Interest expense Prommisory note reclassed to Convertible notes payable Debt instrument, increase for period Debt instrument, maturity date Number of warrants issued to purchase of common stock Purchase price of warrants Convertible notes payable Less discounts Less current maturities Convertible notes payable, net of current maturities Repayments of notes payable Debt face amount Proceeds from notes payable Original issue discount Maturity date description Debt convertible default rate Notes payable gross Plus premium Notes payable total Less current maturities Notes payable noncurrent Schedule of Share-based Compensation Arrangements by Share-based Payment Award [Table] Share-based Compensation Arrangement by Share-based Payment Award [Line Items] Chairman [Member] Plan Name [Axis] 2014 Equity Incentive Plan [Member] Preferred stock, voting rights Number of common stock, shares issued Aggregate intrinsic value of warrants outstanding Aggregate intrinsic value of warrants exercisable Warrants exercised Warrants outstandinig, shares Warrant black scholes description RSUs non-vested , beginning balance RSUs granted RSUs vested RSUs forfeited RSUs non-vested, ending balance RSUs non-vested Grant date fair value, beginning balance RSUs Grant date fair value, granted RSUs Grant date fair value, vested RSUs Grant date fair value, forfeited RSUs non-vested Grant date fair value, ending balance Share based compensation Warrants, measurement input Warrants, term Share-based Payment Arrangement [Abstract] Warrants Outstanding, Beginning Balance Warrants, Granted Warrants, Exercised Warrants, Forfeited/cancelled Warrants Outstanding, Ending Balance Weighted Average Exercise Price Outstanding,beginning Balance Weighted Average Exercise Price, Granted Weighted Average Exercise Price, Exercised Weighted Average Exercise Price, Forfeited/cancelled Weighted Average Exercise Price Outstanding, Ending Balance Weighted Average Remaining Days Price Outstanding, Beginning Balance Weighted Average Remaining Days Price, Granted Weighted Average Remaining Days Price, Exercised Weighted Average Remaining Days Price, Forfeited/cancelled Weighted Average Remaining Days Price Outstanding, Ending Balance Sale of assets Disposal interest rate, description Revenue Revenue, related party Net revenue Cost of revenues Gross profit (loss) General and administrative Total operating expenses Loss from operations Interest expense, net Gain on sale of assets of subsidiary Loss on sale of rights and assets Other income (expense) Total other income (expense) Net income (loss) Purchase price to acquire property Escrow deposit Rent expenses Sublease term Litigation damages awarded Compensation cost per month Payment of common stock Litigation settlement Number of common stock issuable Ownership percentage Investment owned Shares repurchased during the period Cash payment to a settlement Number of shares issued for settlement escrow account Payment in settlement of escrow account Litigation payment, description Debt description Subsequent Event [Table] Subsequent Event [Line Items] Debt instrument, settlement amount Additional principal payment Operating lease term Area of land Monthly rent expense Minimum monthly lease payments Cash payments to joint venture Percentage of gross profit Investments Agreement description Number of common stock, value issued Repayments of debt Maximum funding amount Increase in funding amount Received funding amount Preferred membership units Cash fees paid Account payable assigned to convertible note payable ? related party. Account payable assigned to convertible notes payable. Account payable assigned to note payable - related party. It represents value of advances on machinery paid directly by lender. Amount of amortization expense attributable to debt issuance costs. before September 30, 2017 [Member] CBD Oil [Member] Cancellation of notes payable for land. It represents value of capitalized agricultural costs. Convertible Note [Member] Convertible Note Purchase Agreement [Member] Convertible notes payable assigned to notes payable. Convertible Notes - Related Party [Member] Director One [Member] Director Two [Member] EWSD 1, LLC [Member] East West Secured Development, LLC [Member] Exchange of convertible notes payable and accrued interest to convertible notes. Exchange of notes payable and accrued interest to convertible notes. Exchange of notes payable to related party to convertible notes payable related party. Farming Agreement [Member] Growers&#8217; Distributor Agreement [Member] Impairment of inventory. Inventory less discontinued operations. Investor contribution. Investor #5 [Member] Investor #4 [Member] Investor #1 [Member] Investor #2 [Member] Issuance of warrants in connection with convertible debentures. MJ Property Investments [Member] Noteholder [Member] Number of subsidiaries formed during the period. OTC Markets Group, Inc. [Member] OID ? convertible notes payable. OID notes payable. Operating Agreement [Member] PCH Management Agreement [Member] PCH Option Agreement [Member] PCH Investment Group, Inc [Member] The cash inflow from construction costs to date on capital projects that have not been completed and assets being constructed that are not ready to be placed into service. Proceeds from issuance of convertible notes payable from directors, net. Promissory Note [Member] Real Estate Purchase Agreement [Member] San Diego Sunrise, LLC [Member] Schedule of Estimated Useful Lives for Significant Property and Equipment [Table Text Block] Senior Secured Convertible Promissory Note [Member] Settlement Agreement [Member] Southwest Farms, Inc. [Member] Subordinated Convertible Promissory Note [Member] Sunrise Property Investments, LLC [Member] Third Party Lenders [Member] Unrealized gain on marketable securities. Unsecured Promissory Note [Member] Information by business combination vaporfection international inc. Referse value of warrant liabilities as on balance sheet. Share restriction liability. Loss on PCH Accrued legal contingencies. Deposits and other assets, net of reserve of $115,000 and $115,000, respectively Cash overdraft. Note principal increase upon default. Account payable assigned to note payable. Debt discount additions for notes payable. Reserve of deposits and other assets. Amortization of debt discount. Capitalized agricultural costs. Working capital. Initial recognition of warrant liability. Folium Biosciences LLC [Member] Information pertaning to percentage of gross profit. Biomass [Member] To be Purchased Shares [Member] PCH Optioned Shares [Member] Pre-acquisition Loans [Member] Working Capital Obligation [Member] Transaction Related to Fees and Expenses [Member] Partially to Repay [Member] Partially to Repay [Member] Restated Security and Pledge Agreement [Member] Annual gross profit, milestone. Term of agreement. Value of lending oblligation. Percentage of purchase price shares equal to stock. Option agreement, description. Board Notes [Member] Accrued interest, percentage. Late fee, percentage. Debt principal increase, percentage. One Convertible Note [Member] Two Convertible Note [Member] Purchase price of warrants. Share-based Compensation Award, Tranche One [Member] Five Tranches [Member] PCH Shareholders [Member] Gross profit milestone method, description. Gross profit percentage. Crystal v. Medbox, Inc [Member] Chairman [Member] 2014 Equity Incentive Plan [Member] Aggregate intrinsic value of warrants outstanding. Aggregate intrinsic value of warrants exercisable. Warrant black scholes description. Weighted average price at which grantees can acquire the shares reserved for issuance under the stock non-option equity plan. Weighted average per share amount at which grantees can acquire shares of common stock by exercise of non-option equity. Weighted average price at which non-option equity holders acquired shares when converting their non-option equity into shares. Share based compensation arrangement by share based payment award non option equity instruments expired in period weighted average exercise price. Weighted average remaining days price outstanding, beginning balance. Weighted average remaining days price, granted. Weighted average remaining days price, exercised. Weighted average remaining days price, forfeited/cancelled. Weighted average remaining days price outstanding, ending balance. Two Convertible Notes [Member] Three Convertible Notes [Member] Disposal interest rate, description. Revenue, related party. Net revenue. Gain on sale of assets of subsidiary. Loss on sale of rights and assets. Total other income (expense). Net loss. Acquisition Agreement [Member] Lease Agreement [Member] West Hollywood, California [Member] Prescription Vending Machines, Inc [Member] Consulting Agreement [Member] Shares Tranches [Member] MedVend Holdings LLC [Member] Purchase and Sale Agreement [Member] PVM International Inc [Member] Three Shareholders [Member] Insurers [Member] Bruce Bedrick [Member] Messrs. Mehdizadeh [Member] Bedrick [Member] Plaintiff Merritts [Member] Whole Hemp Plants [Member] Bank Leumi [Member] Pueblo Farm - Management Services Agreement [Member] Sublease term. Number of shares issued for settlement escrow account. Payment in settlement of escrow account. Loan Modification Agreement [Member] EWSD Secured Note [Member] Joint Venture Agreement [Member] Canbiola Sub [Member] NY - SHI, LLC [Member] March 2018 Aeon Agreement [Member] Aeon Funds, LLC [Member] Principal Investment Fully Repaid [Member] Gross Sales Equal $10 Million [Member] Gross Sales Exceeds $10 Million [Member] RS Agreement [Member] AAG Harvest 2019, LLC [Member] Partner Farm Agreement [Member] Mile High Labs, Inc [Member] Agreement description. Cash fees paid. Going Concern [Policy Text Block] Warrant Liability [Member] Sunrise Dispensary LLC [Member] 11 Convertible Notes [Member] Directors' Notes [Member] Restricted Stock, RSUs and Stock Option Awards [Member] Investments disclosure [Text block] Investment options expiration date. Carrying value as of the balance sheet date of the portion of long-term debt due within one year or the operating cycle if longer identified as Convertible Notes Payable. Convertible Notes Payable is a written promise to pay a note which can be exchanged for a specified amount of another, related security, at the option of the issuer and the holder. Increase (decrease) in accrued expenses - related parties. Debt conversion, shares issued at holder's option. Southwest Farms [Member] East West Secured Development [Member] Accounts payable and accrued expenses - related parties. Treasury stock. Share Restriction Liability. 30 Convertible Notes [Member] 16 Convertible Notes [Member] 18 Promissory Notes [Member] Upon Default [Member] Investor #3 [Member] 18 Notes [Member] 4 Notes [Member] 31 Convertible Notes [Member] 2 Notes [Member] Debt instrument, settlement amount. Assets, Current Assets [Default Label] Liabilities, Current Liabilities Treasury Stock, Value Stockholders' Equity Attributable to Parent Liabilities and Equity Operating Expenses Operating Income (Loss) Other Nonoperating Income (Expense) Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Equity Method Investments, Income Taxes, Noncontrolling Interest Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest Comprehensive Income (Loss), Net of Tax, Attributable to Parent LossOnSubsidiary Increase (Decrease) in Inventories IncreaseDecreaseInCapitalizedAgriculturalCosts Increase (Decrease) in Prepaid Expense and Other Assets Increase (Decrease) in Deferred Charges Increase (Decrease) in Accounts Payable Increase (Decrease) in Accrued Liabilities Payments to Acquire Investments Payments to Acquire Notes Receivable Net Cash Provided by (Used in) Investing Activities Repayments of Related Party Debt Net Cash Provided by (Used in) Financing Activities Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Period Increase (Decrease), Including Exchange Rate Effect Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents, Including Disposal Group and Discontinued Operations Discontinued Operations, Policy [Policy Text Block] Commitments and Contingencies, Policy [Policy Text Block] Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value Derivative Liability Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Vested in Period Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Expirations ShareBasedCompensationArrangementByShareBasedPaymentAwardNonOptionEquityInstrumentsOutstandingWeightedAverageExercisePrice WeightedAverageRemainingDaysPriceOutstandingBeginningBalance WeightedAverageRemainingDaysPriceOutstandingEndingBalance Disposal Group, Including Discontinued Operation, Revenue Disposal Group, Including Discontinued Operation, Costs of Goods Sold Disposal Group, Including Discontinued Operation, General and Administrative Expense Disposal Group, Including Discontinued Operation, Interest Expense DisposalGroupIncludingDiscontinuedOperationGainOnSaleOfAssetsOfSubsidiary Disposal Group, Including Discontinued Operation, Other Income DisposalGroupIncludingDiscontinuedOperationNetLoss EX-101.PRE 11 ngbl-20170630_pre.xml XBRL PRESENTATION FILE XML 12 R28.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details)
6 Months Ended
Jun. 30, 2017
shares
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]  
Totals 216,174,189,955
Warrant [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]  
Totals 11,765,757,081
Convertible Notes - Related Party [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]  
Totals 10,500,000
Convertible Notes [Member]  
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]  
Totals 204,397,932,874
XML 13 R24.htm IDEA: XBRL DOCUMENT v3.19.3
Business Organization, Nature of Operations (Details Narrative)
6 Months Ended
Jun. 30, 2017
Integer
shares
Dec. 31, 2016
shares
Apr. 15, 2016
shares
Dec. 31, 2015
a
Number of operating subsidiaries | Integer 3      
Number of common shares authorized (in shares) | shares 10,000,000,000 10,000,000,000 400,000,000  
EWSD 1, LLC [Member]        
Area of land aquired | a       320
XML 14 R20.htm IDEA: XBRL DOCUMENT v3.19.3
Convertible Notes Payable and Derivative Liability (Tables)
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Summary of Convertible Notes Payable

Convertible notes payable consists of: 

 

    June 30, 2017     December 31, 2016  
    (unaudited)        
Investor #1   $ 14,357,804     $ 6,642,745  
Investor #2     2,089,133       1,857,146  
Investor #3     293,009       231,142  
Investor #4     1,636,312       -  
Investor #5     300,000       -  
      18,675,258       8,731,033  
Less discounts     (1,999,641 )     (85,591 )
                 
Less current maturities     16,676,617       8,645,442  
                 
Convertible notes payable, net of current maturities   $       $    

XML 15 R41.htm IDEA: XBRL DOCUMENT v3.19.3
Stockholders' Deficit - Summary of Warrant Activity (Details)
6 Months Ended
Jun. 30, 2017
$ / shares
shares
Share-based Payment Arrangement [Abstract]  
Warrants Outstanding, Beginning Balance | shares 65,757,081
Warrants, Granted | shares 11,800,000,000
Warrants, Exercised | shares
Warrants, Forfeited/cancelled | shares (100,000)
Warrants Outstanding, Ending Balance | shares 11,765,757,081
Weighted Average Exercise Price Outstanding,beginning Balance $ 0.11
Weighted Average Exercise Price, Granted 0.0001
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited/cancelled
Weighted Average Exercise Price Outstanding, Ending Balance 0.0007
Weighted Average Remaining Days Price Outstanding, Beginning Balance 1.97
Weighted Average Remaining Days Price, Granted 4.00
Weighted Average Remaining Days Price, Exercised
Weighted Average Remaining Days Price, Forfeited/cancelled
Weighted Average Remaining Days Price Outstanding, Ending Balance $ 3.73
XML 16 R45.htm IDEA: XBRL DOCUMENT v3.19.3
Subsequent Events (Details Narrative)
29 Months Ended
Jul. 31, 2019
USD ($)
Jul. 11, 2019
USD ($)
shares
May 31, 2019
USD ($)
May 10, 2019
May 01, 2019
USD ($)
Jan. 25, 2019
USD ($)
a
Nov. 19, 2018
USD ($)
Jun. 20, 2018
Mar. 12, 2018
USD ($)
a
May 30, 2016
USD ($)
Nov. 22, 2019
USD ($)
Aug. 22, 2019
USD ($)
Dec. 14, 2017
Subsequent Event [Line Items]                          
Number of common stock, value issued                   $ 5,000      
Subsequent Event [Member]                          
Subsequent Event [Line Items]                          
Debt instrument, interest rate                         6.25%
Operating lease term           7 years              
Area of land | a           1,840              
Monthly rent expense           $ 1,200              
Minimum monthly lease payments           $ 3,000              
Subsequent Event [Member] | Aeon Funds, LLC [Member]                          
Subsequent Event [Line Items]                          
Agreement description             In consideration for the services provided, Shi Farms has agreed to pay Aeon Capital a cash fee of up to 10% of the gross proceeds from the sale of units to investors introduced by Aeon Capital, and 2.5% of the gross proceeds from the sale of units to investors introduced by the Company.            
Preferred membership units             $ 3,915,000            
Cash fees paid             $ 193,490            
Subsequent Event [Member] | Joint Venture Agreement [Member] | Canbiola Sub [Member]                          
Subsequent Event [Line Items]                          
Cash payments to joint venture   $ 500,000                      
Number of common stock, shares issued | shares   12,074,089                      
Percentage of gross profit   70.00%                      
Subsequent Event [Member] | Joint Venture Agreement [Member] | NY - SHI, LLC [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit   30.00%                      
Subsequent Event [Member] | March 2018 Aeon Agreement [Member] | Aeon Funds, LLC [Member]                          
Subsequent Event [Line Items]                          
Area of land | a                 100        
Investments                 $ 1,000,000        
Agreement description                 Shi Farms will pay royalties to Aeon in an amount equal to 50% of gross sales of product from the 2018-2019 Crop until the principal investment is fully repaid. Shi Farms will then pay 20% of gross sales of the 2018-2019 Crop to Aeon until gross sales equal $10 million. Once gross sales exceed $10 million, Shi Farms will pay Aeon 10% of gross sales.        
Number of common stock, value issued $ 1,000,000               $ 100,000        
Repayments of debt $ 1,374,893                        
Subsequent Event [Member] | March 2018 Aeon Agreement [Member] | Aeon Funds, LLC [Member] | Principal Investment Fully Repaid [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit                 50.00%        
Subsequent Event [Member] | March 2018 Aeon Agreement [Member] | Aeon Funds, LLC [Member] | Gross Sales Equal $10 Million [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit                 20.00%        
Subsequent Event [Member] | March 2018 Aeon Agreement [Member] | Aeon Funds, LLC [Member] | Gross Sales Exceeds $10 Million [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit                 10.00%        
Subsequent Event [Member] | RS Agreement [Member] | NY - SHI, LLC [Member]                          
Subsequent Event [Line Items]                          
Received funding amount                       $ 2,854,775  
Subsequent Event [Member] | RS Agreement [Member] | AAG Harvest 2019, LLC [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit         25.00%                
Agreement description         In exchange for the investment, AAG Harvest will receive payments equal to 25% of Shi Farms' gross sales of the 2019 Crop until AAG Harvest has received an amount equivalent to the amount of capital raised by AAG Harvest to fund the Funding (approximately 118% of the Funding). After AAG Harvest has received this amount, Shi Farms will pay 12.5% of gross sales of the 2019 Crop to AAG Harvest.                
Maximum funding amount         $ 3,910,000                
Increase in funding amount         $ 7,100,000                
Subsequent Event [Member] | Partner Farm Agreement [Member]                          
Subsequent Event [Line Items]                          
Agreement description       Mile High has also agreed to provide Shi Farms with priority processing services for the Product specified in the Partner Farm Agreement, of up to 25% of the production capacity of the processing facilities operated by Mile High on the Farm. The Partner Farm Agreement will have an initial term of five years and shall renew automatically thereafter for one-year increments and is terminable by either Mile High or Shi Farms upon 60 days' written notice. Shi Farms will receive 20% of all sales of the Product and Mile High will receive 80% of the sales price, subject to the payment schedule and terms attached thereto.                  
Subsequent Event [Member] | Partner Farm Agreement [Member] | NY - SHI, LLC [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit       20.00%                  
Subsequent Event [Member] | Partner Farm Agreement [Member] | Mile High Labs, Inc [Member]                          
Subsequent Event [Line Items]                          
Percentage of gross profit       80.00%                  
Subsequent Event [Member] | Investor #2 [Member]                          
Subsequent Event [Line Items]                          
Principal amount                     $ 2,595,895    
Debt instrument, settlement amount                     2,350,000    
Subsequent Event [Member] | 31 Convertible Notes [Member] | Third Party Lenders [Member]                          
Subsequent Event [Line Items]                          
Principal amount                     $ 3,209,109    
Debt instrument, interest rate                     10.00%    
Debt instrument, maturity date description                     These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 2018 through September 2020.    
Subsequent Event [Member] | 2 Notes [Member] | Third Party Lenders [Member]                          
Subsequent Event [Line Items]                          
Principal amount                     $ 115,000    
Debt instrument, interest rate                     10.00%    
Debt instrument, maturity date description                     These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between November 2018 through May 2019.    
Subsequent Event [Member] | EWSD Secured Note [Member] | Loan Modification Agreement [Member]                          
Subsequent Event [Line Items]                          
Debt instrument, maturity date               Aug. 01, 2020          
Additional principal payment     $ 250,000                    
XML 17 R1.htm IDEA: XBRL DOCUMENT v3.19.3
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2017
Nov. 26, 2019
Document And Entity Information    
Entity Registrant Name Notis Global, Inc.  
Entity Central Index Key 0001547996  
Document Type 10-Q  
Document Period End Date Jun. 30, 2017  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Interactive Data Current No  
Entity Current Reporting Status No  
Entity Filer Category Non-accelerated Filer  
Entity Small Business Flag true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   10,000,000,000
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2017  
XML 18 R16.htm IDEA: XBRL DOCUMENT v3.19.3
Subsequent Events
6 Months Ended
Jun. 30, 2017
Subsequent Events [Abstract]  
Subsequent Events

NOTE 10 – SUBSEQUENT EVENTS

 

The Company evaluates events that have occurred after the balance sheet date of June 30, 2017, through the date which the Consolidated Financial Statements were issued. Based upon the review, other than described in Note 13 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the Consolidated Financial Statements.

 

Subsequent to June 30, 2017, the Company issued 31 convertible notes to third party lenders totaling $3,209,109. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 2018 through September 2020.

 

Subsequent to June 30, 2017, the Company issued 2 notes to third party lenders totaling $115,000. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between November 2018 through May 2019.

 

Subsequent to June 30, 2017, the Company settled Investor #2 notes with a principal balance of $2,595,895 for $2,350,000. The Company is currently in default on the settlement agreement.

 

Southwest Farms Note Modification

 

On June 20, 2018, Shi Farms entered into a loan modification agreement (the “Agreement”) to extend the term of the EWSD Secured Note. Pursuant to the Agreement, the maturity date of the EWSD Secured Note is extended to August 1, 2020, and Shi Farms will continue to make payments in the same manner as previously required through and including July 1, 2020, with the final balloon payment due and payable on August 1, 2020. Additionally, on May 31, 2019, Shi Farms paid Southwest Farms an additional required principal payment of $250,000, which does not reduce any regularly scheduled payments, but will reduce the final balloon payment.

 

Office Lease

 

On January 25, 2019, the Company entered into a seven-year operating lease for approximately 1,840 square feet of office space for employees in Red Bank, New Jersey. Currently, the Company is operating out of a temporary space while the full space is prepared. The monthly rent is $1,200 for the temporary space which ends August 30, 2019. The minimum monthly lease payments, once the space is complete, will be $3,000.

 

Canbiola Joint Venture

 

On July 11, 2019, NY – SHI, LLC, a New York limited liability company (“NY – SHI”), and Shi Farms (collectively, the “Company Subs”) entered into a joint venture agreement (the “Joint Venture Agreement”) with Canbiola Inc., a Florida corporation (“Canbiola”), and NY Hemp Depot, LLC, a Nevada limited liability company (“Canbiola Sub”). The purpose of the joint venture is to develop and implement a business model referred to as the “Depot Model” to aggregate and purchase fully-grown, harvested industrial hemp from third-party farmers in the State of New York to be processed in any processing facility chosen by NY – SHI (the “Joint Venture”).

 

Pursuant to the Joint Venture Agreement, the Company Subs will jointly seek farmers to grow and cultivate industrial hemp in the State of New York for the Joint Venture. In addition, the Joint Venture may sell to the farmers feminized hemp seeds, clone plants, and additional materials required to grow and cultivate industrial hemp and provide to the farmers the initial training reasonably required for them to grow industrial hemp.

 

Canbiola Sub is responsible for securing the building on behalf of the Joint Venture in the State of New York to house certain of the operations of the business of the Joint Venture (the “NY Hemp Depot Facility”). Canbiola Sub will manage and direct the day-to-day operations of the Joint Venture and provide farmer recruitment services. NY – SHI is responsible for providing to the Joint Venture technical expertise regarding the growth and cultivation of industrial hemp, a license from the New York State Department of Agriculture and Markets that permits the growth of industrial hemp (the “Cultivating License”), and the farmer recruitment services.

 

Upon the execution of the Joint Venture Agreement, Canbiola Sub delivered to NY – SHI a cash payment of $500,000 and, on July 22, 2019, Canbiola issued and delivered $500,000 in value of Canbiola’s common stock (a total of 12,074,089 shares) to NY– SHI, upon NY – SHI’s amendment of the Cultivating License to add the NY Hemp Depot Facility. Additionally, SHI Farms has agreed to sell certain isolate to Canbiola or its designated affiliate at the cost of processing the isolate from biomass and granted Canbiola Sub an interest in the one and one-half percent payments due to SHI Farms in connection with its agreements with Mile High Labs.

 

The “gross profits” from the Joint Venture, which are defined as gross revenues less certain direct operational costs, will be distributed quarterly in arrears with the first distribution scheduled to be made on March 31, 2020, of which 70% is to be distributed to Canbiola Sub and 30% is to be distributed to NY – SHI.

 

Aeon Investment and Royalty Agreement

 

On March 12, 2018, Shi Farms entered into an investment and royalty agreement (the “March 2018 Aeon Agreement”) with Aeon Funds, LLC (“Aeon”), whereby Aeon committed to use its best efforts to invest $1 million in Shi Farms. These funds will be used for growing and harvesting 100 acres of industrial hemp at the Farm from March 1, 2018 through November 30, 2019 (the “2018-2019 Crop”), and thereafter, for processing and marketing Shi Farms’ products.

 

Pursuant to the terms of the March 2018 Aeon Agreement, Shi Farms will pay royalties to Aeon in an amount equal to 50% of gross sales of product from the 2018-2019 Crop until the principal investment is fully repaid. Shi Farms will then pay 20% of gross sales of the 2018-2019 Crop to Aeon until gross sales equal $10 million. Once gross sales exceed $10 million, Shi Farms will pay Aeon 10% of gross sales. Payments will be made monthly until all products from the 2018-2019 harvest are sold. The March 2018 Aeon Agreement provides that the Company will also issue to Aeon shares of Common Stock valued at $100,000 and grants Aeon a five-year right of first negotiation, in the event Shi Farms seeks additional financing.

 

As of July 31, 2019, in connection with the March 2018 Aeon Agreement, Shi Farms had received an investment of $1,000,000.00 from Aeon and has repaid $1,374,892.91 of that investment.

 

AAG Harvest 2019 Revenue Sharing Agreement

 

On May 1, 2019, Shi Farms entered into a revenue sharing agreement (the “RS Agreement”) with AAG Harvest 2019, LLC, a Delaware limited liability company (“AAG Harvest”), whereby AAG Harvest agreed to invest a portion of the proceeds from its offering of limited liability company interests in Shi Farms. The RS Agreement provides that AAG Harvest will use its best efforts to provide up to $3,910,000 of funding (the “Funding”) to Shi Farms, and allows funding to increase to $7,100,000 by mutual agreement of Shi Farms and AAG Harvest. Shi Farms will use the funding to grow and harvest approximately 1,200 acres of industrial hemp at the Farm in Pueblo, Colorado, its co-op location in Oklahoma, and its co-op location in Southern Colorado from approximately May 2019 through November 2019 (the “2019 Crop”).

 

In exchange for the investment, AAG Harvest will receive payments equal to 25% of Shi Farms’ gross sales of the 2019 Crop until AAG Harvest has received an amount equivalent to the amount of capital raised by AAG Harvest to fund the Funding (approximately 118% of the Funding). After AAG Harvest has received this amount, Shi Farms will pay 12.5% of gross sales of the 2019 Crop to AAG Harvest. Payments to AAG Harvest are due within 45 days of each calendar quarter until the 2019 Crop is entirely sold.

 

As of August 22, 2019, in connection with the RS Agreement, Shi Farms has received funding of $2,854,775 from AAG Harvest.

 

Preferred Units Placement Agreement

 

On November 19, 2018, Shi Farms entered into an agreement with AEON Capital, Inc. (“Aeon Capital”), whereby Aeon Capital provided placement agent services with respect to certain preferred membership units of the Company. In consideration for the services provided, Shi Farms has agreed to pay Aeon Capital a cash fee of up to 10% of the gross proceeds from the sale of units to investors introduced by Aeon Capital, and 2.5% of the gross proceeds from the sale of units to investors introduced by the Company. In connection with this agreement, Aeon Capital has placed $3,915,000 in preferred membership units, for which Shi Farms has paid fees of $193,490.

 

Mile High Labs – Partner Farm and Supply Agreements

 

Partner Farm Agreement

 

On May 10, 2019, Shi Farms entered into a partner farm agreement (the “Partner Farm Agreement”) with Mile High Labs, Inc., a Colorado corporation (“Mile High”), whereby Shi Farms has agreed to produce, sell and/or deliver certain dried hemp products (the “Product”) to Mile High, and Mile High has agreed to purchase such Product from Shi Farms and/or provide certain processing services (the “Processing Services”). Among other obligations, Shi Farms has agreed to provide a physical location to perform such Processing Services on the Farm, the infrastructure necessary to access the Farm and the construction of certain structures for the purpose of conducting the Processing Services on the Farm. Among other obligations, Mile High is required to provide, transport and install all necessary equipment to operate the processing facilities located on the Farm, subject to the terms and provisions therein. Mile High has also agreed to provide Shi Farms with priority processing services for the Product specified in the Partner Farm Agreement, of up to 25% of the production capacity of the processing facilities operated by Mile High on the Farm. The Partner Farm Agreement will have an initial term of five years and shall renew automatically thereafter for one-year increments and is terminable by either Mile High or Shi Farms upon 60 days’ written notice. Shi Farms will receive 20% of all sales of the Product and Mile High will receive 80% of the sales price, subject to the payment schedule and terms attached thereto.

 

Supply Agreement

 

In connection with, and pursuant to, the Partner Farm Agreement, Shi Farms also entered into a supply agreement (the “Supply Agreement”), on May 10, 2019, with Mile High, whereby Shi Farms will produce and sell to Mile High, and Mile High will purchase and accept from Shi Farms, the Products enumerated in the Partner Farm Agreement and the Supply Agreement in quantities specified in the two agreements and by Mile High. Pursuant to the Supply Agreement, Mile High and Shi Farms have agreed, among other things, to sell the Product as partners and to co-brand the finished Product. Should Mile High establish a cooperative advertising and promotional program, Shi Farms will be required to pay additional fees. The initial term of the Supply Agreement is five years and shall renew automatically thereafter for one-year increments and is terminable by either Mile High or Shi Farms upon 60 days’ written notice.

XML 19 R12.htm IDEA: XBRL DOCUMENT v3.19.3
Notes Payable
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Notes Payable

NOTE 6 – NOTES PAYABLE

 

Notes payable consists of:

 

    June 30, 2017     December 31, 2016  
Southwest Farms (Note 3)   $ 3,571,136     $ 3,590,241  
East West Secured Development (Note 3)     493,129       503,031  
Investor #1 (Note 9)     103,847       3,691,200  
Investor #2     -       275,000  
      4,168,112       8,059,472  
Less discounts     -       (598,721 )
Plus premium     -       -  
                 
      4,168,112       7,460,751  
Less current maturities     4,168,112       3,367,479  
                 
    $ -     $ 4,093,272  

 

Southwest Farms

 

During the six months ended June 30, 2017 the Company repaid $19,057 in principal.

 

East West Secured Development

 

During the six months ended June 30, 2017 the Company repaid $9,903 in principal.

 

Investor #1

 

During the year ended December 31, 2016, the Company issued 18 notes to third-party lenders totaling $3,691,199. The Company received cash of $1,095,741, original issue discounts of $996,199 and the lender paid $145,000 on behalf of the Company for vendor liabilities. These notes accrue interest at a rate between 5% to 10% per annum and mature with interest and principal both due between December 12, 2016 through November 18, 2017. This note is secured by the Company’s assets. These notes are convertible upon default at a rate of $0.75 or a 40% discount with a lookback of 20 trading days.

 

During the six months ended June 30, 2017, the Company issued 4 notes to third-party lenders totaling $103,847. The Company received cash of $95,527, original issue discounts of $819 and the lender paid $7,500 on behalf of the Company for vendor liabilities. These notes mature from March 2017 to August 2017.

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #1’s notes. The notes now accrue interest at a rate of 24% per annum.

 

Upon default, 18 promissory notes held by Investor #1 became convertible. The Company reclassed $3,691,199 from notes payable to convertible notes payable.

 

Investor #2

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #2’s notes. The notes now accrue interest at a rate of 24% per annum. Upon default, the promissory note held by Investor #2 became convertible. The Company reclassed $275,000 from notes payable to convertible notes payable.

XML 20 R5.htm IDEA: XBRL DOCUMENT v3.19.3
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Cash flows from operating activities          
Net income (loss) $ (36,203,698) $ 6,548,570 $ (46,462,377) $ 7,796,372 $ (17,700,000)
Adjustments to reconcile net income (loss) to net cash used in operating activities:          
Depreciation and amortization     183,639 14,991  
Change in fair value of marketable securities     18,981  
Change in fair value of derivative liability 32,634,820 (9,940,307) 31,978,525 (18,819,893)  
Change in fair value of warrant liability (950,726) (441,148) (950,127) (997,121)  
Amortization of debt discount     2,389,599 2,613,227  
Financing costs     3,652,068 3,060,579  
Note principal increase upon default     4,080,377  
Loss on failed business combination     1,001,520  
Stock based compensation     331,852 644,523  
Loss on sale of assets of subsidiary (10,995) (10,995)  
Bad debt     70,000  
Changes in operating assets and liabilities:          
Accounts receivable     (19,468)  
Inventory     (33,411)  
Capitalized agricultural costs     (259,605)  
Deposits in escrow     (10,000)  
Prepaid expenses and other current assets     14,131 (181,349)  
Deferred costs     (193,846)  
Deposits and other assets, net of reserve of $115,000 and $115,000, respectively       (7,486)  
Deposits and other assets, net of reserve     7,486  
Accounts payable     1,610,805 3,591,528  
Accrued expenses     229,611  
Accounts payable and other accrued expenses - related parties       (95,431)  
Other accrued expenses     1,561,046  
Accrued expenses - related parties     (161,617)  
Accrued legal contingencies     6,255  
Net cash used in operating activities     (1,030,164) (2,126,420) (3,500,000)
Changes related to discontinued operations     (99,531) (354,548)  
Cash flows from investing activities          
Payments made for investment in PCH     (588,063)  
Issuance of note receivable     (10,000)  
Proceeds from the sale of property and equipment, net     35,000  
Proceeds received for sale of rights and assets       91,814  
Net cash provided by (used in) by investing activities     (588,063) 116,814  
Cash flows from financing activities          
Cash overdraft     13,656  
Proceeds from issuance of notes payable     95,527 569,000  
Proceeds from issuance of notes payable, related party       41,667  
Payments on notes payable     (28,960) (223,347)  
Payments on notes payable - related party     (2,500)  
Proceeds from issuance of demand loan     312,431  
Exercise of employee stock options     16,000  
Proceeds from issuance of convertible notes payable, net of fees     1,706,000 1,815,811  
Proceeds from issuance of convertible notes payable from related parties, net       105,000  
Payments on convertible notes payable     (363,547)  
Net cash provided by financing activities     1,721,451 2,335,287  
Net change in cash and cash equivalents     3,693 (28,867)  
Cash, beginning of year     23,967 52,834 52,834
Cash, end of year $ 27,660 $ 23,967 27,660 23,967 $ 23,967
Supplemental disclosures of cash flow information:          
Cash paid for interest     101,779 38,595  
Non-cash investing and financing activities:          
Common stock issued upon debt conversion     12,947,334  
Account payable assigned to note payable - related party     292,366  
Account payable assigned to convertible note payable - related party     50,000  
Account payable assigned to convertible notes payable     173,812 576,250  
Account payable assigned to note payable     7,500    
Issuance of warrants in connection with convertible debentures     3,009,034  
Exchange of notes payable and accrued interest to convertible notes     753,122  
Exchange of convertible notes payable and accrued interest to convertible notes     5,970,910  
Advances on machinery paid directly by lender     161,401  
OID - notes payable     12,759 239,496  
OID - convertible notes payable     157,487  
Convertible notes payable assigned to notes payable     3,966,199 1,431,401  
Cancellation of notes payable for land     208,605  
Debt discount additions for notes payable     646,098 3,615,351  
Exchange of notes payable to related party to convertible notes payable related party     2,500  
Investor contribution     324,754  
Unrealized gain on marketable securities     6,601  
Common stock issued for settlements     2,000  
Treasury stock     1,209,600  
Share Restriction Liability     $ 12  
XML 21 R9.htm IDEA: XBRL DOCUMENT v3.19.3
Inventory and Capitalized Agricultural Costs
6 Months Ended
Jun. 30, 2017
Inventory Disclosure [Abstract]  
Inventory and Capitalized Agricultural Costs

NOTE 3 – INVENTORY AND CAPITALIZED AGRICULTURAL COSTS

 

Inventories and capitalized agricultural costs are generally kept for a short period of time.

 

Finished goods are comprised of CBD Isolate and CBD Distillate. The company did not have any finished goods as of June 30, 2017 and December 31, 2016.

 

Growing costs, also referred to as cultural costs, consist of cultivation, fertilization, labor costs and soil improvement, pest control and irrigation.

 

Biomass are comprised of labor and equipment expenses incurred to harvest and deliver crops to the packinghouses.

 

Raw materials include all purchasing costs.

 

Inventory at June 30, 2017 and December 31, 2016 consisted of the following:

 

    June 30, 2017     December 31, 2016  
Biomass   $ 419,736     $ 160,131  
                 
Less Discontinued Operations     -       -  
                 
Total inventory, net   $ 419,736     $ 160,131  

XML 22 R31.htm IDEA: XBRL DOCUMENT v3.19.3
Inventory and Capitalized Agricultural Costs - Schedule of Inventory (Details Narrative) - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Inventory [Line Items]    
Less Discontinued Operations
Total inventory, net 419,736 160,131
Biomass [Member]    
Inventory [Line Items]    
Inventory, gross $ 419,736 $ 160,131
XML 23 R35.htm IDEA: XBRL DOCUMENT v3.19.3
Notes Payable (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Debt Instrument [Line Items]      
Repayments of notes payable $ 28,960 $ 223,347  
Proceeds from notes payable 95,527 $ 569,000  
Original issue discount   $ 598,721
Debt convertible default rate   $ 0.75  
Investor #2 [Member]      
Debt Instrument [Line Items]      
Accrued interest, percentage 24.00%    
Prommisory note reclassed to Convertible notes payable $ 275,000    
18 Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Repayments of notes payable     996,199
Debt face amount     3,691,199
Proceeds from notes payable     1,095,741
Original issue discount     $ 145,000
Maturity date description     These notes accrue interest at a rate between 5% to 10% per annum and mature with interest and principal both due between December 12, 2016 through November 18, 2017.
Debt instrument, convertible terms of conversion     These notes are convertible upon default at a rate of $0.75 or a 40% discount with a lookback of 20 trading days.
Debt convertible default rate     $ 0.75
Debt discount rate     40.00%
Prommisory note reclassed to Convertible notes payable 3,691,199    
18 Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member] | Minimum [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate     5.00%
18 Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member] | Maximum [Member]      
Debt Instrument [Line Items]      
Debt instrument, interest rate     10.00%
4 Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Repayments of notes payable 7,500    
Debt face amount 103,847    
Proceeds from notes payable 95,527    
Original issue discount $ 819    
Maturity date description These notes mature in from March 2017 to August 2017.    
Accrued interest, percentage 24.00%    
Southwest Farms [Member]      
Debt Instrument [Line Items]      
Repayments of notes payable $ 19,057    
East West Secured Development [Member]      
Debt Instrument [Line Items]      
Repayments of notes payable $ 9,903    
XML 24 R39.htm IDEA: XBRL DOCUMENT v3.19.3
Stockholders' Deficit - Schedule of Expense Related to Restricted Stock (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share based compensation   $ 331,852 $ 644,523  
Restricted Stock Units (RSUs) [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share based compensation $ 50,293     $ 261,196
Restricted Stock, RSUs and Stock Option Awards [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share based compensation $ 50,293     800,442
Common Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Share based compensation       $ 539,246
XML 25 R8.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2017
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

 

The Condensed Consolidated Financial Statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. During the six months ended June 30, 2017, the Company had a net loss from operations of approximately $46.5 million, negative cash flow from operations of $1.0 million and negative working capital of $88.1 million. During the year ended December 31, 2016, the Company had a net loss of approximately $17.7 million, negative cash flow from operations of $3.5 million and negative working capital of $38 million. The Company will need to raise capital in order to fund its operations. On September 22, 2016, the Company received notice of an Event of Default and Acceleration from one of its lenders regarding a Promissory Note issued on March 14, 2016. As of the date of this filing, the Company is in default on all notes outstanding. The Company is unable to predict the outcome of these matters; however, legal action taken by the Company’s lenders could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and its ability to raise funds in the future. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The Condensed Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

  

The Company expects that the acquisition of EWSD, which owns a 320-acre farm in Pueblo, Colorado, will generate recurring revenues for the Company through farming hemp, extracting and selling CBD oil, and collecting fees from production related to extracting CBD oil for other farmers, while controlling the full production cycle to ensure consistent quality. Lastly, management is actively seeking additional financing over the next few months to fund operations.

 

The Company will continue to execute on its business model by attempting to raise additional capital through the sales of debt or equity securities or other means. However, there is no guarantee that such financing will be available on terms acceptable to the Company, or at all. It is uncertain whether the Company can obtain financing to fund operating deficits until profitability is achieved. This need may be adversely impacted by: unavailability of financing, uncertain market conditions, the success of the crop growing season, the demand for CBD oil, the ability of the Company to obtain financing for the equipment and labor needed to cultivate hemp and extract the CBD oil, and adverse operating results. The outcome of these matters cannot be predicted at this time.

 

On May 24, 2016, the Company received a notice from the OTC Markets Group, Inc. (“OTC Markets”) that the Company’s bid price was below $0.01 and that the Company did not meet the Standards for Continued Eligibility for OTCQB pursuant to OTC Markets’ Standards. If the bid price did not close at or above $0.01 for ten consecutive trading days by November 20, 2016, the Company would be moved to the OTC Pink marketplace. Additionally, on September 9, 2016, the Company received notice from OTC Markets that it would move the Company’s listing from the OTCQB market to OTC Pink marketplace, if the Company did not file its Quarterly Report on Form 10-Q for the period ended June 30, 2016 by September 30, 2016. On or about October 1, 2016, the Company moved to the OTC Pink marketplace. These actions might also impact the Company’s ability to obtain funding.

 

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

 

Principles of Consolidation

 

The Condensed Consolidated Financial Statements include the accounts of Notis Global, Inc. and its wholly-owned subsidiaries, as named in Note 1 above. All intercompany transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i) Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
   
(ii) Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
   
(iii) Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
   
(iv) Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Discontinued Operations

 

US GAAP requires the results of operations of a component of an equity that either has been disposed of or is classified as held for sale to be reported as discontinued operations in the Condensed Consolidated Financial Statements if the sale or disposition represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

 

Concentrations of Credit Risk

 

The Company maintains cash balances at several financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

 

Fair Value of Financial Instruments

 

Pursuant to ASC No. 825, Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheets. The carrying value of cash, accounts receivable, capitalized agriculture costs, inventory, accounts payable and accrued expenses, notes payable, related party notes payable, provision for customer refunds and short-term loans payable approximate fair value due to the short period to maturity of these instruments.

 

Embedded derivative – The Company’s convertible notes payable include embedded features that require bifurcation due to a reset provision and are accounted for as a separate embedded derivative.

 

The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on a Monte Carlo Simulation model (“MCS”). The MCS model was used to simulate the stock price of the Company from the valuation date through to the maturity date of the related debenture and to better estimate the fair value of the derivative liability due to the complex nature of the convertible debentures and embedded instruments. Management believes that the use of the MCS model compared to the Black-Scholes-Merton model as previously used would provide a better estimate of the fair value of these instruments

 

The Company valued these embedded derivatives using a “with-and-without method,” where the value of the Convertible Debentures including the embedded derivatives, is defined as the “with”, and the value of the Convertible Debentures excluding the embedded derivatives, is defined as the “without.” This method estimates the value of the embedded derivatives by observing the difference between the value of the Convertible Debentures with the embedded derivatives and the value of the Convertible Debentures without the embedded derivatives. The Company believes the “with-and-without method” results in a measurement that is more representative of the fair value of the embedded derivatives.

 

For each simulation path, the Company used the Geometric Brownian Motion (“GBM”) model to determine future stock prices at the maturity date. The inputs utilized in the application of the GBM model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate.

 

For the six months ended June 30, 2017, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on an internally calculated adjustment to the MCS valuation determined at December 31, 2016. This adjustment took into consideration the changes in the assumptions, such as market value and expected volatility of the Common Stock and the discount rate used in the June 30, 2017, valuation as compared to December 31, 2016. The Company believes this methodology results in a reasonable fair value of the embedded derivatives for the interim period.

 

Warrants

 

The Company reexamined the determination made as of March 31, 2016, that it did not have sufficient authorized shares available for all of their outstanding warrants to be classified in equity at June 30, 2016 and concluded there still were insufficient authorized shares (Note 7). Therefore, the Company recognized a warrant liability as of December 31, 2016. The Company estimated the fair value of the warrant liability based on the Black-Scholes-Merton model. The key assumptions used consist of the price of the Company’s stock, a risk-free interest rate based on the average yield of a one to three-year Treasury note (based on remaining term of the related warrants) and expected volatility of the Common Stock over the remaining life of the warrants.

 

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.
   
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
   
Level 3 Significant unobservable inputs that cannot be corroborated by market data.

 

The assets or liabilities’ fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis:

 

    Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
June 30, 2017                        
Warrant liability     2,341,355       -       -       2,341,355  
Derivative liability     51,912,638                  -                   -       51,912,638  
                                 
Total liabilities   $ 54,253,993     $ -     $ -     $ 54,253,993  

 

December 31, 2016   Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                         
Warrant liability     14,430                       14,430  
Derivative liability     15,635,947                  -                  -       15,635,947  
                                 
Total liabilities   $ 15,650,377     $ -     $ -     $ 15,650,377  

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    For the six months ended June 30, 2017  
    Total  
January 1, 2017     15,650,377  
Initial recognition of conversion feature     4,298,166  
Initial recognition of warrant liability     3,277,052  
Change in fair value of conversion feature     31,978,525  
Change in fair value of warrant liability     (950,127 )
         
Ending Balance, June 30, 2017     54,253,993  

 

Revenue Recognition

 

Revenues from Cannabidiol oil product

 

The Company recognizes revenue from the sale of Cannabidiol oil products (“CBD oil”) upon shipment, when title passes, and when collectability is reasonably assured.

 

Cost of Revenue

 

Cost of revenue consists primarily of expenses associated with the delivery and distribution of the Company’s products and services. Under the Company’s prior business model, the Company only began capitalizing costs when it obtained a license and a site for operation of a customer dispensary or cultivation center. The previously capitalized costs are charged to cost of revenue in the same period that the associated revenue is earned. In the case where it is determined that previously inventoried costs are in excess of the projected net realizable value of the sale of the licenses, then the excess cost above net realizable value is written off to cost of revenues. Cost of revenues also includes the rent expense on master leases held in the Company’s name, which are subleased to the Company’s operators. In addition, cost of revenue related to the Company’s vaporizer line of products consists of direct procurement cost of the products along with costs associated with order fulfillment, shipping, inventory storage and inventory management costs.

 

Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2017 and December 31, 2016, the Company held no cash equivalents.

 

The Company’s policy is to place its cash with high credit quality financial instruments and institutions and limit the amounts invested with any one financial institution or in any type of instrument. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash.

 

Accounts Receivable and Allowances

 

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of June 30, 2017 and December 31, 2016, there was an allowance for doubtful accounts of $0.

 

Inventory

 

The Company utilizes lower of standard cost or net realizable value method. During the six months ended June 30, 2017 the Company recorded an impairment of $0 that was recorded to cost of revenues.

 

Capitalized agricultural costs

 

Capitalized agricultural costs consists of pre-harvest agricultural costs, including irrigation, fertilization, seeding, laboring, other ongoing crop and land maintenance activities and work-in-progress activities. All capitalized agricultural costs are accumulated and capitalized as incurred. The Company has reflected the capitalized agriculture costs as a current asset as the growing cycle of the crops are estimated to be six months to a year.

 

Basic and Diluted Net Income/Loss Per Share

 

Basic net loss per share of Common Stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share of Common Stock is determined using the weighted-average number of shares of Common Stock outstanding during the period, adjusted for the dilutive effect of Common Stock equivalents. In periods when losses are reported, which is the case for the six months ended June 30, 2017 presented in these Condensed Consolidated Financial Statements, the weighted-average number of shares of Common Stock outstanding excludes Common Stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2016, the Company had approximately 67,466,000 warrants to purchase common stock outstanding as of June 30, 2016, which were not included in the computation of diluted loss per share, as based on their exercise prices they would all have an anti-dilutive effect on net loss per share. The Company also had outstanding at June 30, 2016 approximately $7,309,000 in convertible debentures, respectively, that are convertible at the holders’ option at a conversion price of the lower of $0.75 or 51% to 60% of either the lowest trading price or the VWAP over the last 20 to 30 days prior to conversion (subject to reset upon a future dilutive financing), whose underlying shares were not included in a computation of diluted loss per share due to the net loss.

 

The Company had the following Common Stock equivalents at June 30, 2017:

 

    June 30, 2017  
Warrants     11,765,757,081  
Convertible notes – related party     10,500,000  
Convertible notes     204,397,932,874  
Totals     216,174,189,955  

 

Property and Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses accelerated depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Vehicles   5 years  
Furniture and Fixtures   3 - 5 years  
Office equipment   3 years  
Machinery   2 years  
Buildings   10 - 39 years  

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the Condensed Consolidated Financial Statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities are classified as current and non-current based on their characteristics. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.

 

Commitments and Contingencies

 

Certain conditions may exist as of the date the Condensed Consolidated Financial Statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Condensed Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

 

The Company accrues all legal costs expected to be incurred per event. For legal matters covered by insurance, the Company accrues all legal costs expected to be incurred per event up to the amount of the deductible.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of the standard on its ongoing financial reporting.

 

In February 2016, the FASB issued “Leases (Topic 842)” (ASU 2016-02). This update amends leasing accounting requirements. The most significant change will result in the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current guidance. The new guidance will also require significant additional disclosures about the amount, timing, and uncertainty of cash flows from leases. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018, which for the Company is December 31, 2018, the first day of its 2019 fiscal year. Upon adoption, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted, and a number of optional practical expedients may be elected to simplify the impact of adoption. The Company is currently evaluating the impact of adopting this guidance. The overall impact is that assets and liabilities arising from leases are expected to increase based on the present value of remaining estimated lease payments at the time of adoption.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The adoption did not have a material effect on its financial position or results of operations or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11 , “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which we adopted for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of adopting this guidance.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of adopting this guidance.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company is currently evaluating the impact of adopting this guidance.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

 

Management’s Evaluation of Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date of June 30, 2017, through the date which the Condensed Consolidated Financial Statements were issued. Based upon the review, other than described in Note 15 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

XML 27 R17.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2017
Accounting Policies [Abstract]  
Going Concern

Going Concern

 

The Condensed Consolidated Financial Statements were prepared on a going concern basis. The going concern basis assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. During the six months ended June 30, 2017, the Company had a net loss from operations of approximately $46.5 million, negative cash flow from operations of $1.0 million and negative working capital of $88.1 million. During the year ended December 31, 2016, the Company had a net loss of approximately $17.7 million, negative cash flow from operations of $3.5 million and negative working capital of $38 million. The Company will need to raise capital in order to fund its operations. On September 22, 2016, the Company received notice of an Event of Default and Acceleration from one of its lenders regarding a Promissory Note issued on March 14, 2016. As of the date of this filing, the Company is in default on all notes outstanding. The Company is unable to predict the outcome of these matters; however, legal action taken by the Company’s lenders could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and its ability to raise funds in the future. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. The ability to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The Condensed Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 

  

The Company expects that the acquisition of EWSD, which owns a 320-acre farm in Pueblo, Colorado, will generate recurring revenues for the Company through farming hemp, extracting and selling CBD oil, and collecting fees from production related to extracting CBD oil for other farmers, while controlling the full production cycle to ensure consistent quality. Lastly, management is actively seeking additional financing over the next few months to fund operations.

 

The Company will continue to execute on its business model by attempting to raise additional capital through the sales of debt or equity securities or other means. However, there is no guarantee that such financing will be available on terms acceptable to the Company, or at all. It is uncertain whether the Company can obtain financing to fund operating deficits until profitability is achieved. This need may be adversely impacted by: unavailability of financing, uncertain market conditions, the success of the crop growing season, the demand for CBD oil, the ability of the Company to obtain financing for the equipment and labor needed to cultivate hemp and extract the CBD oil, and adverse operating results. The outcome of these matters cannot be predicted at this time.

 

On May 24, 2016, the Company received a notice from the OTC Markets Group, Inc. (“OTC Markets”) that the Company’s bid price was below $0.01 and that the Company did not meet the Standards for Continued Eligibility for OTCQB pursuant to OTC Markets’ Standards. If the bid price did not close at or above $0.01 for ten consecutive trading days by November 20, 2016, the Company would be moved to the OTC Pink marketplace. Additionally, on September 9, 2016, the Company received notice from OTC Markets that it would move the Company’s listing from the OTCQB market to OTC Pink marketplace, if the Company did not file its Quarterly Report on Form 10-Q for the period ended June 30, 2016 by September 30, 2016. On or about October 1, 2016, the Company moved to the OTC Pink marketplace. These actions might also impact the Company’s ability to obtain funding.

Basis of Presentation - Unaudited Interim Financial Information

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim condensed consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) with respect to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements furnished reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2016.

Principles of Consolidation

Principles of Consolidation

 

The Condensed Consolidated Financial Statements include the accounts of Notis Global, Inc. and its wholly-owned subsidiaries, as named in Note 1 above. All intercompany transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i) Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
   
(ii) Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
   
(iii) Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors.
   
(iv) Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk-free rate(s) to value share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience, and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

Discontinued Operations

Discontinued Operations

 

US GAAP requires the results of operations of a component of an equity that either has been disposed of or is classified as held for sale to be reported as discontinued operations in the Condensed Consolidated Financial Statements if the sale or disposition represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.

Concentrations of Credit Risk

Concentrations of Credit Risk

 

The Company maintains cash balances at several financial institutions that are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

 

Pursuant to ASC No. 825, Financial Instruments, the Company is required to estimate the fair value of all financial instruments included on its balance sheets. The carrying value of cash, accounts receivable, capitalized agriculture costs, inventory, accounts payable and accrued expenses, notes payable, related party notes payable, provision for customer refunds and short-term loans payable approximate fair value due to the short period to maturity of these instruments.

 

Embedded derivative – The Company’s convertible notes payable include embedded features that require bifurcation due to a reset provision and are accounted for as a separate embedded derivative.

 

The Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on a Monte Carlo Simulation model (“MCS”). The MCS model was used to simulate the stock price of the Company from the valuation date through to the maturity date of the related debenture and to better estimate the fair value of the derivative liability due to the complex nature of the convertible debentures and embedded instruments. Management believes that the use of the MCS model compared to the Black-Scholes-Merton model as previously used would provide a better estimate of the fair value of these instruments

 

The Company valued these embedded derivatives using a “with-and-without method,” where the value of the Convertible Debentures including the embedded derivatives, is defined as the “with”, and the value of the Convertible Debentures excluding the embedded derivatives, is defined as the “without.” This method estimates the value of the embedded derivatives by observing the difference between the value of the Convertible Debentures with the embedded derivatives and the value of the Convertible Debentures without the embedded derivatives. The Company believes the “with-and-without method” results in a measurement that is more representative of the fair value of the embedded derivatives.

 

For each simulation path, the Company used the Geometric Brownian Motion (“GBM”) model to determine future stock prices at the maturity date. The inputs utilized in the application of the GBM model included a starting stock price, an expected term of each debenture remaining from the valuation date to maturity, an estimated volatility, and a risk-free rate.

 

For the six months ended June 30, 2017, the Company estimated the fair value of the conversion feature derivatives embedded in the convertible debentures based on an internally calculated adjustment to the MCS valuation determined at December 31, 2016. This adjustment took into consideration the changes in the assumptions, such as market value and expected volatility of the Common Stock and the discount rate used in the June 30, 2017, valuation as compared to December 31, 2016. The Company believes this methodology results in a reasonable fair value of the embedded derivatives for the interim period.

Warrants

Warrants

 

The Company reexamined the determination made as of March 31, 2016, that it did not have sufficient authorized shares available for all of their outstanding warrants to be classified in equity at June 30, 2016 and concluded there still were insufficient authorized shares (Note 7). Therefore, the Company recognized a warrant liability as of December 31, 2016. The Company estimated the fair value of the warrant liability based on the Black-Scholes-Merton model. The key assumptions used consist of the price of the Company’s stock, a risk-free interest rate based on the average yield of a one to three-year Treasury note (based on remaining term of the related warrants) and expected volatility of the Common Stock over the remaining life of the warrants.

 

A three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:

 

Level 1 Quoted prices in active markets for identical assets or liabilities.
   
Level 2 Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
   
Level 3 Significant unobservable inputs that cannot be corroborated by market data.

 

The assets or liabilities’ fair value measurement within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement. The following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis:

 

    Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
June 30, 2017                        
Warrant liability     2,341,355       -       -       2,341,355  
Derivative liability     51,912,638                  -                   -       51,912,638  
                                 
Total liabilities   $ 54,253,993     $ -     $ -     $ 54,253,993  

 

December 31, 2016   Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                         
Warrant liability     14,430                       14,430  
Derivative liability     15,635,947                  -                  -       15,635,947  
                                 
Total liabilities   $ 15,650,377     $ -     $ -     $ 15,650,377  

 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    For the six months ended June 30, 2017  
    Total  
January 1, 2017     15,650,377  
Initial recognition of conversion feature     4,298,166  
Initial recognition of warrant liability     3,277,052  
Change in fair value of conversion feature     31,978,525  
Change in fair value of warrant liability     (950,127 )
         
Ending Balance, June 30, 2017     54,253,993  

Revenue Recognition

Revenue Recognition

 

Revenues from Cannabidiol oil product

 

The Company recognizes revenue from the sale of Cannabidiol oil products (“CBD oil”) upon shipment, when title passes, and when collectability is reasonably assured.

 

Cost of Revenue

 

Cost of revenue consists primarily of expenses associated with the delivery and distribution of the Company’s products and services. Under the Company’s prior business model, the Company only began capitalizing costs when it obtained a license and a site for operation of a customer dispensary or cultivation center. The previously capitalized costs are charged to cost of revenue in the same period that the associated revenue is earned. In the case where it is determined that previously inventoried costs are in excess of the projected net realizable value of the sale of the licenses, then the excess cost above net realizable value is written off to cost of revenues. Cost of revenues also includes the rent expense on master leases held in the Company’s name, which are subleased to the Company’s operators. In addition, cost of revenue related to the Company’s vaporizer line of products consists of direct procurement cost of the products along with costs associated with order fulfillment, shipping, inventory storage and inventory management costs.

Cash and Cash Equivalents

Cash and cash equivalents

 

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2017 and December 31, 2016, the Company held no cash equivalents.

 

The Company’s policy is to place its cash with high credit quality financial instruments and institutions and limit the amounts invested with any one financial institution or in any type of instrument. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash.

Accounts Receivable and Allowances

Accounts Receivable and Allowances

 

Accounts receivable are recorded at the invoiced amount and are not interest bearing. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company makes ongoing assumptions relating to the collectability of its accounts receivable in its calculation of the allowance for doubtful accounts. In determining the amount of the allowance, the Company makes judgments about the creditworthiness of customers based on ongoing credit evaluations and assesses current economic trends affecting its customers that might impact the level of credit losses in the future and result in different rates of bad debts than previously seen. The Company also considers its historical level of credit losses. As of June 30, 2017 and December 31, 2016, there was an allowance for doubtful accounts of $0.

Inventory

Inventory

 

The Company utilizes lower of standard cost or net realizable value method. During the six months ended June 30, 2017 the Company recorded an impairment of $0 that was recorded to cost of revenues.

Capitalized Agricultural Costs

Capitalized agricultural costs

 

Capitalized agricultural costs consists of pre-harvest agricultural costs, including irrigation, fertilization, seeding, laboring, other ongoing crop and land maintenance activities and work-in-progress activities. All capitalized agricultural costs are accumulated and capitalized as incurred. The Company has reflected the capitalized agriculture costs as a current asset as the growing cycle of the crops are estimated to be six months to a year.

Basic and Diluted Net Income/Loss Per Share

Basic and Diluted Net Income/Loss Per Share

 

Basic net loss per share of Common Stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of Common Stock outstanding during the period. Diluted net loss per share of Common Stock is determined using the weighted-average number of shares of Common Stock outstanding during the period, adjusted for the dilutive effect of Common Stock equivalents. In periods when losses are reported, which is the case for the six months ended June 30, 2017 presented in these Condensed Consolidated Financial Statements, the weighted-average number of shares of Common Stock outstanding excludes Common Stock equivalents because their inclusion would be anti-dilutive.

 

As of June 30, 2016, the Company had approximately 67,466,000 warrants to purchase common stock outstanding as of June 30, 2016, which were not included in the computation of diluted loss per share, as based on their exercise prices they would all have an anti-dilutive effect on net loss per share. The Company also had outstanding at June 30, 2016 approximately $7,309,000 in convertible debentures, respectively, that are convertible at the holders’ option at a conversion price of the lower of $0.75 or 51% to 60% of either the lowest trading price or the VWAP over the last 20 to 30 days prior to conversion (subject to reset upon a future dilutive financing), whose underlying shares were not included in a computation of diluted loss per share due to the net loss.

 

The Company had the following Common Stock equivalents at June 30, 2017:

 

    June 30, 2017  
Warrants     11,765,757,081  
Convertible notes – related party     10,500,000  
Convertible notes     204,397,932,874  
Totals     216,174,189,955  

Property and Equipment

Property and Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses accelerated depreciation methods for tax purposes where appropriate. The estimated useful lives for significant property and equipment categories are as follows:

 

Vehicles   5 years  
Furniture and Fixtures   3 - 5 years  
Office equipment   3 years  
Machinery   2 years  
Buildings   10 - 39 years  

Income Taxes

Income Taxes

 

The Company accounts for income taxes under the asset and liability method. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the Condensed Consolidated Financial Statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The components of the deferred tax assets and liabilities are classified as current and non-current based on their characteristics. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

 

In addition, the Company’s management performs an evaluation of all uncertain income tax positions taken or expected to be taken in the course of preparing the Company’s income tax returns to determine whether the income tax positions meet a “more likely than not” standard of being sustained under examination by the applicable taxing authorities. This evaluation is required to be performed for all open tax years, as defined by the various statutes of limitations, for federal and state purposes.

Commitments and Contingencies

Commitments and Contingencies

 

Certain conditions may exist as of the date the Condensed Consolidated Financial Statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and its legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Condensed Consolidated Financial Statements. If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the nature of the guarantee would be disclosed.

 

The Company accrues all legal costs expected to be incurred per event. For legal matters covered by insurance, the Company accrues all legal costs expected to be incurred per event up to the amount of the deductible.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for annual reporting periods for public business entities beginning after December 15, 2017, including interim periods within that reporting period. The new standard permits the use of either the retrospective or cumulative effect transition method. The Company is currently evaluating the effect that ASU 2014-09 will have on its financial statements and related disclosures. The Company has not yet selected a transition method nor determined the effect of the standard on its ongoing financial reporting.

 

In February 2016, the FASB issued “Leases (Topic 842)” (ASU 2016-02). This update amends leasing accounting requirements. The most significant change will result in the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current guidance. The new guidance will also require significant additional disclosures about the amount, timing, and uncertainty of cash flows from leases. ASU 2016-02 is effective for fiscal years and interim periods beginning after December 15, 2018, which for the Company is December 31, 2018, the first day of its 2019 fiscal year. Upon adoption, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted, and a number of optional practical expedients may be elected to simplify the impact of adoption. The Company is currently evaluating the impact of adopting this guidance. The overall impact is that assets and liabilities arising from leases are expected to increase based on the present value of remaining estimated lease payments at the time of adoption.

 

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (“ASC”) Topic 718, Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. The adoption did not have a material effect on its financial position or results of operations or cash flows.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” Under ASU 2016-02, lessees will, among other things, require lessees to recognize a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model and ASC Topic 606, “Revenue from Contracts with Customers.” ASU 2016-02 will be effective for us on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11 , “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. As of January 1, 2019, the Company adopted ASU 2016-02 and has recorded a right-of-use asset and lease liability on the balance sheet for its operating leases. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we will not reassess(i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also do not expect to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We expect to account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts and because we expect this election will result in a lower impact on our balance sheet.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In April 2016, the FASB issued ASU No. 2016-10, “Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing” (topic 606). In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” (topic 606). These amendments provide additional clarification and implementation guidance on the previously issued ASU 2014-09, “Revenue from Contracts with Customers”. The amendments in ASU 2016-10 provide clarifying guidance on materiality of performance obligations; evaluating distinct performance obligations; treatment of shipping and handling costs; and determining whether an entity’s promise to grant a license provides a customer with either a right to use an entity’s intellectual property or a right to access an entity’s intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. The adoption of ASU 2016-10 and ASU 2016-08 is to coincide with an entity’s adoption of ASU 2014-09, which we adopted for interim and annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition and is effective during the same period as ASU 2014-09. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of adopting this guidance.

 

In October 2016, the FASB issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory”, which eliminates the exception that prohibits the recognition of current and deferred income tax effects for intra-entity transfers of assets other than inventory until the asset has been sold to an outside party. The updated guidance is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is currently evaluating the impact of the new standard.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of adopting this guidance.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”. Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, Distinguishing Liabilities from Equity, because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting this guidance.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company is currently evaluating the impact of adopting this guidance.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

Management's Evaluation of Subsequent Events

Management’s Evaluation of Subsequent Events

 

The Company evaluates events that have occurred after the balance sheet date of June 30, 2017, through the date which the Condensed Consolidated Financial Statements were issued. Based upon the review, other than described in Note 15 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the Condensed Consolidated Financial Statements.

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Stockholders' Deficit
6 Months Ended
Jun. 30, 2017
Equity [Abstract]  
Stockholders' Deficit

NOTE 7 – Stockholders’ Deficit

 

Preferred Stock

 

The Series A Preferred Stock has special voting rights when voting as a class with the Common Stock as follows: (i) the holders of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of the Corporation’s Series A Preferred Stock and Common Stock (collectively, the “Common Stock”) on a Fully-Diluted Basis (as hereinafter defined), as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.00000025; and (ii) the holders of Common Stock shall have one vote per share of Common Stock held as of such date. “Fully-Diluted Basis” mean that the total number of issued and outstanding shares of Common Stock shall be calculated to include (a) the shares of Common Stock issuable upon exercise and/or conversion of all of the following securities (collectively, “Common Stock Equivalents”): all outstanding (a) securities convertible into or exchangeable for Common Stock, whether or not then convertible or exchangeable (collectively, “Convertible Securities”), (b) subscriptions, rights, options and warrants to purchase shares of Common Stock, whether or not then exercisable (collectively, “Options”), and (c) securities convertible into or exchangeable or exercisable for Options or Convertible Securities and any such underlying Options and/or Convertible Securities.

 

As of June 30, 2017and 2016, there were no shares of Series A Preferred Stock outstanding.

 

Common Stock

 

On January 20, 2017, the Company issued 2,000,000 shares of Common Stock to in connection with the settlement of the Crystal v. Medbox, Inc. litigation. The Company did not receive any proceeds from such issuance. The Company issued such shares in reliance on the exemptions from registration pursuant to Section 4(a)(2) of the Securities Act.

 

Share-based awards, restricted stock and restricted stock units (“RSUs”)

 

A summary of the activity related to RSUs for the three months ended June 30, 2017 and 2016 is presented below:

 

Restricted stock units (RSUs)   Total shares     Grant date fair value  
RSUs non-vested at January 1, 2017     7,142,856     $ 0.51 - $1.88  
RSUs granted     250,975,000     $ 0.0002 - $0.0003  
RSUs vested     (258,117,856 )   $ 0.0002 - $1.88  
RSUs forfeited     -     $ -  
                 
RSUs non-vested June 30, 2017     -     $ -  

 

A summary of the expense related to restricted stock, RSUs and stock option awards for the three and six months ended June 30, 2017 and 2016 is presented below:

 

   

Three months ended

June 30, 2017

 
RSUs   $ 50,293  
         
Total   $ 50,293  

 

   

Year ended

December 31, 2016

 
RSUs   $ 261,196  
Common stock     539,246  
         
Total   $ 800,442  

 

Warrant Activities

 

The Company applied fair value accounting for all share-based payments awards. The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes-Merton model.

 

The assumptions used for warrants granted during the six months ended June 30, 2017 are as follows:

 

    June 30, 2017  
Exercise price   $ 0.0001  
Expected dividends     0 %
Expected volatility     249.30 – 284.72 %
Risk free interest rate     1.44 – 1.54 %
Expected life of warrant     4 years  

 

The following is a summary of the Company’s warrant activity:

 

          Weighted     Weighted  
          Average     Average  
          Exercise     Remaining Days  
    Warrants     Price     Price  
                   
Outstanding – December 31, 2016     65,757,081     $ 0.11     $ 1.97  
Granted     11,800,000,000       0.0001       4.00  
Exercised     -       -       -  
Forfeited/Cancelled     (100,000 )     -       -  
Outstanding – June 30, 2017     11,765,757,081     $ 0.0007     $ 3.73  

 

At June 30, 2017, the aggregate intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.

 

During the six months ended June 30, 2017, there were no warrants exercised.

 

The Company adopted a sequencing policy that reclassifies contracts, with the exception of stock options, from equity to assets or liabilities for those with the earliest inception date first. Any future issuance of securities, as well as period-end reevaluations, will be evaluated as to reclassification as a liability under the sequencing policy of earliest inception date first until all of the convertible debentures are either converted or settled.

 

For warrants issued in 2015, the Company determined that the warrants were properly classified in equity as there is no cash settlement provision and the warrants have a fixed exercise price and, therefore, result in an obligation to deliver a known number of shares.

 

The Company reevaluated the warrants as of June 30, 2017 and determined that they did not have a sufficient number of authorized and unissued shares to settle all existing commitments, and the fair value of the warrants for which there was insufficient authorized shares, were reclassified out of equity to a liability. Under the sequencing policy, of the approximately 11,765,757,081 warrants outstanding at June 30, 2017. The fair value of these warrants was re-measured on June 30, 2017 using the Black Scholes Merton Model, with key valuation assumptions used that consist of the price of the Company’s stock on June 30, 2017, a risk-free interest rate based on the average yield of a 2 or 3 year Treasury note and expected volatility of shares of Common Stock, resulting in the fair value for the Warrant liability of approximately $2,341,355. The resulting change in fair value of $950,127 for the six months ended June 30, 2017, was recognized as a loss in the Consolidated Statement of Comprehensive Income(loss).

 

During the six months ended June 30, 2017, a total of 11,800,000,000 warrants were issued with convertible notes payable (See Note 7 above). The warrants have a grant date fair value of $3,009,034 using a Black-Scholes option-pricing model and the above assumptions.

XML 29 R4.htm IDEA: XBRL DOCUMENT v3.19.3
Condensed Consolidated Statements of Operations and Comprehensive Income (loss) (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Income Statement [Abstract]        
Revenue $ 46,805 $ 122,347 $ 136,195 $ 261,575
Operating expenses        
Cost of revenues 28,204 171,556 92,889 271,319
General and administrative 1,174,764 2,493,001 2,275,267 6,087,056
Total operating expenses 1,202,968 2,664,557 2,368,156 6,358,375
Loss from operations (1,156,163) (2,542,210) (2,231,961) (6,096,800)
Other income (expense)        
Interest expense, net (3,156,195) (1,551,458) (12,374,667) (6,182,966)
Change in fair value of derivative liabilities (32,634,820) 9,940,307 (31,978,525) 18,819,893
Change in fair value of warrant liability 950,726 441,148 950,127 997,121
Gain on sale of assets of subsidiary 10,995 10,995
Gain on sale of interest in subsidiary 331,000 630,571
Loss on failed business combination (201,610) (1,001,520)
Other income (expense) (7,769) 183,000 (30,555)
Total other income (expense) (35,041,899) 9,164,223 (44,221,585) 14,245,059
Net income (loss) from continuing operations (36,198,062) 6,622,013 (46,453,546) 8,148,259
Discontinued operations        
Net loss from discontinued operations (5,636) (73,443) (8,831) (351,887)
Income (loss) before provision for income taxes (36,203,698) 6,548,570 (46,462,377) 7,796,372
Net income (loss) $ (36,203,698) $ 6,548,570 $ (46,462,377) $ 7,796,372
Loss per share attributable to common stockholders        
Basic and diluted loss per share - continuing operations $ (0.00) $ 0.01 $ (0.00) $ 0.02
Basic and diluted loss per share from discontinued operations (0.00) (0.00) (0.00)  
Basic and diluted loss per share (0.00) 0.01 (0.00) 0.02
Weighted average shares outstanding        
Basic $ 9,944,548,868 $ 701,378,818 $ 9,944,166,271 $ 506,569,535
Diluted 9,944,548,868 10,739,100,799 9,944,166,271 5,605,827,806
Other comprehensive income (loss)        
Net income (loss) $ (36,203,698) $ 6,548,570 $ (46,462,377) $ 7,796,372
Unrealized gain from marketable securities 18,981
Comprehensive income (loss) $ (36,203,698) $ 6,548,570 $ (46,462,377) $ 7,815,353
XML 30 R38.htm IDEA: XBRL DOCUMENT v3.19.3
Stockholders' Deficit - Schedule of Activity Related to Restricted Stock Units (RSU's) (Details) - Restricted Stock Units (RSUs) [Member]
6 Months Ended
Jun. 30, 2017
$ / shares
shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
RSUs non-vested , beginning balance | shares 7,142,856
RSUs granted | shares 250,975,000
RSUs vested | shares (258,117,856)
RSUs forfeited | shares
RSUs non-vested, ending balance | shares
RSUs Grant date fair value, forfeited
RSUs non-vested Grant date fair value, ending balance
Minimum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
RSUs non-vested Grant date fair value, beginning balance 0.51
RSUs Grant date fair value, granted 0.0002
RSUs Grant date fair value, vested 0.0002
Maximum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
RSUs non-vested Grant date fair value, beginning balance 1.88
RSUs Grant date fair value, granted 0.0003
RSUs Grant date fair value, vested $ 1.88
XML 31 R30.htm IDEA: XBRL DOCUMENT v3.19.3
Inventory and Capitalized Agricultural Costs (Details Narrative) - USD ($)
Dec. 31, 2016
Jun. 30, 2016
Inventory Disclosure [Abstract]    
Finished goods
XML 32 R34.htm IDEA: XBRL DOCUMENT v3.19.3
Convertible Notes Payable and Derivative Liability - Summary of Convertible Notes Payable (Details) - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Debt Instrument [Line Items]    
Less discounts $ (598,721)
Less current maturities 16,676,617 8,645,442
Investor #2 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 275,000  
Convertible Notes Payable [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 18,675,258 8,731,033
Less discounts (1,999,641) (85,591)
Less current maturities 16,676,617 8,645,442
Convertible notes payable, net of current maturities
Convertible Notes Payable [Member] | Investor #1 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 14,357,804 6,642,745
Convertible Notes Payable [Member] | Investor #2 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 2,089,133 1,857,146
Convertible Notes Payable [Member] | Investor #3 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 293,009 231,142
Convertible Notes Payable [Member] | Investor #4 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable 1,636,312
Convertible Notes Payable [Member] | Investor #5 [Member]    
Debt Instrument [Line Items]    
Convertible notes payable $ 300,000
XML 33 R25.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies (Details Narrative)
3 Months Ended 6 Months Ended 12 Months Ended
May 24, 2016
$ / shares
Jun. 30, 2017
USD ($)
Jun. 30, 2016
USD ($)
$ / shares
shares
Jun. 30, 2017
USD ($)
Jun. 30, 2016
USD ($)
Integer
$ / shares
shares
Dec. 31, 2016
USD ($)
Net income loss   $ (36,203,698) $ 6,548,570 $ (46,462,377) $ 7,796,372 $ (17,700,000)
Cash flow from operations       (1,030,164) $ (2,126,420) (3,500,000)
Working capital   (88,100,000)   (88,100,000)   (38,000,000)
FDIC insured amount   250,000   250,000    
Cash equivalents      
Allowance for doubtful accounts   $ 0   0   $ 0
Impairment of inventory       $ 0    
Warrants to purchase common stock | shares     67,466,000   67,466,000  
Debt conversion, shares issued at holder's option         $ 7,309,000  
Debt instrument, conversion price | $ / shares     $ 0.75   $ 0.75  
Debt conversion trading price percentage         51.00%  
Debt conversion, trading days | Integer         20  
Maximum [Member]            
Debt conversion trading price percentage         60.00%  
Debt conversion, trading days | Integer         30  
OTC Markets Group, Inc. [Member]            
Debt instrument stock price | $ / shares $ 0.01          
Debt instrument stock price, description On May 24, 2016, the Company received a notice from the OTC Markets Group, Inc. ("OTC Markets") that the Company's bid price was below $0.01 and that the Company did not meet the Standards for Continued Eligibility for OTCQB pursuant to OTC Markets' Standards. If the bid price did not close at or above $0.01 for ten consecutive trading days by November 20, 2016, the Company would be moved to the OTC Pink marketplace.          
XML 34 R21.htm IDEA: XBRL DOCUMENT v3.19.3
Notes Payable (Tables)
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Schedule of Notes Payable

Notes payable consists of:

 

    June 30, 2017     December 31, 2016  
Southwest Farms (Note 3)   $ 3,571,136     $ 3,590,241  
East West Secured Development (Note 3)     493,129       503,031  
Investor #1 (Note 9)     103,847       3,691,200  
Investor #2     -       275,000  
      4,168,112       8,059,472  
Less discounts     -       (598,721 )
Plus premium     -       -  
                 
      4,168,112       7,460,751  
Less current maturities     4,168,112       3,367,479  
                 
    $ -     $ 4,093,272  

XML 35 R29.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies - Schedule of Estimated Useful Lives for Significant Property and Equipment (Details)
6 Months Ended
Jun. 30, 2017
Vehicles [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 5 years
Furniture and Fixtures [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 3 years
Furniture and Fixtures [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 5 years
Office Equipment [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 3 years
Machinery [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 2 years
Building [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 10 years
Building [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Estimated useful life 39 years
XML 36 R40.htm IDEA: XBRL DOCUMENT v3.19.3
Stockholders' Deficit - Schedule of Valuation Assumption for Warrants (Details)
Jun. 30, 2017
$ / shares
Exercise Price [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 0.0001
Expected Dividend [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 0
Expected Volatility [Member] | Minimum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 249.30
Expected Volatility [Member] | Maximum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 284.72
Risk Free Interest [Member] | Minimum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 1.44
Risk Free Interest [Member] | Maximum [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, measurement input 1.54
Expected Term [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Warrants, term 4 years
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Commitments and Contingencies (Details Narrative) - USD ($)
1 Months Ended 6 Months Ended
Nov. 30, 2017
Sep. 30, 2017
May 31, 2017
Sep. 16, 2016
Sep. 08, 2016
Aug. 31, 2016
Jun. 17, 2016
May 30, 2016
Jun. 05, 2014
Nov. 19, 2013
Aug. 01, 2011
Jan. 31, 2017
Nov. 30, 2016
Jan. 31, 2016
Jun. 30, 2017
Jun. 30, 2016
Dec. 14, 2017
Dec. 31, 2016
May 22, 2013
Rent expenses                         $ 46,522   $ 14,244 $ 376,000      
Litigation damages awarded                           $ 300,000          
Compensation cost per month               $ 15,000                      
Payment of common stock               5,000                      
Cash payment to a settlement                             $ 1,850,000        
Number of shares issued for settlement escrow account                             2,300,000        
Payment in settlement of escrow account                             $ 300,000        
Capitalized agricultural costs                             $ 419,736     $ 160,131  
Litigation payment, description                             On March 16, 2017, the Company and Mani Brothers agree to settle the amount owed if the Company paid $40,000 before July 2017. The Company paid the $40,000 in four monthly payments commencing in April 2017. On July 24, 2017, the case was dismissed against the Company.        
Debt instrument, conversion price                               $ 0.75      
Whole Hemp Plants [Member]                                      
Capitalized agricultural costs                             $ 73,345        
Notis Global, Inc.[Member]                                      
Cash payment to a settlement                             $ 150,000        
Number of shares issued for settlement escrow account                             2,000,000        
Insurers [Member]                                      
Cash payment to a settlement                             $ 1,700,000        
Bruce Bedrick [Member]                                      
Number of shares issued for settlement escrow account                             300,000        
Messrs. Mehdizadeh [Member]                                      
Number of shares issued for settlement escrow account                             2,000,000        
Bedrick [Member]                                      
Number of shares issued for settlement escrow account                             300,000        
Plaintiff Merritts [Member]                                      
Litigation settlement       $ 135,000                              
Bank Leumi [Member]                                      
Litigation damages awarded           $ 29,977                          
Prescription Vending Machines, Inc [Member]                                      
Litigation damages awarded         $ 374,402                            
Litigation settlement         $ 374,402                            
MedVend Holdings LLC [Member]                                      
Litigation damages awarded                   $ 4,550,000                  
Ownership percentage                                     50.00%
Investment owned                                     $ 4,100,000
Subsequent Event [Member]                                      
Litigation settlement $ 89,000                                    
Debt instrument, interest rate                                 6.25%    
Debt description   If Trava converts, in whole or in part, any one or more of such notes, then (unless (i) thereafter, the Company is unable to accommodate any future such conversions because of a lack of authorized, but unissued or unreserved, shares or (ii) the public market price for a share of Common Stock becomes "no bid"), Trava shall continue to exercise its conversion rights in respect of all of such notes (to the 4.9% limitations set forth therein) and shall diligently sell the shares of Common Stock into which any or all of such notes may be converted (collectively, the "Underlying Shares") in open market or other transactions (subject to any limitations imposed by the Federal securities laws and set forth in any "leak-out" type of arrangements in respect of the "underlying shares" to which Trava is a party).                                  
Debt instrument, conversion price   $ 0.0001                                  
Acquisition Agreement [Member]                                      
Purchase price to acquire property             $ 650,000                        
Escrow deposit             $ 10,000                        
Lease Agreement [Member]                                      
Rent expenses                     $ 7,486                
Sublease term                     18 months                
Lease Agreement [Member] | West Hollywood, California [Member]                                      
Rent expenses                     $ 14,828                
Consulting Agreement [Member]                                      
Compensation cost per month               25,000                      
Payment of common stock               $ 5,000                      
Purchase and Sale Agreement [Member] | PVM International Inc [Member]                                      
Shares repurchased during the period                 30,000                    
Settlement Agreement [Member]                                      
Litigation damages awarded                       $ 937,000              
Litigation settlement                       10,000              
Settlement Agreement [Member] | Three Shareholders [Member]                                      
Litigation settlement                       $ 375,000              
Pueblo Farm - Management Services Agreement [Member]                                      
Debt description     The MS Agreement has a 36-month term with two consecutive 12-month unilateral options exercisable in the sole discretion of Trava. Pursuant to the provisions of the MS Agreement, Trava shall collect all revenue generated by the Pueblo Farm operations. Further, Trava is to satisfy all of the Pueblo Farm-related past due expenses and, subject to certain limitations, to pay all current and future operational expenses of the Pueblo Farm operations. Finally, commencing October 2017, Trava is obligated to make the monthly mortgage payments on the Pueblo Farm, although the Company remains responsible for any and all "balloon payments" due under the mortgage. On a cumulative calendar monthly cash-on-cash basis, Trava is obligated to tender to the Company or, at the Company's option, to either or both of those subsidiaries, an amount equivalent to 51% of the net cash for each such calendar month. Such monthly payments are on the 10th calendar day following the end of a calendar month for which such tender is required. At the end of the five-year term (assuming the exercise by Trava of each of the two above-referenced options), Trava has the unilateral right to purchase the Pueblo Farm operation at a four times multiple of its EBITDA (calculated at the mean average thereof for each of the two option years).                                
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PCH Investment (Details Narrative) - USD ($)
6 Months Ended
Mar. 21, 2017
Nov. 02, 2016
Jun. 30, 2017
Jun. 30, 2016
Debt instrument, conversion price       $ 0.75
PCH Investment Group, Inc [Member] | PCH Shareholders [Member]        
Stock acquired during period 1,500,000,000      
Business combination, consideration transferred $ 300,000      
Restated Security and Pledge Agreement [Member] | Maximum [Member]        
Value of lending obligation     $ 500,000  
PCH Option Agreement [Member] | PCH Investment Group, Inc [Member]        
Option agreement, description     Pursuant the PCH Option Agreement, PASE was granted the option to purchase all 49%, but not less than all 49%, of the PCH Optioned Shares. The exercise price for the PCH Optioned Shares is an amount equivalent to five times PCH's "EBITDA" for the 12-calendar month period, on a look-back basis, that concludes on the date of exercise of the Option, less $10.00 (which was the purchase price of the option). The calculation of the 12-month EBITDA was to be determined by PASE's (or its) then-currently engaged independent auditors. If the Company were to exercise the option prior to the first anniversary of the closing of the acquisition of the PCH To-Be-Purchased Shares, then the exercise price for the PCH Optioned Shares was to be based on the EBITDA for the entire 12-calendar month period that commenced with the effective date of the PCH Option Agreement.  
Settlement Agreement [Member]        
Loss on termination of the PCH transaction     $ 1,001,520  
PCH Investment Group, Inc [Member] | PCH Management Agreement [Member]        
Gross profit percentage   75.00%    
Annual gross profit, milestone   $ 8,000,000    
PCH Investment Group, Inc [Member]        
Business combination, consideration transferred $ 300,000      
Optioned shares expiry date Feb. 10, 2019      
Percentage of purchase price shares equal to stock 15.00%      
PCH Investment Group, Inc [Member] | Share-based Compensation Award, Tranche One [Member]        
Debt instrument, face value     86,000  
PCH Investment Group, Inc [Member] | Share-based Compensation Award, Tranche Two [Member]        
Debt instrument, face value     300,000  
PCH Investment Group, Inc [Member] | Share-based Compensation Award, Tranche Three [Member]        
Debt instrument, face value     90,000  
PCH Investment Group, Inc [Member] | Share-based Compensation Award, Tranche Four [Member]        
Debt instrument, face value     170,000  
PCH Investment Group, Inc [Member] | Share-based Compensation Award, Tranche Five [Member]        
Debt instrument, face value     114,000  
PCH Investment Group, Inc [Member] | Pre-acquisition Loans [Member]        
Debt instrument, face value     414,000  
PCH Investment Group, Inc [Member] | PCH Management Agreement [Member] | Maximum [Member]        
Annual gross profit, milestone   8,000,000    
PCH Investment Group, Inc [Member] | PCH Management Agreement [Member] | Minimum [Member]        
Annual gross profit, milestone   $ 6,000,000    
PCH Investment Group, Inc [Member] | Convertible Note Purchase Agreement [Member] | Senior Secured Convertible Promissory Note [Member]        
Debt instrument, face value     $ 1,000,000  
Debt instrument, interest rate     10.00%  
Debt instrument, description     Principal and interest are subject to certain conversion rights in favor of the PCH Lender. So long as any principal is outstanding or any interest remains accrued, but unpaid, at any time and from time to time, at the option of the PCH Lender, any or all of such amounts may be converted into shares of Common Stock. Notwithstanding such conversion right, and except in the circumstance described in the next sentence, the PCH Lender may not exercise its conversion rights if, in so doing, it would then own more than 4.99% of the Company's issued and outstanding shares of Common Stock. However, upon not less than 61 days' notice, the PCH Lender may increase its limitation percentage to a maximum of 9.99%. The PCH Lender's conversion price is fixed at $0.0001 per share. Principal and accrued interest may be pre-paid from time to time or at any time, subject to 10 days' written notice to the PCH Lender. Any prepayment of principal or interest shall be increased to be at the rate of 130% of the amount so to be prepaid and, during the 10-day notice period, the PCH Lender may exercise its conversion rights in respect of any or all of the amounts otherwise to be prepaid.  
Debt instrument, conversion price     $ 0.0001  
PCH Investment Group, Inc [Member] | To be Purchased Shares [Member]        
Stock acquired during period 459,999      
Acquisition percentage 51.00%      
PCH Investment Group, Inc [Member] | PCH Optioned Shares [Member]        
Acquisition percentage 49.00%      
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Notes Payable - Schedule of Notes Payable (Details) - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Debt Instrument [Line Items]    
Notes payable gross $ 4,168,112 $ 8,059,472
Less discounts (598,721)
Plus premium
Notes payable total 4,168,112 7,460,751
Less current maturities 4,168,112 3,367,478
Notes payable noncurrent 4,093,272
Investor #1 [Member]    
Debt Instrument [Line Items]    
Notes payable gross 103,847 3,691,200
Investor #2 [Member]    
Debt Instrument [Line Items]    
Notes payable gross 275,000
Southwest Farms, Inc. [Member]    
Debt Instrument [Line Items]    
Notes payable gross 3,571,136 3,590,241
East West Secured Development, LLC [Member]    
Debt Instrument [Line Items]    
Notes payable gross $ 493,129 $ 503,031
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Inventory and Capitalized Agricultural Costs (Tables)
6 Months Ended
Jun. 30, 2017
Inventory Disclosure [Abstract]  
Schedule of Inventory

Inventory at June 30, 2017 and December 31, 2016 consisted of the following:

 

    June 30, 2017     December 31, 2016  
Biomass   $ 419,736     $ 160,131  
                 
Less Discontinued Operations     -       -  
                 
Total inventory, net   $ 419,736     $ 160,131  

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Condensed Consolidated Balance Sheets - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Current assets    
Cash $ 27,660 $ 23,967
Capitalized agricultural costs 419,736 160,131
Prepaid expenses and other current assets 78,845 92,976
Assets of discontinued operations 570 2,522
Total current assets 526,811 279,596
Property and equipment, net 6,528,730 6,712,369
Total assets 7,055,541 6,991,965
Current liabilities    
Accounts payable 7,519,416 6,009,827
Accrued expenses 3,748,439 2,187,393
Accounts payable and accrued expenses - related parties 566,276 727,893
Liabilities of discontinued operations 918,644 1,020,127
Current portion of notes payable, net 4,168,112 3,367,478
Notes payable - related parties 289,866 289,866
Convertible notes payable, net 16,676,617 8,645,442
Convertible notes payable - related parties 105,000 105,000
Due on demand note 312,431
Share restriction liability 60,374
Derivative liability 51,912,638 15,635,947
Warrant liability 2,341,355 14,430
Total current liabilities 88,619,168 38,003,403
Notes payable, less current portion 4,093,272
Total liabilities 88,619,168 42,096,675
Commitments and contingencies (Note 9)
Stockholders' deficit    
Preferred stock, $0.001 par value: 10,000,000 authorized; 0 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
Common stock, $0.001 par value: 10,000,000,000 authorized, 9,961,300,000 and 9,942,223,868 issued and outstanding as of June 30, 2017 and December 31, 2016, respectively 9,961,300 9,942,224
Additional paid-in capital 45,381,067 46,606,283
Treasury stock (1,209,600)
Accumulated deficit (136,905,994) (90,443,617)
Total stockholders' deficit (81,563,627) (35,104,710)
Total liabilities and stockholders' deficit $ 7,055,541 $ 6,991,965
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Commitments and Contingencies
6 Months Ended
Jun. 30, 2017
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

The Company previously leased property for its day-to-day operations and facilities for possible retail dispensary locations and cultivation locations as part of the process of applying for retail dispensary and cultivation licenses.

 

Entry into Agreement to Acquire Real Property

 

On June 17, 2016, EWSD entered into a Contract to Buy and Sell Real Estate (the “Acquisition Agreement”) with Tammy J. Sciumbato and Donnie J. Sciumbato (collectively, the “Sellers”) to purchase certain real property comprised of 116 acres of agricultural land, a barn and a farmhouse in Pueblo, Colorado (the “Property”). The closing of the Acquisition Agreement was scheduled to occur on or about September 22, 2016 (the “Closing”), with possession of the land and barn occurring 12 days after the Closing and possession of the farm house occurring on or before January 1, 2017. The Sellers were to rent back the farm house from the Company until January 1, 2017. The purchase price to acquire the Property is $650,000, including $10,000 paid by the Company as a deposit into the escrow for the Property. During the third quarter of 2017 the Acquisition Agreement was cancelled and the deposit was forfeited.

 

Office Leases

 

On August 1, 2011, the Company entered into a lease agreement for office space located in West Hollywood, California through June 30, 2017 at a current monthly rate of $14,828 per month. The Company moved to different offices in Los Angeles, CA in April 2015. The sublease on the office has a term of 18 months with monthly rent of $7,486.

 

The landlord for the West Hollywood space has filed a suit against the Company and independent guarantors on the West Hollywood lease. The Company has expensed all lease payments due under the West Hollywood lease. The Company’s liability for the West Hollywood lease will be adjusted, if required, upon settlement of the suit with the landlord. On September 8, 2016, the court approved the landlord’s application for writ of attachment in the State of California in the amount of $374,402 against Prescription Vending Machines, Inc. (“PVM”). A trial date has been set for May 2017 (Note 14). On July 18, 2017, plaintiff filed a Request for Dismissal with Prejudice of the litigation in respect of PVM.

 

Rent expense for the six months ended June 30, 2017 and 2016 was approximately $14,244 and $376,000, respectively.

 

Consulting Agreements

 

On December 7, 2015, the Company entered into a consulting agreement for marketing and PR services, for a term of six months, which was subsequently extended through August 30, 2016. Compensation under this agreement through May 30, 2016 was $25,000 per month, with twenty percent, or $5,000, of this amount to be paid in shares of Common Stock. Pursuant to the terms of the agreement, the number of shares issued is determined at the end of each quarter. Upon extension, the terms were adjusted to $15,000 per month for services, with $5,000 to be paid in shares of Common Stock. On November 30, 2017, the Court granted plaintiff’s request for a Default Judgment in the amount of $89,000. Further, the Court scheduled a hearing for December 14, 2017, in respect of expenses, attorney’s fees, and interest at a rate of 6.25%.

 

Litigation

 

On May 22, 2013, the Company, then known as Medbox , Inc., initiated litigation in the United States District Court in the District of Arizona against three stockholders of MedVend Holdings LLC (“MedVend”) in connection with a contemplated transaction that Medbox entered into for the purchase of an approximate 50% ownership stake in MedVend for $4.1 million. The lawsuit alleges fraud and related claims arising out of the contemplated transaction during the quarter ended June 30, 2013. The litigation is pending and Medbox has sought cancellation due to a fraudulent sale of the stock because the selling stockholders lacked the power or authority to sell their ownership stake in MedVend, and their actions were a breach of representations made by them in the agreement. On November 19, 2013, the litigation was transferred to United States District Court for the Eastern District of Michigan. MedVend recently joined the suit pursuant to a consolidation order executed by a new judge assigned to the matter. In the litigation, the selling stockholder defendants and MedVend seek to have the transaction performed, or alternatively be awarded damages for the alleged breach of the agreement by the Company. MedVend and the stockholder defendants seek $4.55 million in damages, plus costs and attorneys’ fees. The Company denied liability with respect to all such claims. On June 5, 2014, the Company entered into a purchase and sale agreement (the “MedVend PSA”) with PVM International, Inc. (“PVMI”) concerning this matter. Pursuant to the MedVend PSA, the Company sold to PVMI the Company’s rights and claims attributable to or controlled by the Company against those three certain stockholders of MedVend, known as Kaplan, Tartaglia and Kovan (the “MedVend Rights and Claims”), in exchange for the return by PVMI to the Company of 30,000 shares of Common Stock. PVMI is owned by Pejman Vincent Mehdizadeh, formerly the Company’s largest stockholder. On December 17, 2015, the Company entered into a revocation of the MedVend PSA, which provided that from that date forward, the Company would take over the litigation and be responsible for the costs and attorneys’ fees associated with the MedVend Litigation from December 17, 2015 forward. All costs and attorneys’ fees through December 16, 2015 will be borne by PVMI. After the filing of a motion for substitution of the Company for PVMI, Defendants agreed, via a stipulated order, to permit the substitution. The Court entered the order substituting Notis Global, Inc. for PVMI on February 17, 2016. A new litigation schedule was recently issued which resulted in an adjournment of the trial. A new trial date will be set by the court following its ruling on a motion for summary judgment filed by Defendants and MedVend, which is set for hearing on November 16, 2016. At this time, the Company cannot determine whether the likelihood of an unfavorable outcome of the dispute is probable or remote, nor can they reasonably estimate a range of potential loss, should the outcome be unfavorable. In January 2017, the Company entered into a Settlement Agreement with the three stockholders, pursuant to which we agreed to pay to them $375,000 in six payments commencing August 2017 and concluding on or before February 2020. In connection with the settlement, the Company executed a Consent Judgment in the amount of $937,000 in their favor. The Company did not make the first payment and the Consent Judgment was recorded against it on August 25, 2017. Plaintiffs have attempted to collect on the judgment and, in November 2017, garnished approximately $10,000 from the Company’s bank account.

 

Class Settlement

 

On December 1, 2015, Medbox and the class plaintiffs in Josh Crystal v. Medbox, Inc., et al., Case No. 2:15-CV-00426-BRO (JEMx), pending before the United States District Court for the Central District of California (the “Court”) notified the Court of the settlement. The Court stayed the action pending the Court’s review of the settlement and directed the parties to file a stipulation of settlement. On December 18, 2015, plaintiffs filed the Motion for Preliminary Approval of Class Action Settlement that included the stipulation of settlement. On February 3, 2016, the Court issued an Order granting preliminary approval of the settlement. The settlement provides for notice to be given to the class, a period for opt outs and a final approval hearing. The Court originally scheduled the Final Settlement Approval Hearing to be held on May 16, 2016 at 1:30 p.m., but continued it to August 15, 2016 at 1:30 p.m. to be heard at the same time as the Final Settlement Approval Hearing for the derivative actions, discussed below. The principal terms of the settlement are:

 

  a cash payment to a settlement escrow account in the amount of $1,850,000 of which $150,000 will be paid by the Company and $1,700,000 will be paid by the Company’s insurers;
     
  a transfer of 2,300,000 shares of Common Stock to the settlement escrow account, of which 2,000,000 shares would be contributed by the Company and 300,000 shares of Common Stock by Bruce Bedrick;

 

  the net proceeds of the settlement escrow, after deduction of Court-approved administrative costs and any Court-approved attorneys’ fees and costs would be distributed to the Class; and
     
  releases of claims and dismissal of the action.

 

By entering into the settlement, the settling parties have resolved the class claims to their mutual satisfaction. However, the final determination is subject to approval by the Federal Courts. Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation. If the global settlement does not receive final court approval, it could have a material adverse effect on the financial condition, results of operations and/or cash flows of the Company and its ability to raise funds in the future.

 

As of June 30, 2017, all obligations have been settled in connection with this class settlement.

 

Derivative Settlements

 

As previously announced on October 22, 2015, on October 16, 2015, the Company, in its capacity as a nominal defendant, entered into a memorandum of understanding of settlement (the “Settlements”) in the following stockholder derivative actions: (1) Mike Jones v. Guy Marsala, et al., in the U.S. District Court for Central District of California; (2) Jennifer Scheffer v. P. Vincent Mehdizadeh, et al., in the Eighth Judicial District Court of Nevada; (3) Kimberly Y. Freeman v. Pejman Vincent Mehdizadeh, et al., in the Eighth Judicial District Court of Nevada; (4) Tyler Gray v. Pejman Vincent Mehdizadeh, et al., in the U.S. District Court for the District of Nevada; (5) Robert J. Calabrese v. Ned L. Siegel, et al., in the U.S. District Court for the District of Nevada; (6) Patricia des Groseilliers v. Pejman Vincent Mehdizadeh, et al., in the U.S. District Court for the District of Nevada; (7) Michael A. Glinter v. Pejman Vincent Mehdizadeh, et al., in the Superior Court of the State of California for the County of Los Angeles (the “Stockholder Derivative Lawsuits”). In addition to the Company, Pejman Vincent Mehdizadeh, Matthew Feinstein, Bruce Bedrick, Thomas Iwanski, Guy Marsala, J. Mitchell Lowe, Ned Siegel, and C. Douglas Mitchell were named as defendants in all of the lawsuits, and Jennifer S. Love was named in all of the lawsuits but the Scheffer action (collectively, the “Individual Defendants”).

 

On December 3, 2015, the parties in the Jones v. Marsala action advised the Court of the Settlements in the Stockholder Derivative Lawsuits and that the parties would be submitting the Settlements to the Court in the Jones action for approval. The Court thereafter issued an order vacating all pending dates in the action and ordered Plaintiff to file the Stipulation and Agreement of Settlement for the Court’s approval. On December 18, 2015, plaintiffs filed the Motion for Preliminary Approval of Derivative Settlement that included the Stipulation and Agreement of Settlement. On February 3, 2016, the Court issued an Order granting preliminary approval of the Settlements.

 

By entering into the Settlements, the settling parties have resolved the derivative claims to their mutual satisfaction. The Individual Defendants have not admitted the validity of any claims or allegations and the settling plaintiffs have not admitted that any claims or allegations lack merit or foundation.

 

Under the terms of the Settlements, the Company agrees to adopt and adhere to certain corporate governance processes in the future. In addition to these corporate governance measures, the Company’s insurers, on behalf of the Individual Defendants, will make a payment of $300,000 into the settlement escrow account and Messrs. Mehdizadeh and Bedrick will deliver 2,000,000 and 300,000 shares, respectively, of their shares of Common Stock into the Settlement escrow account. The funds and Common Stock in the Settlement escrow account will be paid as attorneys’ fees and expenses, or as service awards to plaintiffs.

 

On September 16, 2016, solely to avoid the costs, risks, and uncertainties inherent in litigation, the parties entered into a settlement regarding the Merritts Action. The settlement provides, among other things, for the release and dismissal of all asserted claims. Under the terms of the settlement, the Company agrees to adopt and to adhere to certain corporate governance processes in the future. In addition to these corporate governance measures, the Company will make a payment of $135,000 in cash to be used to pay Merritts’ counsel for any attorneys’ fees and expenses, or as service awards to Merritts, that are approved and awarded by the Court. The Settlements have been approved by the court.

 

As of June 30, 2017, all obligations have been settled in connection with this class settlement.

 

SEC Investigation

 

In October 2014, the Board appointed a special committee (the “Special Committee”) to investigate issues arising from a federal grand jury subpoena pertaining to the Company’s financial reporting which was served upon the Company’s predecessor independent registered public accounting firm as well as certain alleged wrongdoing raised by a former employee of the Company. The Company was subsequently served with two SEC subpoenas in early November 2014. The Company is fully cooperating with the grand jury and SEC investigations. In connection with its investigation of these matters, the Special Committee in conjunction with the Audit Committee initiated an internal review by management and by an outside professional advisor of certain prior period financial reporting of the Company. The outside professional advisor reviewed the Company’s revenue recognition methodology for certain contracts for the third and fourth quarters of 2013. As a result of certain errors discovered in connection with the review by management and its professional advisor, the Audit Committee, upon management’s recommendation, concluded on December 24, 2014 that the Condensed Consolidated Financial Statements for the year ended December 31, 2013 and for the third and fourth quarters therein, as well as for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, should no longer be relied upon and would be restated to correct the errors. On March 6, 2015 the audit committee determined that the Condensed Consolidated Financial Statements for the year ended December 31, 2012, together with all three, six and nine month financial information contained therein, and the quarterly information for the first two quarters of the 2013 fiscal year should also be restated. On March 11, 2015, the Company filed its restated Form 10 Registration Statement with the SEC with restated financial information for the years ended December 31, 2012 and December 31, 2013, and on March 16, 2015, the Company filed amended and restated quarterly reports on Form 10-Q, with restated financial information for the periods ended March 31, June 30 and September 30, 2014, respectively.

 

In March 2016, the staff of the Los Angeles Regional Office of the U.S. Securities and Exchange Commission advised counsel for the Company in a telephone conversation, followed by a written “Wells” notice, that it is has made a preliminary determination to recommend that the Commission file an enforcement action against the Company in connection with misstatements by prior management in the Company’s financial statements for 2012, 2013 and the first three quarters of 2014. A Wells Notice is neither a formal allegation of wrongdoing nor a finding that any violations of law have occurred. Rather, it provides the Company with an opportunity to respond to issues raised by the Staff and offer its perspective prior to any SEC decision to institute proceedings.

 

In March 2017, the SEC and the Company settled this matter. The Company consented to the entry of a final judgment permanently enjoining it from violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (Securities Act) and Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 10b-5, 12b-20, 13a-11, and 13a-13 thereunder. In connection with the settlement, the Company did not have any monetary sanctions or penalties assessed against it.

 

Other litigation

 

Whole Hemp complaint

 

A complaint was filed by Whole Hemp Company, LLC d/b/a Folium Biosciences (“Whole Hemp”) on June 1, 2016, naming Notis Global, Inc. and EWSD (collectively, “Notis”), as defendants in Pueblo County, CO district court. The complaint alleges five causes of action against Notis: misappropriation of trade secrets, civil theft, intentional interference with prospective business advantage, civil conspiracy, and breach of contract. All claims concern contracts between Whole Hemp and Notis for the Farming Agreement and the Distributor Agreement.

 

The court entered an ex parte temporary restraining order on June 2, 2016, and a modified temporary restraining order on July 14, 2016, enjoining Notis from disclosing, using, copying, conveying, transferring, or transmitting Whole Hemp’s trade secrets, including Whole Hemp’s plants. On June 13, 2016, the court ordered that all claims be submitted to arbitration, except for the disposition of the temporary restraining order.

 

On August 12, 2016, the court ordered that all of Whole Hemp’s plants in Notis’ possession be destroyed, which occurred by August 24, 2016, at which time the temporary restraining order was dissolved and the parties will soon file a motion to dismiss the district court action. On June 29, 2017, the parties jointly stipulated to the dismissal of all claims and counterclaims with prejudice.

 

Notis commenced arbitration in Denver, CO on August 2, 2016, seeking injunctive relief and alleging breaches of the contracts between the parties. Whole Hemp filed is Answer and counterclaims on September 6, 2016, asserting similar allegations that were asserted to the court.

 

On September 30, 2016, the arbitrator held an initial status conference and agreed to allow EWSD and Notis to file a motion to dismiss some or all of Whole Hemp’s claims by no later than October 28, 2016. The parties were also ordered to make initial disclosures of relevant documents and persons with knowledge of relevant information by October 21, 2016.

 

In light of the court order to destroy all Whole Hemp plants, the Company has immediately expensed all Capitalized agricultural costs of $73,345 related to Whole Hemp plants. As of December 31, 2016, the Company capitalized $160,131 that related to Whole Hemp plants.

 

As noted above, the Company’s long-term strategy is to maintain tight control of its supply chain. The continuing default by Whole Hemp was conductive to the Company’s efforts to eliminate outside vendors in the supply chain and control production from “Seed to Sale.” The Company’s decision to terminate the Whole Hemp Agreements comports with its long-term strategy to maintain tight control of its supply chain.

 

West Hollywood Lease

 

The lease for the former office at 8439 West Sunset Blvd. in West Hollywood, CA has been partially subleased. The Company plans to sublease the remainder of the office in West Hollywood, CA and continues to incur rent expense while the space is being marketed. The landlord for the prior lease filed a suit in Los Angeles Superior Court in April 2015 against the Company for damages they allege have been incurred from unpaid rent and otherwise. In January 2016, the landlord filed a first amended complaint adding the independent guarantors under the lease as co-defendants and specifying damages claim of approximately $300,000. On September 8, 2016, the court approved Mani Brothers’ application for writ of attachment in the State of California in the amount of $374,402 against Prescription Vending Machines, Inc. (“PVM”). On March 16, 2017, the Company and Mani Brothers agree to settle the amount owed if the Company paid $40,000 before July 2017. The Company paid the $40,000 in four monthly payments commencing in April 2017. On July 24, 2017, the case was dismissed against the Company.

 

Los Angeles Lease

 

The Company’s former landlord, Bank Leumi, filed an action against the Company in Los Angeles Superior Court for breach of lease on August 31, 2016, seeking $29,977 plus fees and interest, in addition to rent payment for September 2016. The Company filed a response to the complaint on September 21, 2016, and a case management conference is scheduled for December 9, 2016. In November 2016, the parties entered into a Settlement Agreement and General Release, pursuant to which the Company agreed to an eight-payment plan in favor of the Bank, commencing December 2016 and terminating July 2017. All of the payments, which aggregated $46,522 for rent, fees, and costs, have been made.

 

Jeffery Goh

 

We are a party to certain litigation that was filed by Jeff Goh, one of our former directors and executive officers in Superior Court for the state of California, County of Orange, styled JEFF GOH, an individual, Plaintiff, vs. MEDBOX HOLDINGS, INC., a Nevada corporation; NOTIS GLOBAL, INC., a Nevada corporation; and DOES 1 through 100, inclusive, Defendants, Case No. 30-2018-01014038-CU-BC-CJC. We intend to file such motions as may currently be required in this matter and, thereafter, litigate vigorously against Mr. Goh.

 

Pueblo Farm – Management Services Agreement

 

On May 31, 2017, the Company, and two of its subsidiaries, EWSD and Pueblo Agriculture Supply and Equipment LLC, and Trava LLC, a Florida limited liability company that has lent various sums to the Company (“Trava”; referenced above as the “PCH Lender”), entered into a Management Services Agreement (the “MS Agreement”) in respect of the Company’s hemp grow-and-extraction operations located in Pueblo, Colorado (the “Pueblo Farm”). The MS Agreement has a 36-month term with two consecutive 12-month unilateral options exercisable in the sole discretion of Trava. Pursuant to the provisions of the MS Agreement, Trava shall collect all revenue generated by the Pueblo Farm operations. Further, Trava is to satisfy all of the Pueblo Farm-related past due expenses and, subject to certain limitations, to pay all current and future operational expenses of the Pueblo Farm operations. Finally, commencing October 2017, Trava is obligated to make the monthly mortgage payments on the Pueblo Farm, although the Company remains responsible for any and all “balloon payments” due under the mortgage. On a cumulative calendar monthly cash-on-cash basis, Trava is obligated to tender to the Company or, at the Company’s option, to either or both of those subsidiaries, an amount equivalent to 51% of the net cash for each such calendar month. Such monthly payments are on the 10th calendar day following the end of a calendar month for which such tender is required. At the end of the five-year term (assuming the exercise by Trava of each of the two above-referenced options), Trava has the unilateral right to purchase the Pueblo Farm operation at a four times multiple of its EBITDA (calculated at the mean average thereof for each of the two option years).

 

Commencing in September 2017 in connection with Trava’s monthly lending to the Company funds sufficient for the Pueblo Farm’s monthly operational expenses of the Pueblo Farm operations, the Company amended the MA Agreement to provide that, from time to time, Trava may exercise its rights to convert some or all of the notes that evidence its lending of funds into shares of Common Stock at a fixed conversion price of $.0001 pre-share. If Trava converts, in whole or in part, any one or more of such notes, then (unless (i) thereafter, the Company is unable to accommodate any future such conversions because of a lack of authorized, but unissued or unreserved, shares or (ii) the public market price for a share of Common Stock becomes “no bid”), Trava shall continue to exercise its conversion rights in respect of all of such notes (to the 4.9% limitations set forth therein) and shall diligently sell the shares of Common Stock into which any or all of such notes may be converted (collectively, the “Underlying Shares”) in open market or other transactions (subject to any limitations imposed by the Federal securities laws and set forth in any “leak-out” type of arrangements in respect of the “underlying shares” to which Trava is a party).

 

Trava acknowledged that any proceeds derived by it from such sales of the underlying shares shall, on a dollar-for-dollar basis, reduce the Company’s financial obligations under the notes. Once Trava has received sufficient proceeds from such sales to reduce the aggregate obligations thereunder to nil (which reductions shall include any and all funds that Trava may have otherwise received in connection with the respective rights and obligations of the parties to the MSA), then the MSA shall be deemed to have been cancelled without any further economic obligations between Trava and the Company and Trava’s purchase right shall, accordingly, be extinguished.

XML 45 R11.htm IDEA: XBRL DOCUMENT v3.19.3
Convertible Notes Payable and Derivative Liability
6 Months Ended
Jun. 30, 2017
Debt Disclosure [Abstract]  
Convertible Notes Payable and Derivative Liability

NOTE 5 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITY

 

Convertible notes payable consists of: 

 

    June 30, 2017     December 31, 2016  
    (unaudited)        
Investor #1   $ 14,357,804     $ 6,642,745  
Investor #2     2,089,133       1,857,146  
Investor #3     293,009       231,142  
Investor #4     1,636,312       -  
Investor #5     300,000       -  
      18,675,258       8,731,033  
Less discounts     (1,999,641 )     (85,591 )
                 
Less current maturities     16,676,617       8,645,442  
                 
Convertible notes payable, net of current maturities   $       $    

 

Investor #1

 

During the year ended December 31, 2016 the Company issued 30 convertible notes to third-party lenders totaling $9,700,170. The Company received cash of $2,695,000 and original issue discounts of $119,737. The lender also paid $161,401 on advancements on fixed assets and consolidated principal and interest of $6,818,744. These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 13, 2016 through September 9, 2017. This note is secured by the Company’s assets. The convertible notes convert at a fixed rate of $0.75 or a 49% to 40% discount with a lookback of 30 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

During the six months ended June 30, 2017 the company issued 16 convertible notes to third-party lenders totaling $968,897. The company received cash of $506,000 and paid $413,457 from the PCH-Related Note. (See Note 4). These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between August 31, 2017 through December 28, 2018. The notes convert at a fixed rate of $0.0001 or a 50% discount with a lookback of 30 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of the Investor #1’s convertible notes during the six months ended June 30, 2017, gave rise to a derivative liability of $1,283,028. $475,901 of which was recorded as a debt discount. The debt discount is charged to accretion of debt discount and issuance cost ratably over the term of the convertible note.

 

During the six months ended June 30, 2017 the Company went into default on all of Investor #1’s convertible notes. These notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%-30%. The increase of principal of $3,418,510 was recorded to interest expense.

 

Upon default, 18 promissory notes held by Investor #1 became convertible. The Company reclassed $3,691,199 from notes payable to convertible notes payable.

 

Investor #2

 

During the year ended December 31, 2016, the Company issued two convertible notes to third-party lenders totaling $278,000. The Company received cash of $235,000 and the lender paid $43,000 on behalf of the Company for vendor liabilities. These convertible notes accrue interest at a rate of 5% per annum and mature with interest and principal both due between July 13, 2016 through April 30, 2017. This note is secured by the Company’s assets. The convertible notes convert at a fixed rate of $0.75 or a 49% discount with a lookback of 20 trading days.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

Upon default, the promissory note held by Investor #2 became convertible. The Company reclassed $275,000 from notes payable to convertible notes payable.

  

At June 30, 2017, the Company was in default on all the convertible debentures with Investor #2.

 

Investor #3

 

During the year ended December 31, 2016, the Company issued two convertible notes to third-party lenders totaling $282,500. The Company received cash of $236,500, original issue discounts of $34,750 and the lender paid $11,250 on behalf of the Company for vendor liabilities. These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between September 14, 2016 through August 20, 2017. This note is secured by the Company’s assets. These notes are convertible upon default at a rate of $0.75 or a 49% discount with a lookback of 30 trading days.

 

Due to the fact that these notes have an option to convert at a variable amount upon default, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares.

 

During the six months ended June 30, 2017 Investor #3 notes were increased by $61,867

 

Investor #4

 

During the six months ended June 30, 2017 the Company issued 2 convertible notes to third party lenders totaling $1,136,312. The Company received cash of $1,000,000, and the lender paid $136,312 on behalf of the company for vendor liabilities. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due on June 30, 2018. These notes are convertible upon default at a rate of $0.0001.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of the Investor #4 notes during the six months ended June 30, 2017, gave rise to a derivative liability of $2,027,407. In addition, the Company issued warrants to purchase 10,000,000,000 shares of Company common stock. The warrant entitles the holder to purchase the Company’s common stock at a purchase price of $0.0001 per share for a period of four years from the issue date. The Company recorded a $2,979,231 debt discount relating to the warrants issued to the investor. The debt discounts are charged to accretion of debt discount and issuance cost ratably over the term of the convertible note.

 

During the six months ended June 30, 2017 the Company went into default on all notes from Investor #4. The notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%. The increase of principal of $500,000 was recorded to interest expense.

 

Investor #5

 

During the six months ended June 30, 2017 the company issued 2 convertible notes to third party lenders totaling $200,000. The company received cash of $200,000. These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between April 27, 2018 through May 08, 2018. The notes convert at a fixed rate of $0.0002.

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC 815, due to the potential for settlement in a variable quantity of shares. The conversion feature of Investor #5’s convertible notes during the six months ended June 30, 2017, gave rise to a derivative liability of $438,196, of which $170,198 was recorded as a debt discount. In addition, the Company issued warrants to purchase 200,000,000 shares of Common Stock. The warrant entitles the holder to purchase shares of Common Stock at a purchase price of $0.0001 per share for a period of four years from the issue date. The Company recorded a $29,802 debt discount relating to the warrants issued to the investor. The debt discounts are charged to accretion of debt discount and issuance cost ratably over the term of the convertible notes.

 

During the six months ended June 30, 2017, the Company went into default on all of Investor #4’s convertible notes. These notes now accrue interest at a rate of 24% per annum, a late fee of 18% on interest outstanding compounding quarterly and the principal increases by 50%. The increase of principal of $100,000 was recorded to interest expense.

XML 46 R6.htm IDEA: XBRL DOCUMENT v3.19.3
Condensed Consolidated Statements of Cash Flows (Unaudited) (Parenthetical) - USD ($)
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Statement of Cash Flows [Abstract]    
Reserve of deposits and other assets $ 115,000 $ 115,000
XML 47 R27.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies - Schedule of Fair Value of Company's Level 3 Financial Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Accounting Policies [Abstract]        
Beginning balance     $ 15,650,377  
Initial recognition of conversion feature     4,298,166  
Initial recognition of warrant liability     3,277,052  
Change in fair value of conversion feature     31,978,525  
Change in fair value of warrant liability $ (950,726) $ (441,148) (950,127) $ (997,121)
Ending Balance $ 54,253,993   $ 54,253,993  
XML 48 R23.htm IDEA: XBRL DOCUMENT v3.19.3
Discontinued Operations (Tables)
6 Months Ended
Jun. 30, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Schedule of Income (Loss) from Discontinued Operation

The income (loss) from discontinued operations presented in the income statement for the six months ended June 30, 2017 and 2016, consisted of the following:

 

    For the six months ended  
    June 30,  
    2017     2016  
             
Revenue   $ -     $ 148,839  
Revenue, related party     -       49,836  
Net revenue     -       198,675  
Cost of revenues     -       74,682  
Gross profit (loss)     -       123,993  
                 
Operating expenses                
General and administrative     7,184       345,488  
Total operating expenses     7,184       345,488  
Loss from operations     (7,184 )     (221,495 )
                 
Other income (expense)                
Interest expense, net     1,647       (8,858 )
Gain on sale of assets of subsidiary     -       5,498  
Loss on sale of rights and assets     -       (178,032 )
Other income (expense)     -       51,000  
Total other income (expense)     (1,647 )     130,392  
                 
Net income (loss)   $ (8,831 )   $ 351,887  

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Discontinued Operations (Details Narrative) - USD ($)
Mar. 28, 2016
Jun. 30, 2017
Dec. 31, 2016
Discontinued Operations and Disposal Groups [Abstract]      
Sale of assets $ 70,000 $ 570 $ 2,522
Disposal interest rate, description 80 percent interest in one of two product lines that account for 40 percent of total revenue    

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Summary of Significant Accounting Policies - Schedule of Fair Value Measurement on a Recurring Basis of Assets and Liabilities (Details) - Fair Value, Measurements, Recurring [Member] - USD ($)
Jun. 30, 2017
Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities $ 54,253,993 $ 15,650,377
Warrant Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities 2,341,355 14,430
Derivative Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities 51,912,638 15,635,947
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) [Member] | Warrant Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) [Member] | Derivative Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) [Member] | Warrant Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Quoted Prices for Similar Assets or Liabilities in Active Markets (Level 2) [Member] | Derivative Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities
Significant Unobservable Inputs (Level 3) [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities 54,253,993 15,650,377
Significant Unobservable Inputs (Level 3) [Member] | Warrant Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities 2,341,355 14,430
Significant Unobservable Inputs (Level 3) [Member] | Derivative Liability [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total liabilities $ 51,912,638 $ 15,635,947
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Stockholders' Deficit (Tables)
6 Months Ended
Jun. 30, 2017
Equity [Abstract]  
Schedule of Activity Related to Restricted Stock Units (RSU's)

Restricted stock units (RSUs)   Total shares     Grant date fair value  
RSUs non-vested at January 1, 2017     7,142,856     $ 0.51 - $1.88  
RSUs granted     250,975,000     $ 0.0002 - $0.0003  
RSUs vested     (258,117,856 )   $ 0.0002 - $1.88  
RSUs forfeited     -     $ -  
                 
RSUs non-vested June 30, 2017     -     $ -  

Schedule of Expense Related to Restricted Stock

A summary of the expense related to restricted stock, RSUs and stock option awards for the three and six months ended June 30, 2017 and 2016 is presented below:

 

   

Three months ended

June 30, 2017

 
RSUs   $ 50,293  
         
Total   $ 50,293  

 

   

Year ended

December 31, 2016

 
RSUs   $ 261,196  
Common stock     539,246  
         
Total   $ 800,442  

Schedule of Valuation Assumption for Warrants

The assumptions used for warrants granted during the six months ended June 30, 2017 are as follows:

 

    June 30, 2017  
Exercise price   $ 0.0001  
Expected dividends     0 %
Expected volatility     249.30 – 284.72 %
Risk free interest rate     1.44 – 1.54 %
Expected life of warrant     4 years  

Summary of Warrant Activity

The following is a summary of the Company’s warrant activity:

 

          Weighted     Weighted  
          Average     Average  
          Exercise     Remaining Days  
    Warrants     Price     Price  
                   
Outstanding – December 31, 2016     65,757,081     $ 0.11     $ 1.97  
Granted     11,800,000,000       0.0001       4.00  
Exercised     -       -       -  
Forfeited/Cancelled     (100,000 )     -       -  
Outstanding – June 30, 2017     11,765,757,081     $ 0.0007     $ 3.73  

XML 54 R43.htm IDEA: XBRL DOCUMENT v3.19.3
Discontinued Operations - Schedule of Income (Loss) from Discontinued Operation (Details) - USD ($)
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Discontinued Operations and Disposal Groups [Abstract]    
Revenue $ 148,839
Revenue, related party 49,836
Net revenue 198,675
Cost of revenues 74,682
Gross profit (loss) 123,993
General and administrative 7,184 345,488
Total operating expenses 7,184 345,488
Loss from operations (7,184) (221,495)
Interest expense, net 1,647 (8,858)
Gain on sale of assets of subsidiary 5,498
Loss on sale of rights and assets (178,032)
Other income (expense) 51,000
Total other income (expense) (1,647) 130,392
Net income (loss) $ (8,831) $ 351,887
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XML 57 R37.htm IDEA: XBRL DOCUMENT v3.19.3
Stockholders' Deficit (Details Narrative) - USD ($)
3 Months Ended 6 Months Ended
Jan. 20, 2017
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Preferred stock, voting rights       The Series A Preferred Stock has special voting rights when voting as a class with the Common Stock as follows: (i) the holders of Series A Preferred Stock shall have such number of votes as is determined by multiplying (a) the number of shares of Series A Preferred Stock held by such holder, (b) the number of issued and outstanding shares of the Corporation's Series A Preferred Stock and Common Stock (collectively, the "Common Stock") on a Fully-Diluted Basis (as hereinafter defined), as of the record date for the vote, or, if no such record date is established, as of the date such vote is taken or any written consent of stockholders is solicited, and (c) 0.00000025; and (ii) the holders of Common Stock shall have one vote per share of Common Stock held as of such date. "Fully-Diluted Basis" mean that the total number of issued and outstanding shares of Common Stock shall be calculated to include (a) the shares of Common Stock issuable upon exercise and/or conversion of all of the following securities (collectively, "Common Stock Equivalents"): all outstanding (a) securities convertible into or exchangeable for Common Stock, whether or not then convertible or exchangeable (collectively, "Convertible Securities"), (b) subscriptions, rights, options and warrants to purchase shares of Common Stock, whether or not then exercisable (collectively, "Options"), and (c) securities convertible into or exchangeable or exercisable for Options or Convertible Securities and any such underlying Options and/or Convertible Securities.    
Preferred stock, shares outstanding   0   0   0
Aggregate intrinsic value of warrants outstanding       $ 0    
Aggregate intrinsic value of warrants exercisable       $ 0    
Warrants exercised          
Change in fair value of warrant liability   $ 950,726 $ 441,148 $ 950,127 $ 997,121  
Convertible Notes Payable [Member]            
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Warrants outstandinig, shares   11,800,000,000   11,800,000,000    
Change in fair value of warrant liability       $ 3,009,034    
Series A Preferred Stock [Member]            
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Preferred stock, shares outstanding    
Common Stock [Member] | Crystal v. Medbox, Inc [Member]            
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Number of common stock, shares issued 2,000,000          
Warrants [Member]            
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]            
Warrants outstandinig, shares   11,765,757,081   11,765,757,081    
Warrant black scholes description       The fair value of these warrants was re-measured on June 30, 2017 using the Black Scholes Merton Model, with key valuation assumptions used that consist of the price of the Company's stock on June 30, 2017, a risk-free interest rate based on the average yield of a 2 or 3 year Treasury note and expected volatility of shares of Common Stock, resulting in the fair value for the Warrant liability of approximately $2,341,355.    
Change in fair value of warrant liability       $ 2,341,355    
XML 58 R3.htm IDEA: XBRL DOCUMENT v3.19.3
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]    
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 10,000,000,000 10,000,000,000
Common stock, shares issued 9,961,300,000 9,942,223,868
Common stock, shares outstanding 9,961,300,000 9,942,163,868
XML 59 R14.htm IDEA: XBRL DOCUMENT v3.19.3
Discontinued Operations
6 Months Ended
Jun. 30, 2017
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations

NOTE 8 – DISCONTINUED OPERATIONS

 

Management deemed the vapor and medical cannabis dispensing line of operations discontinued in the 4th quarter of 2016. This determination was due to poor performance and decreasing gross profit of the Company businesses and resulted in an overall halt of operations of the Company in the 4th quarter of 2016. Upon analysis of the individual business lines, the Company’s newly formed special committee decided not to continue in the vapor and medical cannabis dispensing industries.

 

On March 28, 2016, the Company sold the assets of the vapor subsidiary for $70,000. At the time of the asset disposal, it was disclosed as not a strategic shift in operations; however, with the inclusion of the medical cannabis dispensing operations, the definition of a strategic shift was met. One definition of a strategic shift is a disposal of “80 percent interest in one of two product lines that account for 40 percent of total revenue”. The disposal of both operations meets the definition of a strategic shift and should therefore be shown as discontinued operations in the Company’s Condensed Consolidated Financial Statements.

 

The following subsidiaries of the Company qualify as a discontinued operation for Notis Global.

 

● Prescription Vending Machines, Inc.

 

● Medbox Management Services, Inc.

 

● Medbox Rx, Inc.

 

● Vaporfection International, Inc.

 

● MJ Property Investments, Inc.

 

The income (loss) from discontinued operations presented in the income statement for the six months ended June 30, 2017 and 2016, consisted of the following:

 

    For the six months ended  
    June 30,  
    2017     2016  
             
Revenue   $ -     $ 148,839  
Revenue, related party     -       49,836  
Net revenue     -       198,675  
Cost of revenues     -       74,682  
Gross profit (loss)     -       123,993  
                 
Operating expenses                
General and administrative     7,184       345,488  
Total operating expenses     7,184       345,488  
Loss from operations     (7,184 )     (221,495 )
                 
Other income (expense)                
Interest expense, net     1,647       (8,858 )
Gain on sale of assets of subsidiary     -       5,498  
Loss on sale of rights and assets     -       (178,032 )
Other income (expense)     -       51,000  
Total other income (expense)     (1,647 )     130,392  
                 
Net income (loss)   $ (8,831 )   $ 351,887  

XML 60 R10.htm IDEA: XBRL DOCUMENT v3.19.3
PCH Investment
6 Months Ended
Jun. 30, 2017
Investments Schedule [Abstract]  
PCH Investment

NOTE 4 – PCH INVESTMENT

 

Effective as of March 21, 2017, through a series of related transactions, Notis intended to acquire, indirectly, an aggregate of 459,999 of the then-issued and outstanding shares of capital stock (the “PCH To-Be-Purchased Shares”) of PCH Investment Group, Inc., a California corporation (“PCH”) for a proposed purchase price of $300,000.00 in cash and the proposed issuance of shares of Common Stock. The PCH To-Be-Purchased Shares represented 51% of the outstanding capital stock of PCH. In connection with the Company’s then-intended acquisition of the PCH To-Be-Purchased Shares, the Company (or its affiliates) was also to be granted an indirect option to acquire the remaining 49% (the “PCH Optioned Shares”) of the capital stock of PCH. The option was to expire on February 10, 2019 (the “PCH Optioned Shares Expiry Date”).

 

Located in San Diego, California, PCH was a management services business that focused on the management of cannabis production and manufacturing businesses. On November 1, 2016, PCH entered into a Management Services Agreement (the “PCH Management Agreement”) with California Cannabis Group (“CalCan”) and Devilish Delights, Inc. (“DDI”), both of which then were California nonprofit corporations in the cannabis production and manufacturing business (“their business”). CalCan and Mr. Pyatt represented that CalCan was then licensed by the City of San Diego, California, to cultivate cannabis and manufacture cannabis products, as well as to sell, at wholesale, the cultivated and manufactured products at wholesale to legally operated medical marijuana dispensaries. The PCH Management Agreement provided that PCH was responsible for the day-to-day operations and business activities of their business. In that context, PCH was to be responsible for the payment of all operating expenses of their business (including the rent and related expenditures for CalCan and DDI) from the revenue generated by their business, or on an out-of- pocket basis if the revenue should be insufficient. In exchange for PCH’s services and payment obligations, PCH was to be entitled to 75% of the gross profits of their business. The PCH Management Agreement did not provide for any gross profit milestone during its first 12 months; thereafter, it provided for an annual $8 million gross profit milestone, with any amount in excess thereof to be carried forward to the next annual period. In the event that, during any annual period, the gross profit thereunder was less than $8 million (including any carry-forward amounts), then, on a one- time basis, PCH would have been permitted to carry-forward such deficit to the following annual period. If, in that following annual period, the gross profit was to have exceeded $6 million, then PCH would have been entitled to an additional “one-time basis” carry-forward of a subsequent deficit. The term of the PCH Management Agreement was for five years, subject to two extensions, each for an additional five-year period, in all cases subject to earlier termination for an uncured material breach by PCH of its obligations thereunder. Mr. Pyatt, the Company’s then- current Chief Operating Officer and Senior Vice President, Government Affairs, was also then a member of the Board of Directors of CalCan and DDI.

 

Pursuant to a Securities Purchase Agreement, that was made and entered into as of March 16, 2017 (five days before the presumed closing of the transaction; the “SPA”), “PASE” was to have acquired the PCH To-Be-Purchased Shares from the three PCH shareholders: (i) Mystic, LLC, a California limited liability company that Mr. Goh, the Company’s then-Chief Executive Officer, formed and controlled for his investments in cannabis projects, (ii) Mr. Pyatt, and (iii) Mr. Kaller, then the general manager of PCH (collectively, the “PCH Shareholders”).

 

As a condition to the Lender entering into the Note Purchase Agreement and the PCH-Related Note (both as noted below) and providing any additional funding to the Company in connection with its intended acquisition of the PCH To-Be-Purchased Shares, the Board ratified the forms of employment agreements for Mr. Goh, as the Company’s then-Chief Executive Officer, and for Clint Pyatt, as the Company’s then-prospective President. If the agreements became effective, and following the second anniversary thereof, the terms were to have become “at- will.” In addition to payment of a base salary, the agreements provided for certain cash, option, and equity bonuses, in each case to become subject both to each individual and to the Company meeting certain performance goals to be acknowledged by them and to be approved by a disinterested majority of the Board.

 

Due to the nature of the above-described intended transaction, and the related parties involved with PCH, the Company formed a special committee of its Board to consider all of the aspects thereof, as well as the related financing proposed to be provided by the Lender. The special committee consisted of three of the four directors: Ambassador Ned L. Siegel, Mitch Lowe, and Manual Flores. In the context of the special committee’s charge, it engaged an otherwise independent investment banking firm (the “Banker”) to analyze the potential acquisition of the PCH To-Be-Purchased Shares through the SPA (noted above) and the Stock Purchase Option Agreement (the “PCH Option Agreement”; the parties to which are PASE, PCH, the PCH Shareholders, as noted below), the related financing agreements (all as noted below), other related business and financial arrangements, and the above-referenced employment agreements. After the Banker completed its full review of those agreements and its own competitive analysis, it provided its opinion that the consideration to be paid in connection with the acquisition of the PCH To- Be-Purchased Shares and the terms of the PCH-Related Note were fair to the Company from a financial point of view. Following the Banker’s presentation of its analysis and opinion, and the special committee’s own analysis, the special committee unanimously recommended to the full Board that all of such transactions should be approved and that the Company could consummate the acquisition of the PCH To-Be-Purchased Shares, accept the option to acquire the PCH Optioned Shares, enter into the PCH-Related Note, the documents ancillary thereto, and the Employment Agreements.

 

In connection with the Company’s intended acquisition of the PCH To-Be-Purchased Shares and the Company’s intended option to acquire the PCH Optioned Shares, PASE, EWSD, PCH, and the Company entered into a Convertible Note Purchase Agreement (the “Note Purchase Agreement”) with a third-party lender (the “PCH Lender”). Concurrently, PASE and the Company (with EWSD and PCH as co-obligors) entered into a related 10% Senior Secured Convertible Promissory Note (the “PCH-Related Note”) in favor of the PCH Lender. The initial principal sum under the PCH-Related Note was $1,000,000.00 and it bears interest at the rate of 10% per annum. Principal and interest are subject to certain conversion rights in favor of the PCH Lender. So long as any principal is outstanding or any interest remains accrued, but unpaid, at any time and from time to time, at the option of the PCH Lender, any or all of such amounts may be converted into shares of Common Stock. Notwithstanding such conversion right, and except in the circumstance described in the next sentence, the PCH Lender may not exercise its conversion rights if, in so doing, it would then own more than 4.99% of the Company’s issued and outstanding shares of Common Stock. However, upon not less than 61 days’ notice, the PCH Lender may increase its limitation percentage to a maximum of 9.99%. The PCH Lender’s conversion price is fixed at $0.0001 per share. Principal and accrued interest may be pre-paid from time to time or at any time, subject to 10 days’ written notice to the PCH Lender. Any prepayment of principal or interest shall be increased to be at the rate of 130% of the amount so to be prepaid and, during the 10-day notice period, the PCH Lender may exercise its conversion rights in respect of any or all of the amounts otherwise to be prepaid.

 

In a series of other loan transactions prior to the intended closing of the acquisition of the PCH To-Be-Purchased Shares, a different third party lender (the “Ongoing Lender”) had lent to the Company, in five separate tranches, an aggregate amount of approximately $414,000 (the “Pre-acquisition Loans”), that, in turn, the Company lent to PCH to use for its working capital obligations. Upon the purported closing of the acquisition of the PCH To-Be-Purchased Shares and, pursuant to the terms of the PCH-Related Note, the PCH Lender lent to the Company (i) approximately $86,000, that, in turn, the Company lent to PCH to use for its additional working capital obligations, (ii) $300,000 for the purported acquisition of the PCH To-Be-Purchased Shares, and (iii) $90,000 for various transaction-related fees and expenses. Immediately subsequent to the closing of the purported acquisition of the PCH To-Be-Purchased Shares, the PCH Lender lent to the Company (x) approximately $170,000 for the Company’s operational obligations and (y) approximately $114,000 for the Company partially to repay an equivalent amount of the Pre-acquisition Loans.

 

In connection with the Pre-acquisition Loans and the PCH-Related Note, the makers and co-obligors thereof entered into an Amended and Restated Security and Pledge Agreement in favor of the Lender, pursuant to which such parties, jointly and severally, granted to the Lender a security interest in all, or substantially all, of their respective property. Further, PCH entered into a Guarantee in favor of the PCH Lender in respect of the other parties’ obligations under the PCH-Related Note. PCH’s obligation to the PCH Lender under these agreements is limited to a maximum of $500,000.

 

As of the intended closing of the acquisition of the PCH To-Be-Purchased Shares, the Company paid $300,000 to the PCH Shareholders. If that transaction had closed, the Company would also have become obligated to issue to the PCH Shareholders 1,500,000,000 shares (the “Purchase Price Shares”) of Common Stock. That number of issuable shares was to be subject to certain provisions detailed in the PCH-Related Note, which are summarized herein.

 

Notwithstanding the number of issuable shares referenced above, the number of issued Purchase Price Shares was to have been equal to 15% of the then-issued and outstanding shares of Common Stock at the time that the Company exercised its option to acquire the PCH Optioned Shares under the PCH Option Agreement. Further, in the event that the Company were to have issued additional equity securities prior to the date on which it in fact had issued the Purchase Price Shares at a price per share that was less than the value referenced above, the PCH Shareholders would have been entitled to “full ratchet” anti-dilution protection in the calculation of the number of Purchase Price Shares to be issued (with the exception of a recapitalization by the Lender to reduce the Company’s overall dilution).

 

If the Company did not exercise the intended option to acquire the PCH Optioned Shares prior to PCH Optioned Shares Expiry Date, the PCH Shareholders would have had the right to reacquire the PCH To-Be-Purchased Shares from the Company for the same cash consideration ($300,000.00) that was to have been paid to them for those shares. Further, if the Company were to be in default of its material obligations under the SPA, or if PASE were the subject of any bankruptcy proceedings, then the PCH Shareholders have the same reacquisition rights noted in the preceding sentence.

 

Pursuant the PCH Option Agreement, PASE was granted the option to purchase all 49%, but not less than all 49%, of the PCH Optioned Shares. The exercise price for the PCH Optioned Shares is an amount equivalent to five times PCH’s “EBITDA” for the 12-calendar month period, on a look-back basis, that concludes on the date of exercise of the Option, less $10.00 (which was the purchase price of the option). The calculation of the 12-month EBITDA was to be determined by PASE’s (or its) then-currently engaged independent auditors. If the Company were to exercise the option prior to the first anniversary of the closing of the acquisition of the PCH To-Be-Purchased Shares, then the exercise price for the PCH Optioned Shares was to be based on the EBITDA for the entire 12-calendar month period that commenced with the effective date of the PCH Option Agreement.

 

PCH Investment Group, Inc. – San Diego Project Termination

 

On March 27, 2017, the Company filed a Current Report on Form 8-K to announce the above-described series of events. Subsequently, it became clear to the Company that the PCH Parties failed to make key closing deliveries, including, without limitation, actual transfer of the PCH To-Be-Purchased Shares, the PCH Lease (as defined below) and related marijuana licenses. Thereafter, the parties entered into litigation and eventual settlement as described below.

 

The Settlement Agreement and Mutual General Release

 

The Company, PACE, and EWSD (collectively, the “Notis Parties”) and PCH, Messrs. Pyatt, Kaller, and Goh (solely in connection with his status as an equity holder of PCH, collectively, the “PCH Individuals”; and, with PCH, collectively, the “PCH Parties”) entered into a Settlement Agreement and Mutual General Release, with an effective date of August 16, 2017 (the “Settlement Agreement”), inter alia, to “unwind” the SPA’s intended transactions, to confirm that the transactions never officially closed, and to enter into a series of mutual releases with such parties. Some of the salient recitals from the Settlement Agreement are:

 

1. One or both of the PCH Lender and the Ongoing Lender (collectively, the “Notis Lenders”) and PCH have certain disagreements in respect of their respective rights and obligations in and related to certain of the SPA and related documents;
   
2. Some or all of the Notis Parties and the Notis Lenders, on the one hand, and PCH and the PCH Individuals, on the other hand, have certain disagreements in respect of the conduct of PCH’s business;
   
3. Some or all of the Notis Parties and PCH have certain disagreements in respect of the ownership and possessory right of certain of the furniture and equipment utilized by PCH on its own behalf or on behalf of others in respect of the conduct of PCH’s business located at 9212 Mira Este Court, San Diego, California (the location for the “PCH Lease”);
   
4. The Notis Parties and the PCH Parties have certain disagreements in respect of their respective rights and obligations in and related to the SPA;

 

5. PCH and Trava LLC, a Florida limited liability company and a material lender to PCH, have certain disagreements in respect of their respective rights and obligations in and related to the PCH / Trava Master Service Agreement (as defined in the Settlement Agreement);
   
6. Notis and Mr. Pyatt have certain disagreements in respect of their respective rights and obligations in and related to the Pyatt Employment Agreement (as defined in the Settlement Agreement), as manifested in part by Mr. Pyatt’s filing of the Pyatt Labor Complaint (as defined in the Settlement Agreement);
   
7. The Notis Parties and the PCH Parties have certain disagreements in respect of the Notis Parties and the PCH Parties’ respective conduct in connection with PCH’s rights and obligations in and related to the PCH / SDO Master Service Agreement (as defined in the Settlement Agreement);
   
8. The Notis Lenders and PCH have certain disagreements in respect of the PCH’s conduct in connection with PCH’s rights and obligation in and related to certain of the Notis Financing Documents (as defined in the Settlement Agreement);
   
9. The Notis Lenders and PCH have certain disagreements in respect of the ownership and possessory rights of certain of the Equipment (as defined in the Settlement Agreement); and
   
10. Some or all of the Notis Parties and the PCH Individuals, among others, have certain disagreements in respect of the operation of the PCH Shareholder/Buy-Sell Agreement (as defined in the Settlement Agreement).

 

See, also, Change of Officers and Directors in connection with the severance by each of Messrs. Pyatt and Goh of their respective employment and directorship relationships with us.

 

In connection with the PCH investment, the Company recorded $1,001,520 as a loss in connection with the failed and unconsummated business combination for the period ended June 30, 2017. The $1,001,520 is the amount the Company invested in the PCH transaction.

XML 61 R7.htm IDEA: XBRL DOCUMENT v3.19.3
Business Organization, Nature of Operations
6 Months Ended
Jun. 30, 2017
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business Organization, Nature of Operations

NOTE 1 – BUSINESS ORGANIZATION, NATURE OF OPERATIONS

 

Business Description

 

Notis Global, Inc. (formerly Medbox, Inc.), which is incorporated in the state of Nevada (the “Company”), provides specialized services to the hemp and marijuana industry, distributes hemp product processed by contractual partners and through June 30, 2017, owned independently and through affiliates, real property and licenses that it leased and assigned or sublicensed to partner cultivators and operators in return for a percentage of revenues or profits from sales and operations. Prior to 2016, through its consulting services, the Company worked with clients who sought to enter the medical and cultivation marijuana markets in those states where approved. In 2015, the Company expanded into hemp cultivation with the acquisition of a 320-acre farm (the “Farm”) in Colorado by the Company’s wholly-owned subsidiary, EWSD I, LLC (“EWSD”). The farm was operated by an independent farming partner until the relationship was terminated in May 2016 (Note 3). In addition, through its wholly-owned subsidiary, Vaporfection International, Inc. (“VII”), the Company sold a line of vaporizer and accessory products online and through distribution partners. On March 28, 2016, the Company sold the assets of VII and exited the vaporizer and accessory business. As of December 31, 2016, the Company was headquartered in Los Angeles, California. As of the date of filing of this Quarterly Report, the Company was headquartered in Middletown, New Jersey.

 

Effective January 28, 2016, the Company changed its legal corporate name from Medbox, Inc., to Notis Global, Inc. The name change was effected through a parent/subsidiary short-form merger pursuant to Section 92A.180 of the Nevada Revised Statutes. Notis Global, Inc., the Company’s wholly-owned Nevada subsidiary formed solely for the purpose of the name change, was merged with and into the Company, with Notis Global, Inc. as the surviving entity. The merger had the effect of amending the Company’s Articles of Incorporation to reflect the new legal name of the Company. There were no other changes to the Company’s Articles of Incorporation. The Company’s Board of Directors approved the name-change.

 

Notis Global, Inc., operates the business directly and through the utilization of three primary operating subsidiaries, as follows:

 

EWSD I, LLC, a Delaware limited liability company that owns property in Colorado.
   
Pueblo Agriculture Supply and Equipment, LLC, a Delaware limited liability company that was established to own extraction equipment.
   
Shi Cooperative, LLC, a Colorado limited liability company that contracts with third-party farmers to cultivate hemp in, among other areas, Colorado, Nevada, and Oklahoma.

 

San Diego Sunrise, LLC, a California corporation to hold San Diego, California dispensary operations. (As of June 30, 2016, the Company sold its interest in San Diego Sunrise, LLC.
   
Prescription Vending Machines, Inc., a California corporation, d/b/a Medicine Dispensing Systems in the State of California (“MDS”), which previously distributed our Medbox product and provided related consulting services.
   
Vaporfection International, Inc., a Florida corporation through which we distributed our medical vaporizing products and accessories. (All the assets of which were sold during the three months ended March 31, 2016).
   
Medbox Property Investments, Inc., a California corporation specializing in real property acquisitions and leases for dispensaries and cultivation centers. This corporation currently owns no real property.

 

During December 2016 the Company’s Board of Directors and management completed a strategic shift and completely exited the vapor and medical cannabis dispensing line.

 

On April 15, 2016, at a special meeting of the stockholders of the Company, the stockholders of the Company holding a majority of the total shares of outstanding common stock (the “Common Stock”) of the Company voted to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock from 400,000,000 to 10,000,000,000 (the “Certificate of Amendment”). The Certificate of Amendment was filed with the Nevada Secretary of State and was declared effective on April 18, 2016.

XML 62 R18.htm IDEA: XBRL DOCUMENT v3.19.3
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Jun. 30, 2017
Accounting Policies [Abstract]  
Schedule of Fair Value Measurement on a Recurring Basis of Assets and Liabilities

The following table provides a summary of the relevant assets and liabilities that are measured at fair value on a recurring basis:

 

    Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
June 30, 2017                        
Warrant liability     2,341,355       -       -       2,341,355  
Derivative liability     51,912,638                  -                   -       51,912,638  
                                 
Total liabilities   $ 54,253,993     $ -     $ -     $ 54,253,993  

 

December 31, 2016   Total    

Quoted Prices

in Active

Markets for

Identical

Assets or

Liabilities

(Level 1)

   

Quoted Prices

for Similar

Assets or

Liabilities in

Active

Markets

(Level 2)

   

Significant

Unobservable

Inputs

(Level 3)

 
                         
Warrant liability     14,430                       14,430  
Derivative liability     15,635,947                  -                  -       15,635,947  
                                 
Total liabilities   $ 15,650,377     $ -     $ -     $ 15,650,377  

Schedule of Fair Value of Company's Level 3 Financial Liabilities Measured at Fair Value on a Recurring Basis

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

 

    For the six months ended June 30, 2017  
    Total  
January 1, 2017     15,650,377  
Initial recognition of conversion feature     4,298,166  
Initial recognition of warrant liability     3,277,052  
Change in fair value of conversion feature     31,978,525  
Change in fair value of warrant liability     (950,127 )
         
Ending Balance, June 30, 2017     54,253,993  

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The Company had the following Common Stock equivalents at June 30, 2017:

 

    June 30, 2017  
Warrants     11,765,757,081  
Convertible notes – related party     10,500,000  
Convertible notes     204,397,932,874  
Totals     216,174,189,955  

Schedule of Estimated Useful Lives for Significant Property and Equipment

The estimated useful lives for significant property and equipment categories are as follows:

 

Vehicles   5 years  
Furniture and Fixtures   3 - 5 years  
Office equipment   3 years  
Machinery   2 years  
Buildings   10 - 39 years  

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Convertible Notes Payable and Derivative Liability (Details Narrative) - USD ($)
6 Months Ended 12 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Dec. 31, 2016
Debt Instrument [Line Items]      
Proceeds from convertible note $ 1,706,000 $ 1,815,811  
Debt original issue discount   $ 598,721
Repayments of convertible debt $ 363,547  
Debt instrument, conversion price   $ 0.75  
Investor #2 [Member]      
Debt Instrument [Line Items]      
Accrued interest, percentage 24.00%    
Prommisory note reclassed to Convertible notes payable $ 275,000    
30 Convertible Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount     9,700,170
Proceeds from convertible note     2,695,000
Debt original issue discount     119,737
Repayments of convertible debt     161,401
Debt principal and interest     $ 6,818,744
Debt instrument, interest rate     10.00%
Debt instrument, maturity date description     These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between July 13, 2016 through September 9, 2017.
Debt instrument, convertible terms of conversion     The convertible notes convert at a fixed rate of $0.75 or a 49% to 40% discount with a lookback of 30 trading days.
Debt instrument, conversion price     $ 0.75
Debt discount rate     40.00%
30 Convertible Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member] | Maximum [Member]      
Debt Instrument [Line Items]      
Debt discount rate     49.00%
16 Convertible Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount 968,897    
Proceeds from convertible note 506,000    
Repayments of convertible debt $ 413,457    
Debt instrument, interest rate 10.00%    
Debt instrument, maturity date description These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between August 31, 2017 through December 28, 2018.    
Debt instrument, convertible terms of conversion The notes convert at a fixed rate of $0.0001 or a 50% discount with a lookback of 30 trading days.    
Debt instrument, conversion price $ 0.0001    
Debt discount rate 50.00%    
Derivative liability $ 1,283,028    
Debt discount $ 475,901    
Accrued interest, percentage 24.00%    
Late fee, percentage 18.00%    
Debt principal increase, percentage 30.00%    
Interest expense $ 3,418,510    
Prommisory note reclassed to Convertible notes payable $ 3,691,199    
16 Convertible Notes [Member] | Investor #1 [Member] | Third Party Lenders [Member] | Maximum [Member]      
Debt Instrument [Line Items]      
Debt principal increase, percentage 50.00%    
Two Convertible Notes [Member] | Investor #2 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount     $ 278,000
Proceeds from convertible note     235,000
Repayments of convertible debt     $ 43,000
Debt instrument, interest rate     5.00%
Debt instrument, maturity date description     These convertible notes accrue interest at a rate of 5% per annum and mature with interest and principal both due between July 13, 2016 through April 30, 2017.
Debt instrument, convertible terms of conversion     This note is secured by the Company's assets. The convertible notes convert at a fixed rate of $0.75 or a 49% discount with a lookback of 20 trading days.
Debt instrument, conversion price     $ 0.75
Debt discount rate     49.00%
Prommisory note reclassed to Convertible notes payable     $ 275,000
Two Convertible Notes [Member] | Investor #3 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount     282,500
Proceeds from convertible note     236,500
Debt original issue discount     34,750
Repayments of convertible debt     $ 11,250
Debt instrument, interest rate     10.00%
Debt instrument, maturity date description     These convertible notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between September 14, 2016 through August 20, 2017.
Debt instrument, convertible terms of conversion     This note is secured by the Company's assets. These notes are convertible upon default at a rate of $0.75 or a 49% discount with a lookback of 30 trading days.
Debt instrument, conversion price     $ 0.75
Debt discount rate     49.00%
Debt instrument, increase for period     $ 61,867
Two Convertible Notes [Member] | Investor #4 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Proceeds from convertible note $ 1,000,000    
Repayments of convertible debt 136,312    
Debt discount $ 2,979,231    
Accrued interest, percentage 24.00%    
Late fee, percentage 18.00%    
Debt principal increase, percentage 50.00%    
Interest expense $ 500,000    
Debt instrument, maturity date Jun. 30, 2018    
1 Convertible Note [Member] | Investor #4 [Member]      
Debt Instrument [Line Items]      
Number of warrants issued to purchase of common stock 10,000,000,000    
Purchase price of warrants $ 0.0001    
1 Convertible Note [Member] | Investor #4 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount $ 1,136,312    
Debt instrument, interest rate 10.00%    
Debt instrument, conversion price $ 0.0001    
Derivative liability $ 2,027,407    
2 Convertible Note [Member] | Investor #5 [Member]      
Debt Instrument [Line Items]      
Debt discount $ 29,802    
Number of warrants issued to purchase of common stock 200,000,000    
Purchase price of warrants $ 0.0001    
2 Convertible Note [Member] | Investor #5 [Member] | Third Party Lenders [Member]      
Debt Instrument [Line Items]      
Principal amount $ 200,000    
Proceeds from convertible note $ 200,000    
Debt instrument, interest rate 10.00%    
Debt instrument, maturity date description These notes accrue interest at a rate of 10% per annum and mature with interest and principal both due between April 27, 2018 through May 08, 2018.    
Debt instrument, conversion price $ 0.0002    
Derivative liability $ 438,196    
Debt discount $ 170,198    
Convertible Note [Member] | Investor #4 [Member]      
Debt Instrument [Line Items]      
Accrued interest, percentage 24.00%    
Late fee, percentage 18.00%    
Debt principal increase, percentage 50.00%    
Interest expense $ 100,000