In 2021
2020 primarily due to ceasing the hydroponics business by the beginning of 2021
and an increase in EZ-CLONE revenue in 2021. This decline was offset by an
improvement in cost of goods sold of 17% and in operating expenses of 10% which
resulted in a 21% improvement to operating loss in 2021 compared to 2020. In
addition, total other expenses declined 22% in 2021 compared to 2020. A more
detailed explanation of these changes are provided below.
RESULTS OF OPERATIONS
The following table presents certain consolidated statement of operations
information and presentation of that data as a percentage of change from
year-to-year.
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Years ended December 31,
(Dollars in thousamds)
2021 2020 $ Variance % Variance
Net revenue 6,199 7,001 (802 ) -11 %
Cost of good sold 3,406 4,021 (615 ) -15 %
Gross profit 2,793 2,980 (187 ) -6 %
Operating expenses 4,318 4,870 (552 ) -11 %
Operating (loss) (1,525 ) (1,890 ) 365 -19 %
Other expense
Change in fair value of ) )
derivative (973 199 (1,172 -589 %
Interest expense, net (3,252 ) (1,090 ) (2,162 ) 198 %
Loss on debt conversions (931 ) (984 ) 53 -5 %
Gain on extinguishment of debt 1,025 39 986 2528 %
Loss on debt settlement (2,422 ) 2,422 -100 %
Gain on debt forgiveness 206 206 100 %
Total othere expenses (3,926 ) (4,258 ) 332 -8 %
(Loss) before income taxes (5,451 ) (6,148 ) 697 -11 %
Income taxes (22 ) (232 ) 210 -91 %
Net (loss) (5,473 ) (6,380 ) 907 -14 %
YEAR ENDED
Net revenue for the year ended
resulted from lower hydroponic sales from the decision during 2020 to exit the
hydroponics business and the elimination of the hydroponics sales personnel and
the impact of the pandemic on the hydroponics segment during the year ended
was
EZ-CLONE revenue from its line of products for the year ended
was
Cost of Goods Sold
Cost of sales for the year ended
resulted from lower sales in the hydroponics segment, offset by increased
EZ-CLONE sales as discussed above.
Gross profit was
a gross profit of
profit percentage was 45.1% for the year ended
42.6% for the year ended
in the hydroponics segment, offset by increased EZ-CLONE sales, as discussed
above.
Operating Expenses
Operating expenses for the year ended
compared to
as follows: (i) an increase in EZ-CLONE expenses of
increase in rent of
payroll of
professional services of
Non-cash operating expenses for the year ended
including (i) depreciation of
grants and warrants; and (iv) common stock issued for services of
Non-cash operating expenses for the year ended
including (i) depreciation of
grants and warrants; and (iv) common stock issued for services of
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Other Expense
Other expense for the year ended
to
year ended
liability of
to prior shutdown of retail operations; and offset by (iii) interest expense of
forgiveness of
change in the fair value and relates to our derivative instruments. The
increase in non-cash interest related to accrued interest expense, write-off of
original issue discount and the derivative liability calculated on our notes
payable. The loss on debt conversions related to the conversion of our notes
payable at prices below the market price.
On
2021
of shares issuable under warrants issued in prior financings whereby we agreed
that upon the exercise of the warrant of up 14,250,000 shares of our common
stock that the balance of the warrant related to a 2018 financing agreement
would be cancelled. We recorded a loss on debt settlement of
the Company recognized a gain on extinguishment of
in the fair value of the shares.
The other expense for the year ended
the reduction in derivative liability of
expense of
on debt extinguishment of
non-cash change in the fair value and relates to our derivative instruments.
The non-cash interest related to accrued interest expense on our notes payable.
The loss on debt conversions related to the conversion of our notes payable at
prices below the market price.
Net Loss
Net loss for the year ended
discussed above.
Net loss for the year ended
intangible assets of
(iv) stock based compensation of
common stock issued for services of
(vii) loss on debt conversions of
liability of
Net loss for the year ended
intangible assets of
related to stock option grants and warrants; (iv) common stock issued for
services of
conversion of
derivative liability of
We expect losses to continue as we implement our business plan.
LIQUIDITY AND CAPITAL RESOURCES
(“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern,
requires that management evaluate whether there are relevant conditions and
events that, in the aggregate, raise substantial doubt about the entity’s
ability to continue as a going concern and to meet its obligations as they
become due within one year after the date that the financial statements are
issued.
The accompanying financial statements have been prepared assuming that we will
continue as a going concern. However, since inception, we have sustained
significant operating losses and such losses are expected to continue for the
foreseeable future. As of
deficit of
acquisition to be paid in stock and right of use liability. Additionally, we
used cash in operating activities of
ended
funding to fund operations beyond
concluded that we do not have sufficient funds to support operations within one
year after the date the financial statements are issued and, therefore, we
concluded there was substantial doubt about the Company’s ability to continue as
a going concern.
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To fund further operations, we will need to raise additional capital. We may
obtain additional financing in the future through the issuance of its common
stock, or through other equity or debt financings. Our ability to continue as a
going concern or meet the minimum liquidity requirements in the future is
dependent on its ability to raise significant additional capital, of which there
can be no assurance. If the necessary financing is not obtained or achieved, we
will likely be required to reduce its planned expenditures, which could have an
adverse impact on the results of operations, financial condition and our ability
to achieve its strategic objective. Historically, the Company has been
successful in its ability to raise the financing necessary to continue
operations without interruption. There can be no assurance that financing will
be available on acceptable terms, or at all. The financial statements contain no
adjustments for the outcome of these uncertainties. These factors raise
substantial doubt about our ability to continue as a going concern and have a
material adverse effect on our future financial results, financial position and
cash flows.
Operating Activities
Net cash used in operating activities for the year ended
and (ii) net working capital decrease of
expenses of
of intangible assets of
grants; (viii) common stock issued for services of
interest of
derivative liability of
issuance of
liabilities of
Financing Activities
Net cash provided by financing activities for the year ended
was
offset by repayment of notes payable of
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in
Item 303 of Regulation S-K) that are reasonably likely to have a current or
future material effect on our financial condition, revenue or expenses, results
of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The application of GAAP involves the exercise of varying degrees of judgment. On
an ongoing basis, we evaluate our estimates and judgments based on historical
experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe that of our significant
accounting policies (see summary of significant accounting policies more fully
described in Note 3 to Form 10-K for the year ended
following policies involve a higher degree of judgment and/or complexity:
Accounts Receivable and Revenue – We recognize revenue in accordance with ASC
Topic 606, Revenue from Contracts with Customers, which requires the application
of the five-step-principles-based-accounting-model for revenue recognition.
These steps include (1) a legally enforceable contract, written or unwritten is
identified; (2) performance obligations in the contracts are identified; (3) the
transaction price reflecting variable consideration, if any, is identified; (4)
the transaction price is allocated to the performance obligations; and (5)
revenue is recognized when the control of goods is transferred to the customer
at a particular time or over time. Our hydroponic sales were cash or credit
card. Our EZ-CLONE sales include credit cash, payments in advance, 3% discount
upon receipt and, we extend thirty-day terms to select customers. Accounts
receivables are reviewed periodically for collectability. As of
2021
Inventories – Inventories are recorded on a first in first out basis Inventory
consists of raw materials, work in process and finished goods and components
sold by EZ-CLONE to it distribution customers. Inventory is valued at the lower
of cost or market.
Fair Value Measurements and Financial Instruments – ASC Topic 820, Fair Value
Measurement and Disclosures, defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. This topic also
establishes a fair value hierarchy, which requires classification based on
observable and unobservable inputs when measuring fair value. The fair value
hierarchy distinguishes between assumptions based on market data (observable
inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy
consists of three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than level one inputs that are either directly or
indirectly observable; and.
Level 3 – Inputs to the valuation methodology are unobservable and significant
to the fair value measurement.
The recorded value of other financial assets and liabilities, which consist
primarily of cash and cash equivalents, accounts receivable, other current
assets, and accounts payable and accrued expenses approximate the fair value of
the respective assets and liabilities as of
upon the short-term nature of the assets and liabilities.
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Derivative financial instruments -We evaluate all of its financial instruments
to determine if such instruments are derivatives or contain features that
qualify as embedded derivatives. For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is initially recorded at
its fair value and is then re-valued at each reporting date, with changes in the
fair value reported in the consolidated statements of operations. For
stock-based derivative financial instruments, the Company uses a Binomial
pricing model to value the derivative instruments at inception and on subsequent
valuation dates. The classification of derivative instruments, including whether
such instruments should be recorded as liabilities or as equity, is evaluated at
the end of each reporting period. Derivative instrument liabilities are
classified in the balance sheet as current or non-current based on whether or
not net-cash settlement of the derivative instrument could be required within
twelve months of the balance sheet date.
Stock Based Compensation – We have share-based compensation plans under which
employees, consultants, suppliers and directors may be granted restricted stock,
as well as options to purchase shares of our common stock at the fair market
value at the time of grant. Stock-based compensation cost is measured by us at
the grant date, based on the fair value of the award, over the requisite service
period using an estimated forfeiture rate. For options issued to employees, we
recognize stock compensation costs utilizing the fair value methodology over the
related period of benefit. Grants of stock options and stock to non-employees
and other parties are accounted for in accordance with the ASC 718.
approach regarding the application of ASC 815-40 to convertible securities
issued subsequent to
upon the earliest issuance date.
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