UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015.

 

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: 000-55340

 

CABINET GROW, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		46-5546647
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
17932 Sky Park Circle, Suite F
Irvine, CA.		92614
(Address of principal executive offices)		(Zip Code)

 

888-544-9376

(Registrant’s telephone number, including area code)

 

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 ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☑

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).. Yes ☐ No ☑

 

The number of shares outstanding of registrant’s $0.001 par value Common Stock, as of December 9, 2015, was 37,055,338 shares. 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this quarterly report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this quarterly report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q and in other reports that we file with the Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this quarterly report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

CABINET GROW, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
		September 30,				December 31,
		2015				2014
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	17,724			$	61,472
Accounts receivable, net			11,515				9,280
Inventory			49,336				48,761
Prepaid assets and other			25,032				8,938
Total current assets			103,608				128,451
Security deposit		$	20,120			$	20,120
Property and equipment, net of accumulated depreciation of $34,744 (2015) and $13,026 (2014)			52,945				70,640
Total assets		$	176,672			$	219,211
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		$	231,563			$	112,203
Accounts payable and accrued expenses, stockholder			52,912				14,152
Customer deposits			29,017				—
Note payable, stockholder			12,482				6,168
Total current liabilities			325,974				132,523
Convertible notes payable, net of discount of $213,026 (2015) and $210,165 (2014)			784,274				523,335
Total liabilities			1,110,248				655,858
Stockholders' Deficit:
Common stock, $0.001 par value; 300,000,000 shares authorized; 36,892,838 (2015) and 33,100,000 (2014) shares issued and outstanding			36,893				33,100
Common stock to be issued, $0.001 par value, 95,000 (2015) and 352,242 (2014) shares to be issued			95				352
Preferred stock, $0.001 par value; 10,000,000 shares authorized Series A preferred stock, $0.001 par value; 100 shares issued and authorized			—				—
Deferred stock compensation			(55,833	)			—
Additional paid-in capital			2,158,754				1,085,518
Accumulated deficit			(3,073,485	)			(1,555,617	)
Total stockholders' deficit			(933,576	)			(436,647	)
Total liabilities and stockholders' deficit		$	176,672			$	219,211
See notes to unaudited condensed consolidated financial statements.

 

CABINET GROW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
			Three Months Ended September 30,								Nine Months Ended September 30,
			2015				2014				2015				2014
Sales		$	192,938			$	134,876			$	574,319			$	447,612
Cost of sales			137,099				101,925				404,003				319,790
Gross profit			55,839				32,952				170,317				127,822
Operating Expenses:
Salaries and management fees (including stock compensation of $283,200 and $290,200 for the three and nine months ended September 30, 2015, respectively, and $37,500 and $559,250 for the three and nine months ended September 30, 2014)			434,608				176,307				660,262				767,663
Advertising and marketing			92,010				59,253				256,247				119,885
Investor relations			36,055				—				51,687				—
Merchant processing fees			7,073				2,580				15,280				9,936
Professional fees (including stock compensation for the three and nine months ended September 30, 2015 of $57,167 and $97,167, respectively and $150,000 for the nine months ended September 30, 2014)			86,835				14,231				186,010				182,517
Rent			8,502				6,980				25,431				14,855
Research and development			5,529				9,267				22,667				25,339
Depreciation and amortization			7,239				3,053				21,718				4,072
Other general and administrative			48,851				61,820				106,463				91,616
Total operating expenses			726,701				333,491				1,345,766				1,215,883
Loss from operations			(670,862	)			(300,539	)			(1,175,450	)			(1,088,061	)
Other income (expenses):
Other income and interest income			5,000				58				5,744				89
Other expense			(4,371	)			—				(4,371	)			—
Interest expense, other			(84,475	)			(89,382	)			(343,088	)			(110,228	)
Interest expense, related party			(245	)			(229	)			(703	)			(669	)
Total other expense, net			(84,090	)			(89,553	)			(342,418	)			(110,809	)
Net loss		$	(754,952	)		$	(390,092	)		$	(1,517,868	)		$	(1,198,871	)
Basic and diluted loss per share		$	(0.02	)		$	(0.01	)		$	(0.04	)		$	(0.04	)
Weighted average number of common shares outstanding Basic and diluted			36,094,306				33,000,000				34,631,287				31,533,088
See notes to unaudited condensed consolidated financial statements.

 

CABINET GROW, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
		For the nine months ended September 30,
		2015				2014
Cash flows from operating activities
Net loss		$	(1,517,868	)		$	(1,198,871	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			21,718				4,072
Amortization of discounts on convertible notes			253,439				85,883
Beneficial conversion feature			18,750				—
Amortization of deferred financing fees			2,002				6,601
Stock compensation expense			387,367				709,250
Non cash interest expense cost related to Forbearance and Standstill Agreement			7,500				—
Changes in operating assets and liabilities:
(Increase) decrease in :
Accounts receivable			(2,235	)			(3,337	)
Inventory			(575	)			(43,404	)
Prepaid assets and other			(18,096	)			736
Increase (decrease) in :
Accounts payable and accrued expenses			169,634				58,936
Accounts payable and accrued expenses, stockholder			38,760				10,669
Customer deposits			29,017				(917	)
Net cash used in operating activities			(610,588	)			(370,382	)
Cash flows from investing activities:
Purchase of computers and software and furniture and fixtures			(2,677	)			(46,241	)
Payment of security deposit			—				(20,120	)
Leasehold improvements			(1,346	)			(30,962	)
Net cash used in investing activities			(4,023	)			(97,323	)
Cash flows from financing activities:
Proceeds from issuance of convertible debt			363,750				560,000
Proceeds from sale of Series A preferred stock			—				100
Amounts from advances and credit card charges from stockholder			6,314				52,748
Repayments of advances and credit card charges to stockholder			—				(104,324	)
Proceeds from sale of common stock			200,800				500
Payment of deferred financing costs			—				(2,500	)
Net cash provided by financing activities			570,864				506,524
Net increase (decrease) in cash and cash equivalents			(43,748	)			38,819
Cash and cash equivalents, Beginning			61,472				10,485
Cash and cash equivalents, Ending		$	17,724			$	49,304
Supplemental disclosure of cash flow information:
Cash paid for interest		$	32,800			$	1,019
Cash paid for income taxes		$	—			$	—
Schedule of non-cash financing activities:
Included in issuances of convertible promissory notes for fees		$	23,300			$	63,500
Common stock issued in settlement of convertible notes and accrued interest		$	180,750			$	—
See notes to unaudited condensed consolidated financial statements.

CABINET GROW, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

(UNAUDITED)

 

NOTE 1 - ORGANIZATION

 

BUSINESS

 

Cabinet Grow, Inc. (the “Company” or “CG-NV”) began operations in California in 2008, doing business as Universal Hydro (“Hydro”). Prior to April 2014, the Company was a sole proprietorship owned by its’ current chief operating officer and stockholder. On April 28, 2014, the Company registered with the Secretary of State of California as Cabinet Grow, Inc. (“CG-CA”), and all of the business, assets and liabilities of Hydro were assigned to CG-CA. On May 14, 2014, the Company filed Articles of Incorporation with the Nevada Secretary of State. On May 15, 2014, CG-CA merged with CG-NV, with CG-NV being the surviving entity.

 

The Company’s common stock is quoted on the OTC Market Group, Inc.’s OTCQB Marketplace under the symbol “CBNT.”

 

The Company is a manufacturer and distributor of cabinet-based horticultural systems. The Company’s design and production of hydroponic and soil grow cabinets makes the process of growing in a self-contained cabinet automated and simplified. The Company’s mission is to make hydroponic and soil growing simpler, more efficient and a better value than other products found on the market. Substantially all of the Company’s sales are to individuals in the United States via the Company’s website.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

BASIS OF PRESENTATION

 

The accompanying unaudited condensed financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s annual report for the year ended December 31, 2014 on Form 10-K. Interim results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

EMERGING GROWTH COMPANY

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

CASH AND CASH EQUIVALENTS

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

INVENTORY

 

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts. Inventory of $49,336 and $48,761 as of September 30, 2015 and December 31, 2014, respectively, was comprised of raw materials.

 

PROPERTY AND EQUIPMENT

 

Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

 

Manufacturing equipment	10 years
Office equipment and furniture	7 years
Computer hardware and software	3 years

 

The Company's property and equipment consisted of the following at September 30, 2015 and December 31, 2014:

 

		September 30, 2015				December 31, 2014
Furniture and Equipment		$	29,614			$	26,937
Manufacturing equipment			7,396				7,396
Software			15,830				15,830
Leasehold improvements			34,849				33,503
Accumulated depreciation			(34,744	)			(13,026	)
Balance		$	52,945			$	70,640

 

Depreciation expense of $21,718 and $4,072 was recorded for the nine months ended September 30, 2015 and 2014, respectively.

 

REVENUE RECOGNITION

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, “Revenue Recognition.” ASC 605 requires that the following four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the period in which the product is shipped.

 

SHIPPING AND HANDLING

 

Shipping and handling costs billed to customers are recorded in sales. Shipping costs incurred by the Company are recorded in cost of sales. For the three and nine months ended September 30, 2015 and 2014, the shipping costs were as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Freight costs billed to customers		$	18,842			$	12,389			$	53,636			$	49,555
Company’s shipping costs		$	17,148			$	19,065			$	45,954			$	54,570

 

RESEARCH AND DEVELOPMENT

 

Expenditures for research and development are charged to expense as incurred. For the three and nine months ended September 30, 2015 and 2014, the costs were as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Research and development costs		$	5,529			$	9,267			$	22,667			$	25,339

 

ADVERTISING

 

The Company records advertising costs as incurred. For the three and nine months ended September 30, 2015 and 2014, advertising expense was as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Advertising costs		$	92,010			$	59,253			$	256,247			$	119,885

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

INCOME TAXES

 

Prior to May 2014, the Company was organized as a sole proprietorship and was not subject to income taxes. Rather, the Company’s sole stockholder was subject to income taxes on the Company’s taxable activity. In May 2014, the Company became subject to income taxes and will be subject to Federal and State income taxes as a corporation.

 

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. Interest and penalties are classified as a component of interest and other expenses. To date, the Company has not been assessed, nor paid, any interest or penalties.

 

Uncertain tax positions are measured and recorded by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.

 

EARNINGS (LOSS) PER SHARE

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. For the nine months ended September 30, 2014 and 2015, 14,287,500 shares of common stock underlying convertible debt and warrants have been excluded from the computation of diluted earnings per share.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.

 

 

NOTE 3 – SALES CONCENTRATION AND CONCENTRATION OF CREDIT RISK

 

CASH

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts.

 

PURCHASES

 

During the nine months ended September 30, 2015 and 2014, the Company made significant purchases from three suppliers as follows:

 

Supplier				Purchase % Nine months ended September 30, 2014				Purchase % Nine months ended September 30, 2015				Accounts Payable Balance as of September 30, 2015
	A				21.7	%			30.7	%		$	3,925
	B				18.1	%			19.4	%		$	15,491
	C				16.2	%			18.3	%		$	—

 

 

NOTE 4 – CONVERTIBLE NOTES PAYABLE

 

In May and June 2014 (the “May and June 2014 Notes”), the Company issued 3 convertible promissory notes, each in the amount of $22,000. The Company received proceeds of $60,000 in the aggregate. Each of the May and June 2014 Notes matured on the six month anniversary of its issuance date, carried interest at 10% and contained a 9.1% original issue discount (“OID”). The OID was amortized over the earlier of the conversion of the note or the maturity date. The holders of the note can convert the notes into shares of common stock at any time from the date of issuance to maturity at $0.20 per share. In December 2014, the Company received conversion notices from the holders of the May and June 2014 Notes and accordingly, recorded the conversion of $66,000 of principal and $4,177 of accrued and unpaid interest of the three convertible promissory notes and 352,242 shares of common stock to be issued at a conversion price of $0.20 per share. The shares were issued in January 2015.

 

On June 3, 2014, the Board authorized the Company to enter into a Securities Purchase Agreement (“SPA”) with Chicago Venture Partners, L.P. (“CVP”). Pursuant to the SPA, the Company agreed to issue to CVP a Secured Convertible Promissory Note in the principal amount of $1,657,500 (the “Note”).

 

On June 6, 2014, the Company executed the SPA with CVP, for the sale of the Company Note in the principal amount of up to $1,657,500 (which includes CVP’s legal expenses in the amount of $7,500 and a $150,000 OID) for $1,500,000, consisting of $500,000 paid in cash on June 11, 2014 (the “Closing Date”), two $250,000 secured promissory notes and two $250,000 promissory notes (the “Investor Notes”), aggregating $1,000,000, bearing interest at the rate of 10% per annum. The Investor Notes are due 30 months from the Closing Date and may be prepaid, without penalty. Advances received, OID charged and deferred financing costs incurred to CVP are as follows:

 

Date				Funded Amount				OID				Other				Convertible Note Issued
	6/11/14			$	500,000			$	50,000			$	7,500			$	557,500
	10/15/14				62,500				6,250				—				68,750
	11/17/14				62,500				6,250				—				68,750
	12/19/14				35,000				3,500				—				38,500
Balances 12/31/14					660,000				60,000				7,500				733,500
	3/18/15				65,000				6,500				—				71,500
	4/14/15				22,500				2,250				—				24,750
	4/23/15				25,500				2,550				—				28,050
	5/20/15				30,000				3,000				—				33,000
	6/22/15				20,000				2,000				—				22,000
	7/17/15				45,000				4,500				—				49,500
	9/21/15				25,000				2,500				7,500				35,000
	Balances 9/30/15			$	893,000			$	89,300			$	15,000			$	997,300

 

The Company has also not recorded the $607,000 remaining balance of the Investor Notes issued by CVP to the Company. The above OID’s were recorded as a discount to the Company Note and are being amortized to interest expense, over the life of the loan. Accordingly, $4,200 and $27,647 is included in interest expense for the three and nine months ended September 30, 2015, respectively, and $10,717 and $13,005 for the three and nine months ended September 30, 2014, respectively.

 

The Note bears interest at the rate of 10% per annum. All interest and principal must be repaid on the date that is 30 months after the Closing Date. The Note may be converted at the option of the holder, on the date that is six months from the Trading Date (defined in the Purchase Agreement as the date on which the Common Stock is first trading on an Eligible Market, but in any event the Company shall cause its Common Stock to be trading on an Eligible Market within nine months of the Closing Date of June 11, 2014) or at any time thereafter at a conversion price of $0.1976. The conversion price is equal to $6,500,000 divided by 33,000,000 (the amount of fully diluted shares of Common Stock of the Company on the date the Company filed its’ Registration Statement). If the holder funds $1,500,000 and elects to convert the Note into Common Stock, the number of shares issuable upon conversion will be 8,287,500. In the event the Company elects to prepay all or any portion of the Company Note, the Company is required to pay to CVP an amount in cash equal to 125% multiplied by the sum of all principal, interest and any other amounts owing. On July 16, 2015, CVP converted $50,000 of accrued and unpaid interest under the Company Note into 253,846 shares of common stock.

 

The Company determined that the conversion feature of the convertible note did not meet the criteria of an embedded derivative and therefore the conversion feature was not bi-furcated and accounted for as a derivative because the Company was a private company, there was no quoted price and no active market for the Company’s common stock.

 

Since the convertible note included an embedded conversion feature that did not qualify to be bi-furcated as a derivative, management evaluated this feature to determine whether it meets the definition of a beneficial conversion feature (“BCF”) within the scope of ASC 470-20, “Debt with Conversion and Other Options”, and determined that a BCF existed. The Company recorded an initial discount against the debt of $25,874 to be amortized into interest expense over the term of the loan. Additionally, during the nine months ended September 30, 2015, the Company received $233,000 in new funding and increased the Company Note by $256,300 including $23,300 of OID. The Company recorded an initial discount against the new debt for the BCF in the amount of $233,000, to be amortized into interest expense over the term of the loan. Amortization of the BCF discounts for the three and nine months ended September 30, 2015 was $26,728 and $145,711, respectively, and $5,546 and $6,730 for the three and nine months ended September 30, 2014, respectively.

 

The Company also issued a five year warrant to CVP to purchase the number of shares equal to $420,000 divided by 70% of the average of the three lowest closing bid prices in the 20 trading days immediately preceding the applicable conversion. Based on the current discounted cash flow valuation, the Company estimated that CVP can purchase 6,000,000 shares of common stock, with an exercise price of $0.20 per share. The Company allocated $254,319 of the proceeds from the note to the warrants based on their relative fair value, and recorded a discount against the debt to be amortized into interest expense over the term of the loan. Amortization of the discount for the three and nine months ended September 30, 2015, was $6,107 and $80,081, respectively, and $54,511 and $66,148, for the three and nine months ended September 30, 2014, respectively.

 

The carrying amount of the Note as of September 30, 2015, was $784,274, net of unamortized discounts of $213,026.

 

As security for the Note, the Company’s CEO and COO each pledged to CVP their 50 shares of Class A Preferred Stock (see Note 8). The pledge immediately expires upon the shares of common stock of the Company being publicly traded and listed or designated for quotation on any of The New York Stock Exchange, NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC Bulletin Board, the OTCQX, or the OTCQB.

 

On September 10, 2015, the Company entered into a forbearance and standstill agreement (the “Forbearance and Standstill Agreement”) with CVP and Matt Lee and Sam May, pursuant to which CVP agreed to refrain and forbear temporarily from exercising and enforcing remedies under the Note.

 

Pursuant to the terms of the Note, the Company was required to deliver the Installment Amount (as defined in the Note) on or before each Installment Date (as defined in the Note) until the Note was repaid. The Company failed to deliver the Installment Amount in June 2015, July 2015 and August 2015 (each, a “Breach” and collectively, the “Breaches”). Each such Breach would constitute a separate event of default pursuant to the terms of the Note if so declared by the Lender.

 

Pursuant to the terms of the Forbearance and Standstill Agreement, CVP agreed to refrain and forbear from exercising and enforcing its remedies with respect to the Breaches until the earliest occurrence of (a) any breach of the Forbearance and Standstill Agreement, or (b) any event of default after the effective date of the Forbearance and Standstill Agreement other than the Breaches. Assuming that no additional events of default occur under the Note and no breaches of the Forbearance and Standstill Agreement occur, CVP agreed, for a period of 90 days from September 10, 2015 (the “Standstill Period”), that it will not seek to convert any portion of the outstanding balance of the Note without the Company’s prior written consent, nor will the Company be required to deliver any Installment Amount to CVP during the Standstill Period.

 

In addition, CVP agreed that for a period of 180 days following September 10, 2015 (the “Modified Conversion Period”), CVP’s conversion price shall be equal to $0.40 per share, and that during the Modified Conversion Period, CVP will not made any conversions without the Company’s prior written consent. Also, any conversion amount applicable to any CVP conversion made during the Modified Conversion Period will automatically be applied toward and reduce the next Installment Amount due and payable to CVP. Upon conclusion of the Modified Conversion Period, CVP’s conversion rights set forth in the Note shall revert to the terms and conditions set forth in Note.

 

Pursuant to the terms of the Forbearance and Standstill Agreement, the next Installment Date will be the date that is 90 days from the date of the Forbearance and Standstill Agreement and each subsequent Installment Date will be on the same day of each month thereafter until the Note’s maturity date. In addition, the Installment Amount due on the next three Installment Dates shall be equal to $50,000.

 

The Company agreed that so long as the Note remains outstanding and the warrant issued to CVP in connection with the Note is not fully exercised or expired pursuant to its terms, the Company will not (i) issue any new shares of Class A preferred stock, (ii) issue any debt, (iii) issue other securities that have redemption rights, rights of first refusal, preemptive rights or similar rights not associated with the Company’s common stock, or (iv) consummate any transaction pursuant to Section 3(a)(9) or 3(a)(10) of the Securities Act of 1933, as amended, equity line of credit or financing arrangement or other transaction that involves issuing securities convertible into Company common stock with a conversion price that varies with the market price of the common stock, without CVP’s prior written consent.

 

CVP granted to the Company the right to repurchase the Note, the Warrant and the other transaction documents for $978,500 within 90 days of September 10, 2015. CVP also agreed to pay to the Company $5,000, which payment will constitute a partial payment of the Investor Notes. The Company agreed to pay CVP $7,500, which shall be added to and included as part of the outstanding balance of the Note.

 

The Company issued three convertible promissory notes in August 2015 (the “August 2015 Notes”) in the amounts of $86,250, $11,500 and $66,000, respectively. The Company received proceeds of $75,000, $10,000 and $40,000, and recorded a note receivable for $20,000. The August 2015 Notes mature on the six month anniversary of its issuance date, carries interest at 10% and contained a 10% original issue discount (“OID”). Each of the holders of the August 2015 Notes can convert the note into shares of common stock at any time from the date of issuance to maturity at $0.20 per share. Accordingly, the Company received a conversion notice from each holder of the August 2015 Notes and issued in the aggregate 718,750 shares of restricted common stock.

 

On September 30, 2015, (the “September 2015 Note”) the Company issued a convertible promissory note in the amount of $5,750. The Company received proceeds of $5,750. The September 2015 Note matures on the six month anniversary of its issuance date, carries interest at 10% and contained a 10% original issue discount (“OID”). The holder of the September 2015 Note can convert the note into shares of common stock at any time from the date of issuance to maturity at $0.20 per share. On September 30, 2015, the Company received a conversion notice from the holder of the September 2015 Note to convert the note amount into 28,750 shares of restricted common stock. As of September 30, 2015, the Company recorded the 28,750 shares of common stock as common stock to be issued. The shares were certificated on October 27, 2015.

 

 

NOTE 5 – NOTE PAYABLE, STOCKHOLDER

 

For the nine months ended September 30, 2015 and the year ended December 31, 2014, a stockholder and officer loaned the Company various amounts for Company expenses. Included in the advances and repayments that follow is the activity from several credit cards that are in the name of the stockholder, but were used for Company purposes. The terms of the note include an interest rate of 15% per annum. Interest expense of $245 and $703 was recorded for the three and nine months ended September 30, 2015, respectively, and $229 and $669 for the three and nine months ended September 30, 2014, respectively. The activity for the nine months ended September 30, 201, is as follows:

 

		Nine months ended September 30, 2015
Beginning balance		$	6,168
Advances			6,314
Ending balance		$	12,482

 

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

On May 14, 2014, effective as of May 1, 2014, the Board authorized the Company to engage the services of Venture Equity, LLC (“Venture Equity”). Mr. Barry Hollander, the sole member of Venture Equity, was also named the Company’s Chief Financial Officer. Mr. Hollander was responsible for the preparation of the financial statements, a registration statement, overseeing the “going public” process, the continuing reporting responsibilities upon becoming a public company and other corporate matters. The Company has agreed to compensate Venture Equity $5,000 per month and issued 1,500,000 shares of the Company’s common stock, 750,000 shares of common stock immediately vested and 750,000 shares of common stock vested on November 15, 2014. The Company recorded an expense of $75,000, included in salaries and management fees for the nine months ended September 30, 2014, for the vested shares ($0.10 per share), based upon the Company’s internal valuation on a discounted cash flow basis.

 

The 750,000 shares that vested on November 15, 2014 have been recorded as deferred equity compensation on the balance sheet, at an initial value of $75,000 ($0.10 per share) and were amortized monthly from the date of issuance to their vesting date. Accordingly, the Company has expensed $37,500 and $56,250 included in salaries and management fees for the three and nine months ended September 30, 2014. The balance was amortized monthly through November 15, 2014.

 

On May 11, 2015, the Board approved increases to the salaries of each of the Company’s Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) from $5,000 per month to $8,000 per month. The increases will only be paid when and if the cash flow of the Company is sufficient.

 

For the three and nine months ended September 30, 2015 and 2014, the Company recorded expenses to its officers the following amounts:

 

				Three months ended September 30,								Nine months ended September 30,
				2015				2014				2015				2014
	CEO			$	24,000			$	14,500			$	60,000			$	38,500
	COO				24,000				14,500				60,000				38,500
	CFO				24,000				14,500				60,000				24,500
	Total			$	72,000			$	43,500			$	180,000			$	101,500

 

As of September 30, 2015, the Company owed $12,557 to the CEO, $20,750 to the COO and $16,250 to the CFO, for accrued and unpaid fees. As of December 31, 2014, the Company owed $4,500 to each the CEO and COO and $2,500 to the CFO. Accordingly $49,557 and $11,500 is included in accounts payable and accrued liabilities, stockholders, on the September 30, 2015 and December 31, 2014 balance sheets presented herein, respectively.

 

The Company’s COO loaned the Company various amounts for Company expenses. Included in the advances and repayments is the activity from several credit cards that are in the name of the stockholder but were used for Company purposes (see Note 5 ). The Company recorded interest expense of $245 and $228 for the three months ended September 30, 2015 and 2014, respectively and $703 and $669 for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, the COO was owed accrued interest of $3,355 and $2,652, respectively, which is included in accounts payable and accrued liabilities, stockholders, on the balance sheets presented herein.

 

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

LEASE AGREEMENTS

 

Beginning January 1, 2011, the Company (through its COO) leased approximately 1,850 square feet of office and manufacturing space in an industrial complex in Irvine California. The initial lease term expired July 31, 2012. Since that date through July 2014, the Company leased the property on a month to month basis at a cost of $2,138 per month. Effective August 1, 2014, the Company moved into a 4,427 square foot facility under a new lease agreement, in the same industrial complex. The Company entered into a 26 month lease, pursuant to which (i) there is no base rent for the first two months, (ii) beginning October 1, 2014, the monthly lease is $4,870 plus common area maintenance charges of $354, and (iii) beginning October 1, 2015, the monthly rent increases to $5,091. The Company is straight lining the 24 month costs over the 26 month term of the lease.

 

		Three months ended September 30,								Nine months ended September 30,
Rent Expense:		2015				2014				2015				2014
Rent allocated to cost of goods sold		$	5,616			$	4,653			$	16,902			$	9,904
Rent allocated to SG&A			8,502				6,980				25,431				14,855
Total rent expense		$	14,118			$	11,633			$	42,333			$	24,759

 

Effective April 15, 2015, the Company entered into a two month Investor Relations Consulting Agreement (the “Agreement”) with Hayden IR (“Hayden”). Pursuant to the Agreement, on April 15, 2015, the Company issued 12,500 shares of common stock and 12,500 additional shares of common stock were issued on May 15, 2015. The Company valued the shares at $0.40 per share and has included $10,000 in stock compensation expense for the nine months ended September 30, 2015.

 

On August 3, 2015, the Board of Directors of the Company authorized the engagement of Hayden effective August 1, 2015 (the “Effective Date”), for a twelve month period. Pursuant to the Agreement, the Company has agreed to, include among other matters, the issuance of 100,000 restricted shares of common stock to vest over the term of the Agreement as follows, 25,000 upon execution of the Agreement 50,000 shares on the 90^th day from the Effective Date and 25,000 shares on the 180^th day from the Effective Date of the Agreement, subject to the Agreement being in effect as of each applicable vesting date. Hayden shall not have registration rights, and the shares may be sold subject to Rule 144. The Company valued the shares at $0.20 per share and has included $5,000 in stock compensation expense for the vested shares for the three and nine months ended September 30, 2015. The remaining shares are included in deferred stock compensation on the September 30, 2015, balance presented herein and will be expensed on their respective vesting dates. Additionally Hayden will be compensated $6,000 per month, which can be paid at the Company’s discretion in cash, or by the issuance of 10,000 shares of restricted common stock and $2,000 cash. Accordingly, the Company recorded 20,000 shares of common stock to be issued as of September 30, 2015 and has included $8,000 in stock compensation expense for the three and nine months ended September 30, 2015. The shares were certificated on October 27, 2015.

 

On July 21, 2015, the Company entered into a Consulting Agreement (the “Consulting Agreement”) with BMA Securities, LLC (the “Consultant”). Pursuant to the Consulting Agreement, the Consultant, on a non-exclusive basis, will provide consulting services to the Company as a financial advisor for a six month period. The Consulting Agreement automatically renews for successive six month periods unless terminated by either party 60 days prior to the end of the initial successive term. Pursuant to the Consulting Agreement, the Company issued 350,000 shares of restricted common stock on July 16, 2015 for the initial six month term. The Company valued the shares at $0.20 per share and recorded $70,000 in deferred stock compensation expense to be amortized over the term of the agreement. Accordingly, the Company has included $29,167 in stock compensation expense for the three and nine months ended September 30, 2015.

 

 

NOTE 8 – STOCKHOLDERS’ EQUITY

 

COMMON STOCK

 

The Company’s Registration Statement on Form S-1 with the SEC became effective on December 22, 2014. During the nine months ended September 30, 2015, the Company sold 502,000 shares of common stock and received $200,800.

 

On April 1, 2015, the Company agreed to issue 75,000 shares of common stock to a consultant. The Company valued the shares at $0.40 per share. Accordingly, $30,000 is included in stock compensation expense for the nine months ended September 30, 2015.

 

On April 15, 2015 and May 15, 2015, the Company issued 12,500 shares of stock to Hayden (See Note 7).

 

On July 16, 2015, CVP converted $50,000 of accrued and unpaid interest under the Company Note into 253,846 shares of common stock.

 

On July 21, 2015, the Company issued 350,000 shares of restricted common stock to BMA (see Note 7). The Company valued the shares at $0.20 per share (See Note 7).

 

On July 21, 2015, 17,500 shares of common stock were issued equal in value to an aggregate of $7,000 per month to two employees as part of their compensation. Accordingly, $7,000 is included in stock compensation expense for the three and nine months ended September 30, 2015, respectively.

 

On July 21, 2015, the Company agreed to issue 75,000 shares of common stock to a consultant. The Company valued the shares at $0.20 per share. Accordingly, $15,000 is included in stock compensation expense for the three and nine months ended September 30, 2015.

 

On July 24, 2015, the board of directors of the Company approved the granting of 1,323,500 shares of restricted common stock to employees, including 750,000 shares awarded to the Company’s CFO. The Company valued the shares at $0.20 per shares and has included $264,700 in stock compensation expense for the three and nine months ended September 30, 2015. The board of directors also approved the issuance of common stock equal in value to an aggregate of $7,000 (amended to $6,000) per month to two employees as part of their compensation.

 

On August 4, 26, and 28, 2015, the Company issued 431,250, 57,500 and 230,000, respectively, of restricted shares of common stock upon the conversion from the holders of the August 2015 Notes. The shares were issued at $0.20 per share.

 

On August 4, 2015, the Company issued 100,000 restricted shares of common stock to Hayden. The Company valued the shares at $0.20 per share and has included $20,000 in stock compensation expense for the three and nine months ended September 30, 2015.

 

COMMON STOCK TO BE ISSUED

 

As of September 30, 2015, the Company had recorded 95,000 shares of common to be issued as follows:

 

28,750 shares issued on October 27, 2015, upon the conversion of the September 2015 Note;

20,000 shares issued on October 27, 2015 to Hayden;

18,750 shares issued on October 27, 2015 to an employee;

27,500 shares issued on October 27, 2015 to an employee

 

CLASS A PREFERRED STOCK

 

On June 3, 2014, the Company’s Board of Directors adopted and approved the Class A Preferred Stock Certificate of Designation, establishing the terms, conditions and relative rights of the Class A Preferred Stock, including that the holders of the Class A Preferred Stock (the “Class A Holders”) shall have limited voting rights and powers compared to the voting rights and powers of holders of Common Stock and other series of Preferred Stock. The Class A Holders shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote, but only with respect to the following matters (collectively, the “Class A Voting Matters”): (i) the appointment and/or removal of any member of the Company’s board of directors, (ii) any matter related to or transaction (or series of transactions) pursuant to which the Company would sell or license all or substantially all of its assets or the stockholders of the Company would sell all or substantially all of their shares of the Company’s stock or where the Company would merge with or into any other entity, (iii) causing the Company to register its Common Stock for trading pursuant to the Securities Exchange Act of 1934, as amended, including by filing a Registration Statement on Form S-1 with the Securities Exchange Commission and filing and obtaining FINRA approval of a Form 15c2-11, and (iv) with respect to any matter involving a transaction whereby the Company will become part of or merge into an existing public company. For so long as Class A Preferred Stock is issued and outstanding, the holders of Class A Preferred Stock shall vote together as a single class with the holders of the Corporation’s Common Stock and the holders of any other class or series of shares entitled to vote with the Common Stock, with the holders of Class A Preferred Stock being entitled to fifty-one percent (51%) of the total votes on only Class A Preferred Voting Matters regardless of the actual number of shares of Class A Preferred Stock then outstanding, and the holders of Common Stock and any other shares entitled to vote being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power for any Class A Preferred Voting Matter. The Board also approved the issuance of 50 shares each of the Class A Preferred Stock to the Company’s Chief Executive Officer and Chief Operating Officer. The issued shares of the Class A Preferred Stock were valued at $428,000 based primarily on management’s estimate of the fair value of the control features embedded in the Class A preferred stock, and are included in salaries and management fees for the nine months ended September 30, 2014.

 

EQUITY COMPENSATION PLAN

 

On May 11, 2015, the Company’s Board of Directors adopted the 2015 Equity Compensation Plan (the “Plan”). Persons eligible to participate in the Plan include Employees (as defined in the Plan), officers and directors of the Company.

 

Term

 

The Plan became effective upon its adoption by the Board. Options and stock awards may be granted immediately thereafter; provided, that no option may be exercised and no stock award may be granted under the Plan until it is approved by the stockholders of the Company, within 12 months after the date of adoption by the Board. The Plan shall continue in effect for a term of 10 years from the date of the Plan’s adoption by the Board unless terminated earlier as provided in the Plan.

 

Administration

 

The Plan will be administered by the Board or a committee designated by the Board (the “Committee”). The Committee may grant options and stock awards under the Plan.

 

Maximum Shares Available

 

The maximum aggregate number of shares that may be issued under the Plan through awards is 5,000,000 shares.

 

Adjustments

 

The maximum aggregate number of shares that may be issued under the Plan, the number and kind of shares covered by each outstanding award, and the price per share (but not the total price) subject to each outstanding award shall be proportionally adjusted to prevent dilution or enlargement of rights under the Plan for any change in the outstanding common stock subject to the Plan, or subject to any award, resulting from any stock splits, combination or exchange of shares, consolidation, spin-off or recapitalization of shares or any capital adjustment or transaction similar to the foregoing or any distribution to holders of common stock other than regular cash dividends.

 

Awards

 

Options

 

The Committee may grant options to purchase shares of common stock under the Plan from time to time in the discretion of the Administrator or automatically upon the occurrence of specified events, including the achievement of performance goals, and for the satisfaction of an event or condition within the control of the grantee or within the control of others.

 

The per share exercise price of an option shall be determined by the Committee, provided, however that (i) the exercise price of an incentive stock option granted to a non-10% stockholder shall be no less than 100% of the fair market value of the Company’s common stock on the grant date, (ii) the exercise price of an incentive stock option granted to a 10% stockholder shall be no less than 110% of the fair market value of the Company’s common stock on the grant date, and (iii) the exercise price of a nonstatutory stock option shall be no less than 100% of the fair market value of the Company’s common stock on the grant date.

 

Only employees may be granted incentive stock options. Notwithstanding the designation “incentive stock option” in an option agreement, if the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time by the grantee during any calendar year (under all plans of the Company) exceeds $100,000, then the portion of such options that exceeds $100,000 shall be treated as nonstatutory stock options.

 

Restricted Stock

 

The Committee may grant stock awards pursuant to a stock award agreement that shall contain provisions regarding (i) the number of shares subject to such stock award or a formula for determining such number; (ii) the purchase price, if any, of the shares, and the means of payment for the shares; (iii) the performance criteria, if any, and level of achievement versus these criteria that shall determine the number of shares granted, issued, retained, or vested, as applicable; (iv) such terms and conditions on the grant, issuance, vesting, or forfeiture of the shares, as applicable, as may be determined from time to time by the Committee; (v) restrictions on the transferability of the stock award; and (vi) such further terms and conditions in each case not inconsistent with the Plan as may be determined from time to time by the Committee.

 

Unless otherwise provided by the Committee, the grantee shall have the rights equivalent to those of a stockholder and shall be a stockholder only after shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) to the grantee. Unless otherwise provided by the Committee, a grantee holding stock units shall be entitled to receive dividend payments as if he or she were an actual stockholder.

 

On July 24, 2015, the board of directors of the Company approved the granting of 1,323,500 shares of restricted common stock, including 750,000 shares awarded to the Company’s CFO and approved the issuance of 75,000 shares to a consultant. The board of directors also approved the issuance of common stock equal in value to an aggregate of $7,000 (amended to $6,000) per month to two employees as part of their compensation.

 

WARRANTS

 

The Company issued a five year warrant (which expires on June 30, 2019) to CVP to purchase the number of shares equal to $420,000 divided by 70% of the average of the three lowest closing bid prices in the 20 trading days immediately preceding the applicable conversion. Based on the current discounted cash flow valuation, the Company estimated that CVP can purchase 6,000,000 shares of common stock, with an exercise price of $0.20 per share. See Note 5.

 

 

NOTE 9 – GOING CONCERN

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of September 30, 2015 the Company had an accumulated deficit of $3,073,485 and working capital deficit of $222,366. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Management’s Plans

 

The Company maintains daily operations and capital needs through the receipts of sales of product and from the proceeds received from the issuance of convertible promissory notes.

 

 

NOTE 10 – SUBSEQUENT EVENTS

 

On October 27, 2015, the 95,000 shares of common stock that were recorded as shares to be issued on the September 30, 2015 balance sheet were certificated.

 

On October 20, 2015, the Company received $10,000 related to the $20,000 note receivable recorded in conjunction with the August 2015 Notes (see Note 4). The Company also received a Notice of Conversion and on October 27, 2015, issued 57,500 shares of common stock in settlement of $11,500 of principal and interest.

 

On October 27, 2015, the Company issued 10,000 shares of common stock to Hayden for services rendered.

 

On November 2, 2015, the Company received a term sheet for the issuance of a $50,000 convertible preferred note in exchange for $50,000. Pursuant to the terms of the Standstill and Forbearance Agreement with CVP, CVP had to consent to any additional debt financing proposals that the Company received. On November 5, 2015, CVP notified the Company that they did not consent and would not consent to any debt transaction that had conversion mechanics that vary with the market price of the Company’s common stock. In addition CVP advised the Company that they would longer be financing the operations of the Company. Subsequently, the Company has laid off all non-executive employee and has ceased all marketing efforts including the closing of the Company’s merchant account.

 

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

 

The Company makes cabinet based horticultural systems. The design and production of our hydroponic and soil grow cabinets makes the process of growing in a self-contained cabinet automated and simplified. Our mission is to make hydroponic and soil growing simpler, more efficient and a better value than other products found on the market. Our product offerings are split into two categories: (1) self-contained horticultural grow cabinets and (2) specifically constructed kits and packages offered to satisfy the DIY home horticulturist, which involve a modular growing solution.

 

The Company’s line of grow cabinets consists of three models, with variations of each model allowing consumers to select a cabinet that will suit their specific needs. In October 2010, we launched an initial prototype of our flagship product, the Earth Cab Pro hydroponic grow cabinet (the “ECP”). Two other models, the Yielder Max and the MediCab Micro, round out our cabinet product line.

 

The Company purchases cabinets, as well as lights, filters and fans, from third party suppliers. Upon receipt of an order from a customer, the Company assembles the parts into a “finished horticulture” cabinet for sale. We currently have no plans to manufacture cabinets but depending on the costs of the components we purchase, labor, transportation and other costs associated with purchasing components, we may from time to time investigate the possibility of manufacturing some of the purchased components. The design and production of our hydroponic and soil grow cabinets make the process of growing in a self-contained cabinet automated and simplified. Our mission is to make hydroponic and soil growing simpler, more efficient and a better value than other products found on the market.

 

The Company views itself as a “pick and shovel” assembler and distributor, providing the tools needed for successful growing operations, but never touching the actual end product. The design and production of our innovative line of grow cabinets makes the process of growing a superior crop self-contained, automated and simplified. Throughout the entire process, from seed to harvest, we are dedicated to giving growers the products, services and knowledge to make each grow their best.

 

Results of Operations

 

For the three and nine months ended September 30, 2015 compared to the three and nine months ended September 30, 2014

 

Revenues

 

Revenues for the three and nine months ended September 30, 2015 were $192,938 and $574,319, respectively, compared to $134,876 and $447,612 for the three and nine months ended September 30, 2014, respectively. The increase for the nine months ended September 30, 2015 was primarily a result of a unit increase of the Company’s Yielder Max Series from 89 to 130 and a corresponding increase in revenues of $100,387 from $164,564 to $264,951, and an increase in revenues of $39,849 from $140,317 to $180,166 in the Company’s Earth Cab models. A summary of the net increase in sales is as follows:

 

		Three months ended September 30,
		2015												2014
		Units				Dollars				Average				Units				Dollars				Average
Cabinets			78			$	171,555			$	2,199				50			$	113,248			$	2,265
Tents							5,995												—
Accessories							29,007												22,777
Discounts							(32,499	)											(13,537	)
Net product sales							174,058												122,487
Freight income							18,880												12,389
Total						$	192,938											$	134,876

 

 

		Nine months ended September 30,
		2015												2014
		Units				Dollars				Average				Units				Dollars				Average
Cabinets			245			$	501,867			$	2,048				198			$	363,805			$	1,837
Tents							14,277												8,290
Accessories							93,310												68,341
Discounts							(89,610	)											(42,378	)
Net product sales							519,843												398,058
Freight income							54,475												49,555
Total						$	574,319											$	447,612

 

Cost of Sales

 

Cost of sales increased to $137,099 and $404,003, respectively, for the three and nine months ended September 30, 2015 from $101,925 and $319,790, respectively, for the three and nine months ended September 30, 2014. We realize a similar gross margin percentage on all of our cabinets. The increase in costs of sales was as a result of increase revenues and was comprised of:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Components		$	80,236			$	45,749			$	240,632			$	161,495
Packaging and inland freight			10,771				15,018				28,700				34,365
Labor and benefits			22,143				16,300				64,116				57,013
Overhead			6,711				5,791				24,601				12,347
Sub total			119,951				82,859				358,048				265,220
Freight to customer costs			17,148				19,066				45,955				54,570
Total		$	137,099			$	101,925			$	404,003			$	319,790

 

Operating Expenses

 

Operating expenses for the three and nine months ended September 30, 2015 were $726,701 and $1,345,766, respectively, compared to $333,491 and $1,215,883 for the three and nine months ended September 30, 2014, respectively. The expenses were comprised of the following:

 

		Three  months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Salaries and management fees		$	151,408			$	138,807			$	370,062			$	208,413
Stock compensation expense, management			283,200				37,500				290,200				559,250
Professional fees			29,668				14,231				88,843				32,517
Stock compensation expense, other			57,167				—				97,167				150,000
Advertising and marketing			92,009				59,253				256,247				119,885
Investor relations			36,055				—				51,687				—
Rent			8,502				6,980				25,431				14,855
Merchant processing fees			7,073				2,580				15,280				9,936
Research and development			5,529				9,267				22,667				25,339
Depreciation and amortization			7,239				3,053				21,718				4,072
Other general and administrative			48,851				61,820				106,464				91,616
Total		$	726,701			$	333,491			$	1,345,766			$	1,215,883

 

Salaries and management fees increased to $151,408 and $370,062 for the three and nine months ended September 30, 2015, respectively, compared to $138,807 and $208,413 for the three and nine months ended September 30, 2014, respectively. The increase in the current period is a result of the CEO and COO, effective April 1, 2014, and the hiring of a CFO, effective May 1, 2014, earning $5,000 per month ($8,000 effective May 2015) compared to previously the CEO and COO earning $3,000 per month. Additional staff hiring’s have been in sales, marketing and product development.

 

Stock compensation expense, management, for the three and nine months ended September 30, 2014, was comprised of:

 

·

100 shares issued of the Class A Preferred Stock were valued at $428,000 (9 months 2014) based primarily on management’s estimate of the fair value of the control features embedded in the Class A preferred stock,

·

750,000 shares of the 1,500,000 shares of common stock issued to Venture Equity immediately vested and were valued at $75,000 (9 months 2014) based upon the Company’s internal valuation on a discounted cash flow basis.

·

The 750,000 shares issued to Venture Equity that vested on November 15, 2014, have been recorded as deferred equity compensation on the balance sheet, at an initial value of $75,000 ($0.10 per share) and was amortized monthly from the date of issuance to their vesting date. Accordingly, the Company has expensed $37,500 and $56,250, respectively, for the three and nine months ended September 30, 2014.

 

Stock compensation expense, management, for the three and nine months ended September 30, 2015 was comprised of:

 

·

573,500 shares of restricted common stock granted to employees, valued at $0.20 per share, or $114,700.

·

750,000 shares issued to Venture Equity, valued at $0.20 per share, or $150,000.

·

46,250 shares of restricted common stock to be issued to employees as part of compensation, valued at $0.40 per share or $18,500. The shares were issued on October 27, 2015.

 

Additionally for the nine months ended September 30, 2015, the Company recorded 17,500 shares of restricted common stock issued to employees as part of compensation, valued at $.40 per share or $7,000

 

Stock compensation expense, other (included in professional fees) was $57,167 and $97,167 for the three and nine months ended September 30, 2015, compared to $150,000 for the nine months ended September 30, 2014. The expense for the three months ended September 30, 2015, was comprised of:

 

·

75,000 shares of restricted common stock issued to a consultant, valued at $0.20 per share, or $15,000.

·

Amortization of 145,833 shares of the 350,000 shares of restricted common stock issued to BMA, valued at $0.20 per share, or $29,167.

·

25,000 of shares that vested (100,000 shares issued) upon issuance to Hayden, valued at $.20 per share, or $5,000.

·

20,000 shares of common stock to be issued to Hayden, valued at $0.40 per share, or $8,000. The shares were issued on October 27, 2015.

 

Stock compensation expense other, for the nine months ended September 30, 2015 also includes 100,000 shares of common stock issued to consultants. The Company valued the shares at $0.40 per share ($40,000) based on the Company’s most recent sale, at the time, of shares of common stock.

 

Stock compensation expense, other, for the nine months ended September 30, 2014 period is comprised of 1,500,000 shares of the Company’s common stock issued to a consultant for services. The shares are fully vested and non-assessable. The Company recorded an expense of $150,000 ($0.10 per share) for the issuance, based upon the Company’s internal valuation on a discounted cash flow basis.

 

Professional fees of $29,668 and $88,843, respectively, were incurred for the three and nine months ended September 30, 2015 compared to $14,231 and $32,517, respectively, for the three and nine months ended September 30, 2014, and is comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Legal fees		$	7,068			$	5,238			$	21,916			$	13,238
Accounting fees			3,000				5,830				15,627				11,295
Consulting fees			19,600				3,163				51,300				7,984
Total		$	29,668			$	14,231			$	88,843			$	32,517

 

Advertising and marketing expensed increased to $92,009 and $256,247, respectively, for the three and nine months ended September 30, 2015, compared to $59,253 and $119,885 for the three and nine months ended September 30, 2014, respectively. The increase in the 2015 period is due to an increase in costs predominately in the first quarter of 2015 of a print advertising campaign, online and digital advertising, trade show participation and costs incurred for our website update and enhancements. Also included in the current three and nine month expense is $10,000 and $31,814, respectively, paid to marketing consultants, which the Company is no longer engaging.

 

Merchant processing fees increased for the three and nine months ended September 30, 2015 as a result of increased sales and the fees the Company pays for the processing and collection of credit card sales.

 

Research and development costs are incurred related to the Company conducting additional studies regarding analyzing the various stages of growth in order to improve the final product as well as the testing developing new components. During the quarter ended September 30, 2015, after conducting significant research, the Company introduced its new MediCab model which features improved efficiencies at a reduced cost.

 

General and administrative costs for the three and nine months ended September 30, 2015 were $48,851 and $106,464, respectively, compared to $61,820 and $91,616 for the three and nine months ended September 30, 2014, respectively. The significant increases in the 2015 period is comprised of the following:

 

		Three months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Commissions		$	2,594			$	3,109			$	6,878			$	3,109
Insurance expense			1,619				894				5,454				2,692
Employee benefits			3,226				—				4,591				—
Travel & Entertainment			5,986				16,189				22,037				24,575
Transfer agent and filing fees			13,079				1,618				18,788				4,856
Investor relations							—								—
Computer and internet expense			5,033				8,524				10,314				11,026
Utilities			1,095				7,214				3,075				10,007
Office supplies			2,362				6,902				7,348				9,726
Other general and administrative			13,857				17,370				27,978				25,625
Total		$	48,851			$	61,820			$	106,464			$	91,616

 

Other Expenses

 

Other expense for the three and nine months ended September 30, 2015 were $84,091 and $342,419, respectively, compared to $89,554 and $110,809 for the three and nine months ended September 30, 2014, respectively. Interest expense, other for the three and nine months ended September 30, 2015 and 2014 were as follows:

 

		Three  months ended September 30,								Nine months ended September 30,
Description		2015				2014				2015				2014
Amortization of discount on convertible notes		$	37,035			$	70,774			$	253,439			$	85,883
Face value of issued interest, convertible notes			22,988				13,783				60,679				16,725
Amortization of deferred financing costs			(907	)			5,143				2,002				6,601
Other			25,359				352				26,968				1,688
Total		$	84,475			$	90,052			$	343,088			$	110,897

 

Net Loss

 

Net loss for the three and nine months ended September 30, 2015, increased to $754,952 and $1,517,868, respectively, from $390,092 and $1,198,871 for the three and nine months ended September 30, 2014, respectively, as a result of the increases in operating expenses for the three and nine months ended September 30, 2015 and an increase in other expenses for the nine months ended September 30, 2015.

 

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of September 30, 2015, we had cash and cash equivalents of $17,724 compared to $61,472 as of December 31, 2014. At September 30, 2015 we had current liabilities of $325,974 compared to current assets of $103,608 which resulted in a negative working capital position of $192,366. The current liabilities are comprised principally of accounts payable, accrued expenses, note payable to a stockholder and customer deposits.

 

Operating Activities

 

We used $610,588 of cash from operating activities for the nine months ending September 30, 2015 compared to $370,382 for the nine months ended September 30, 2014. For the nine months ended September 30, 2015, non-cash expenses of $281,691 of amortization of discounts and fees on convertible notes, $387,367 of stock based compensation expense and $21,718 of depreciation were major factors to adjust net loss to net cash used in operating activities. Changes in non-cash operating assets and liabilities resulted in generating $186,505 for the nine months ended September 30, 2015. The changes were comprised of increases of $169,634 in accounts payable, $38,760 in accounts payable and accrued expenses stockholders, $29,017 in customer deposits, $2,235 in accounts receivable, $575 in inventory and $18,096 in prepaid assets and other.

 

Non-cash expenses for the nine months ended September 30, 2014, of $709,250 of stock compensation expense, $92,484 of amortization of discounts on convertible notes and deferred financing fees and $4,072 of depreciation and amortization were major adjusting factors to reconcile the Company’s net loss of $1,198,871 to net cash used in operating activities. Changes in operating assets and liabilities resulted in generating $22,683 for the nine months ending September 30, 2014. The major changes in non-cash operating items for the nine months ending September 30, 2014 resulted from increases of $58,936 in accounts payable, $10,669 in amounts due related parties, $43,404 increase in inventory and $3,337 increase in accounts receivable.

 

Investing Activities

 

Cash used in investing activities was $4,023 for the nine months ended September 30, 2015 and was comprised of $1,346 of leasehold improvements and $2,677 of purchased office and warehouse equipment. Cash used in investing activities for the nine months ending September 30, 2014 and was $97,323 and was comprised of $30,962 of building out the company’s new leased office and warehouse, $20,120 payment of security deposit, and $46,241 of purchased office and warehouse equipment.

 

Financing Activities

 

Cash provided by financing activities was $570,864 for the nine months ended September 30, 2015, compared to $506,524 for the nine months ended September 30, 2014. During the nine months ended September 30, 2015 the Company received proceeds of $363,750 from the issuance of convertible promissory notes, $200,800 from the sale of shares of common stock and $6,314 for the amounts received from a stockholder. During the nine month period ending September 30, 2014, the primary source of cash were the proceeds of $560,000 from the issuance of convertible promissory notes and $52,748 for amounts advanced and credit card charges from a stockholder. Payments of $104,324 were made on the credit card advances and $2,500 of financing costs.

 

OFF BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming 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.

 

As reflected in the accompanying unaudited condensed financial statements, the Company had an accumulated deficit at September 30, 2015, a net loss and net cash used in operating activities for the reporting period then ended. These conditions raise substantial doubt about its ability to continue as a going concern.

 

The Company is attempting to produce sufficient revenue to support its daily operations; however, the Company’s cash position is not sufficient to support its daily operations. While the Company believes in the viability of its strategy to produce sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds.

 

The unaudited condensed financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

CRITICAL ACCOUNTING POLICIES

 

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto. Interim results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2014 period have been reclassified to conform to the presentation used in the current period.

 

Emerging Growth Company

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

Inventory

 

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts. Inventory of $49,336 and $48,761 as of September 30, 2015 and December 31, 2014, respectively, was comprised of raw materials.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that the following four basic criteria are met: (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured. The Company recognizes revenue during the period in which the product is shipped.

 

Shipping and Handling

 

Shipping and handling costs billed to customers are recorded in sales. Shipping costs incurred by the Company are recorded in cost of sales. For the three and nine ended September 30, 2015 and 2014 the costs were as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Freight costs billed to customers		$	18,892			$	12,389			$	53,636			$	49,555
Company’s shipping costs		$	17,148			$	19,065			$	45,954			$	54,570

 

Research and Development

 

Expenditures for research and development are charged to expense as incurred. For the three and nine months ended September 30 2015 and 2014, the costs were as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Research and development costs		$	5,529			$	9,267			$	22,667			$	25,339

 

Advertising

 

The Company records advertising costs as incurred. For the three and nine months ended September 30, 2015 and 2014, advertising expense was as follows:

 

		Three months ended September 30,								Nine months ended September 30,
		2015				2014				2015				2014
Advertising costs		$	92,010			$	59,254			$	256,247			$	119,885

 

Fair Value of Financial Instruments

 

The Company's financial instruments consist primarily of cash, accounts receivable, accounts payable and accrued expenses, note payable and convertible debt. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments. The estimated fair value is not necessarily indicative of the amounts the Company would realize in a current market exchange or from future earnings or cash flows.

 

Earnings Per Share

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. For the nine months ended September 30, 2015 and 2014, 14,287,500 shares of common stock underlying convertible debt and warrants have been excluded from the computation of diluted earnings per share.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable to smaller reporting companies.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and they determined that our disclosure controls and procedures were not effective as of September 30, 2015 due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

We are not a party to any material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

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

 

None

 

ITEM 6. EXHIBITS

 

Exhibit Number		Description of Exhibit
3.1		Articles of Incorporation filed with the California Secretary of State on April 28, 2014. (Incorporated herein by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.2		Articles of Incorporation filed with the California Secretary of State on April 28, 2014. (Incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.3		Bylaws of Cabinet Grow, Inc. (California Corporation). (Incorporated herein by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.4		Articles of Merger and Agreement and Plan of Merger filed with the Nevada Secretary of State on May 16, 2014. (Incorporated herein by reference to Exhibit 3.4 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
3.5		Bylaws of Cabinet Grow, Inc. (Nevada corporation). (Incorporated herein by reference to Exhibit 3.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.1		Certificate of Designation Class A Preferred Stock. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on July 31, 2014).
4.2		Class A Preferred Stock Purchase Agreement between Cabinet Grow, Inc. and Sam May dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.3		Class A Preferred Stock Purchase Agreement between Cabinet Grow, Inc. and Matt Lee dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.4		$22,000 Convertible Promissory Note with Gary Gilman. (Incorporated herein by reference to Exhibit 4.4 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.41		$22,000 Convertible Promissory Note with Sean Cook. (Incorporated herein by reference to Exhibit 4.41 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.42		$22,000 Convertible Promissory Note with Maureen Lee. (Incorporated herein by reference to Exhibit 4.42 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.5		Security Purchase Agreement between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Includes Exhibit N). (Incorporated herein by reference to Exhibit 4.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.6		Secured Convertible Promissory Note between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.6 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.7		Pledge Agreement between Sam May and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.7 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.8		Pledge Agreement between Matt Lee and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.8 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.9		Warrant to Purchase Common Stock between Cabinet Grow, Inc. and Chicago Venture Partners, L.P. dated June 6, 2014. (Incorporated herein by reference to Exhibit 4.9 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.10		Amended form of Subscription Agreement. (Incorporated herein by reference to Exhibit 4.10 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.11		Membership Interest Pledge Agreement (Buyer Pledge Agreement). (Incorporated herein by reference to Exhibit 4.11   to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.12		Allocation of Purchase Price. (Incorporated herein by reference to Exhibit 4.12 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.13		Secured Buyer Note #2. (Incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.14		Secured Buyer Note #4. (Incorporated herein by reference to Exhibit 4.14 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.15		Security Agreement. (Incorporated herein by reference to Exhibit 4.15 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.16		Irrevocable Transfer Agent Instructions. (Incorporated herein by reference to Exhibit 4.16 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.17		Secretary’s Certificate. (Incorporated herein by reference to Exhibit 4.17 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
4.18		Share Issuance Resolution. (Incorporated herein by reference to Exhibit 4.18 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.1		Agreement to Assign Assets between Cabinet Grow, Inc. and Matt Lee dated April 30, 2014. (Incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.2		Merger Agreement. (Incorporated herein by reference to Exhibit 10.2 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.3		Promissory Note between Cabinet Grow, Inc. and Matt Lee dated April 29, 2014. (Incorporated herein by reference to Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.4		Secured Buyer Note #1. (Incorporated herein by reference to Exhibit 10.4 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.5		Secured Buyer Note #3. (Incorporated herein by reference to Exhibit 10.5 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 as filed with the SEC on September 26, 2014).
10.6+		Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
10.7+		Form of Stock Option Agreement under the Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
10.8+		Form of Stock Award Agreement for Restricted Stock under the Cabinet Grow, Inc. 2015 Equity Compensation Plan. (Incorporated herein by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on May 15, 2015).
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1*		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS*		XBRL Instance
101.SCH*		XBRL Taxonomy Extension Schema
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase
101.DEF*		XBRL Taxonomy Extension Definition Linkbase
101.LAB*		XBRL Taxonomy Extension Labels Linkbase
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

⁺ Management contract or compensatory plan or arrangement.

 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Dated: December 14, 2015	CABINET GROW, INC.
	By:	/s/ Sam May
		Sam May
		Chief Executive Officer (principal executive officer)