Commitments

The Company entered an 8-year lease agreement (the “Lease”) consolidating its operations of approximately 24,000 square feet in San Diego, California that commenced on February 1, 2018. The Company is required to pay monthly base rent, utilities and common area maintenance expenses. The Company received a landlord rent incentive of $1,067,459 for tenant improvements. The Lease rent incentive is recorded as a deferred liability and is amortized over the Lease term to rent expense.

The Company entered a 3-year lease agreement for additional warehouse space of approximately 5,000 square feet in San Diego, California that commenced on April 1, 2018.

The following table provides the Company’s future minimum payments under all Company lease commitments as of March 31, 2018:

The Company incurred rent expense of $182,339 and $130,884 for the three months ended March 31, 2018 and 2017, respectively.

Contingencies

On April 23, 2014, Tanya Sallustro filed a purported class action complaint (the “Complaint”) in the Southern District of New York (the “Court”) alleging securities fraud and related claims against the Company and certain of its officers and directors and seeking compensatory damages including litigation costs. Ms. Sallustro alleges that between March 18-31, 2014, she purchased 325 shares of the Company’s common stock for a total investment of $15,791. The Complaint refers to Current Reports on Form 8-K and Current Reports on Form 8-K/A filings made by the Company on April 3, 2014 and April 14, 2014, in which the Company amended previously disclosed sales (sales originally stated at $1,275,000 were restated to $1,082,375 - a reduction of $192,625) and restated goodwill as $1,855,512 (previously reported at net zero). Additionally, the Complaint states after the filing of the Company’s Current Report on Form 8-K on April 3, 2014 and the following press release, the Company’s stock price “fell $7.30 per share, or more than 20%, to close at $25.30 per share.” On March 19, 2015, the Court issued a ruling appointing Steve Schuck as lead plaintiff. Counsel for Mr. Schuck filed a “consolidated complaint” on September 14, 2015, asserting two claims: (1) for violation of Section 10(b) of the Exchange Act and SEC Rule 10B-5 promulgated thereunder against all defendants, and (2) for violation of Section 20(a) of the Exchange Act against the individual defendants. The 70-page consolidated complaint expanded on the allegations of the original complaint and asserted putative class action claims for violations of securities laws principally related to certain disclosures regarding revenues, GAAP compliance, as well as financial information related to the Company’s acquisition of PHYTOSPHERE Systems, LLC. Plaintiffs sued the Company, Michael Mona, Jr., Bart Mackay, Theodore Sobieski, Edward Wilson, Stuart Titus, and Michael Llamas.

On December 11, 2015, the Company and the individuals (except for Messrs. Titus and Llamas) filed a motion to dismiss the consolidated complaint. On April 2, 2018, the Court issued an order granting in part and denying in part the motion to dismiss. With respect to the First Claim for violation of Section 10(b) of the Exchange Act, the court ruled that plaintiffs failed to allege misstatements or omissions attributable to Messrs. Mackay, Sobieski, or Titus, and so granted the motion on that claim as to those parties. The court found the allegations sufficient as to the Company and Messrs. Wilson, and Mona Jr., and so denied the motion as to those parties. Under plaintiffs’ separate theory of “market manipulation,” the Court granted the motion in favor of all defendants.  While the Court granted plaintiffs leave to amend the complaint, counsel for plaintiffs has advised defense counsel that he will not be so amending and, as a result, Messrs. Titus and Sobieski have been dismissed from the litigation, while claims remain against the Company, and Messrs. Mona Jr., Mackay, and Wilson. Management intends to vigorously defend the allegations and an estimate of possible loss cannot be made at this time.

On March 17, 2015, stockholder Michael Ruth filed a shareholder derivative suit in Nevada District Court alleging two causes of action: 1) Breach of Fiduciary Duty, and 2) “Gross Mismanagement.” The claims are premised on the same events as the already-pending securities class action case in New York discussed above – it is alleged that the Form 8-K filings misstated goodwill and sales of the Company, which when corrected, lead to a significant drop in stock price. The Company filed a motion to dismiss the suit on June 29, 2015. Instead of opposing the Company’s motion, Mr. Ruth filed an amended complaint on July 20, 2015. Thereafter, Mr. Ruth and the Company agreed to stay the action pending the outcome of the securities class action case in New York discussed above. The parties will soon be filing a notice with the court to advise of the New York District Court’s ruling and expect to thereafter address the amended complaint. Management intends to vigorously defend the complaint allegations. Since no discovery has been conducted and the case has been stayed for nearly three years, an estimate of the possible loss or recovery cannot be made at this time.

On October 21, 2016, Dun Agro B.V. (“Dun Agro”) filed a complaint against the Company in the District Court of the North Netherlands, location Groningen, The Netherlands, alleging non-performance under a contract, seeking compensatory damages of approximately 2,050,000 euros, excluding interest and costs. The plaintiff alleges that the Company was obligated to perform under that certain Supply Agreement between the Company and Dun Agro dated December 19, 2013, and to purchase 1,000,000 kilograms of harvested raw material related to the 2016 crop. The Company filed its reply to the complaint before the March 29, 2017 deadline. Management intends to vigorously defend the complaint allegations and an estimate of possible loss cannot be made at this time.

On June 15, 2017, the SEC filed an enforcement action against the Company and its Chief Executive Officer. We have cooperated with the SEC’s investigation and believe the claims made in the SEC’s complaint are without merit. We believe the allegations in the complaint mischaracterize the actions of the Company and our Chief Executive Officer in connection with the matters related to our quarterly results in fiscal year 2013. The complaint seeks disgorgement of a $10,000 bonus paid to our Chief Executive Officer as well as other incentive-based and equity-based compensation, and payment of unspecified monetary penalties by the Company and our Chief Executive Officer pursuant to Section 304 of the Sarbanes Oxley Act of 2002 and Section 21(d)(3) of the Exchange Act. Further, the complaint seeks to permanently bar our Chief Executive Officer from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act. We intend to vigorously contest the allegations in the complaint.

The Company is a plaintiff in two litigation matters involving former credit card processors of the Company. On September 10, 2017, the Company filed a complaint against one such credit card processor, PayToo Merchant Services, Corporation (“Pay Too”), a Florida corporation, in the Circuit Court in Broward County, Florida, asserting breach of contract claims for PayToo’s failure to remit approximately $250,000 to the Company for credit card sales processed by PayToo from January 2017 to February 2017. On December 11, 2017, the Company filed a complaint against the other credit card processor, T1 Payments, LLC (“T1”), a Nevada corporation, in District Court, Clark County, Nevada, asserting breach of contract claims for T1’s failure to remit approximately $500,000 to the Company for credit card sales processed by T1 from February 2017 to October 2017.

In the normal course of business, the Company is a party to a variety of agreements pursuant to which they may be obligated to indemnify the other party. It is not possible to predict the maximum potential amount of future payments under these types of agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these types of agreements have not had a material effect on our business, consolidated results of operations or financial condition.