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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For the fiscal year ended December 31, 2022

☐ TRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transaction period from ________ to ________

Commission file number 000-50385

GrowLife, Inc.

(Exact name of registrant as specified in its charter)

Delaware

90-0821083

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

11335 NE 122nd Way, Suite 105

Kirkland, WA 98034

(Address of principal executive offices and zip code)

(866) 781-5559

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 30, 2022 (the last business day of our most recently completed second fiscal quarter), based upon the last reported trade on that date, the aggregate market value of the voting and non-voting common equity held by non-affiliates (for this purpose, all outstanding and issued common stock minus stock held by the officers, directors and known holders of 10% or more of the Company’s common stock) was $7,176,550.

As of June 5, 2023, there were 30,977,857 shares of the issuer’s common stock, $0.0001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: None.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion, in addition to the other information contained in this report, should be considered carefully in evaluating us and our prospects. This report (including without limitation the following factors that may affect operating results) contains forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended ("Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act") regarding us and 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 the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as revenue projections, projected profitability, growth strategies, development of new products, enhancements or technologies, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.

Forward-looking statements in this report reflect the good faith judgment of our management and the statements are based on facts and factors as we currently know them. Forward-looking statements are subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, but are not limited to, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" as well as those discussed elsewhere in this report. Readers are urged not to place undue reliance on these forward-looking statements which speak only as of the date of this report. 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 report.

Table of Contents

TABLE OF CONTENTS

		Page
PART 1

ITEM 1.	Description of Business		4

ITEM 1A.	Risk Factors		6

ITEM 1B	Unresolved Staff Comments		6

ITEM 2.	Properties		6

ITEM 3.	Legal Proceedings		6

PART II

ITEM 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		7

ITEM 6.	Selected Financial Data

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		14

ITEM 8.	Financial Statements and Supplementary Data		14

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		14

ITEM 9A.	Controls and Procedures		14

ITEM 9B.	Other Information		15

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance		16

ITEM 11.	Executive Compensation		18

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		23

ITEM 13.	Certain Relationships and Related Transactions, and Director Independence		24

ITEM 14.	Principal Accounting Fees and Services		25

PART IV

ITEM 15.	Exhibits, Financial Statement Schedules		26

	SIGNATURES		29

Table of Contents

PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY AND OUR BUSINESS

GrowLife, Inc. (“GrowLife” or the “Company”) is incorporated under the laws of the State of Delaware and is headquartered in Kirkland, Washington. We were founded in 2012 with the Closing of the Agreement and Plan of Merger with SGT Merger Corporation.

Also previously reported, we did not fund the purchase of the remaining 49% of stock of EZ-CLONE that was due on July 15, 2020 and the founders of EZ-CLONE entered into litigation against the Company. Effective December 29, 2022 the Company entered into a Settlement Agreement and Mutual General Release (“SAMGA”) whereby the Company and the founder of EZ-CLONE resolved all disputes between the parties. As a result of the SAMGA the Company’s ownership percentage has been reduced to 19.6% thereby eliminating the consolidation of EZ-CLONE at such date and the results of EZ-CLONE operations for the years ended December 31, 2022 and 2021are included in the consolidated financial statements as discontinued operations.

The GrowLife executive team has focused on exploring new business alternatives for the Company and settlement on the EZ-CLONE litigation matter. As a result, the Company has decided to divest away from the hydroponics business and focused on functional mushroom business opportunities. We see a growing market, intend to service our existing distribution channel and will build on opportunities in the medicinal mushroom industry. On January 7, 2023 the Company acquired the assets of Bridgetown Mushrooms and assumed certain debt that was secured by such assets. We believe this is an opportunity for our customers, shareholders and one where GrowLife is uniquely positioned to capitalize on. The Company’s goal is to become the nation’s largest mushroom supplier focused on serving more providers of mushroom-based products of high quality, exceptional value and competitive price.

FINANCIAL PERFORMANCE

Employees

As of December 31, 2022, we had two full-time employees. None of our employees are subject to a collective bargaining agreement or represented by a trade or labor union.

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Acquisition and Reduction of ownership of EZ-CLONE

On October 15, 2018, we closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation (the “Agreement”). On November 5, 2019, we amended the Agreement with one 24.5% shareholder of EZ-CLONE Enterprises, Inc. (“EZ-CLONE”), to extend the date to purchase the remaining 49% of stock of EZ-CLONE in exchange for a 20% extension fee (a total of $171,000 for the 49% or $85,500 for each 24.5% shareholder) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). The Company did not fund the purchase of the remaining 49% of stock of EZ-CLONE by the extended deadline.

On September 15, 2020, we received notice that William Blackburn and Brad Mickelsen (“Plaintiffs”), minority shareholders of EZ-CLONE Enterprises, Inc., a majority owned subsidiary of the Company, filed a complaint against the Company and its officers the Superior Court of California, County of Sacramento (“Complaint”) for claims related to breach under the Purchase and Sale Agreement dated October 15, 2018 between the Company and Plaintiffs. The Complaint also alleges that the Company and its Officers made certain false representations and other claims to consummate the Transaction and as a result has failed to complete the second closing as required under Purchase and Sale Agreement. The Plaintiffs are seeking rescission of the Purchase and Sale Agreement, unspecified damages in excess of ten thousand dollars, and other equitable relief.

On September 15, 2020, we filed a notice of removal with the California Superior Court, County of Sacramento and the United States District Court for the Eastern District of California. The case was removed to Federal District Court for the Eastern District of California and Plaintiffs filed an Ex Parte Application for TRO and an Order for Preliminary Injunction with the Federal Court. The TRO was granted on September 16, 2020 and a preliminary injunction hearing was scheduled for September 29, 2020. After reviewing all pleadings and oral arguments at the hearing, the Court issued a ruling granting Plaintiffs’ request for a preliminary injunction. The parties provided legal briefs to the Federal court to determine if rescission should be granted. The Court did not reach a decision on this issue, and denied without prejudice, the Company’s effort to reverse the preliminary injunction.

As of December 31, 2021, we recorded a liability of $2,131,000 related to the acquisition of which a $1,105,000 is payable in stock and $1,026,000 is payable in cash.

On December 29, 2022, we entered into a Settlement Agreement and Mutual General Release (“Settlement Agreement”) with EZ-CLONE Enterprises whereby our ownership percentage was reduced to 19.6%. The Settlement Agreement provides that the Company and Mr. Blackburn dismiss the claims against one another and that EZ-CLONE retains all obligations under the warehouse lease. As a result, we have not consolidated the balance sheet of EZ-CLONE at December 31, 2022, however the results of operations for the period through the date of the Settlement Agreement and for the year ended December 31, 2021 are reported as Discontinued Operations.

OUR COMMON STOCK

As of March 17, 2020, we commenced trading on the OTCQB Market ("OTCQB").

PRIMARY RISKS AND UNCERTAINTIES

We are exposed to various risks related to legal proceedings, our need for additional financing, the sale of significant numbers of our shares, the potential adjustment in the exercise price of our convertible debentures, including warrants, and a volatile market price for our common stock.

WEBSITE ACCESS TO UNITED STATES SECURITIES AND EXCHANGE COMMISSION REPORTS

We file annual and quarterly reports, proxy statements and other information with the Securities and Exchange Commission ("SEC"). You may read and copy any document we file at the SEC's Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information concerning filers. We also maintain a web site at http://www.growlifeinc.com that provides additional information about our Company and links to documents we file with the SEC. The Company's charters for the Audit Committee, the Compensation Committee, and the Nominating Committee; and the Code of Conduct & Ethics are also available on our website. The information on our website is not part of this Form 10-K.

Table of Contents

ITEM 1A. RISK FACTORS

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Operating Leases

The Company is obligated under the following leases for its various facilities.

On May 31, 2022, the Company rented space in Kirkland, Washington on a month-to-month basis for the Company’s corporate office and use of space in the Regus network.

On December 14, 2018, GrowLife, Inc. entered into a lease agreement with Pensco Trust Company for a 28,000 square feet industrial space at 10170 Croydon Way, Sacramento, California 95827 used for the assembly and sales of plastic parts by EZ-CLONE. The monthly lease payment is $17,500 and increases approximately 3% per year. The lease expires on December 31, 2023. As part of the Settlement Agreement, GrowLife, Inc. is no longer obligated under the lease agreement.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although we cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and may be adjusted from time to time according to developments.

Table of Contents

PART II

General

The following description of our capital stock and provisions of our articles of incorporation and bylaws are summaries and are qualified by reference to our articles of incorporation and the bylaws. We have filed copies of these documents with the SEC as exhibits to our Form 10-K.

Authorized Capital Stock

On November 8, 2021, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the authorized shares of common stock (“Common Stock”) from 120,000,000 to 740,000,000 shares. As a result of the increase, we have an aggregate 750,000,000 authorized shares consisting of: (i) 740,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share.

Capital Stock Issued and Outstanding

As of December 31, 2022, we have issued and outstanding securities on a fully diluted basis, consisting of:

	·	1,800 shares of Series A preferred stock, which is convertible into 1,800,000 shares of common stock;
	·	7,083,254shares of common stock;
	·	Warrants to purchase an aggregate of 7,917,222 shares of common stock with expiration dates between May and November 2027 at exercise prices ranging from $0.05 to $4.50 per share; and
	·	An unknown number of common shares to be issued under the Convertible Notes Payable financing agreements.

Voting Common Stock

Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. On all other matters, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote is required for approval, unless otherwise provided in our articles of incorporation, bylaws or applicable law. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

In the event of our liquidation or dissolution, the holders of common stock are entitled to receive proportionately all assets available for distribution to stockholders after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Table of Contents

Preferred Stock

Under the terms of our articles of incorporation, our board of directors is authorized to issue shares of non-voting preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of non-voting preferred stock.

The purpose of authorizing our board of directors to issue non-voting preferred stock and determine our rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of non-voting preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Other than the Series B and C Preferred Stock discussed below, there are no shares of non-voting preferred stock presently outstanding and we have no present plans to issue any shares of preferred stock.

Series A Convertible Preferred Stock

On November 17, 2022, the Company designated 1,800 shares of its authorized and unissued preferred stock as Series A Preferred Stock and filed a Certificate of Designation of Series A Convertible Preferred Stock of GrowLife, Inc. (the “Series A Certificate of Designation”) with the Delaware Secretary of State.

Each share of Series A Preferred Stock is convertible into 1,000 shares of Common Stock (subject to adjustment as provided in the Series A Certificate of Designation) at any time at the option of the holder, provided that the holder is prohibited from converting the Series A Preferred Stock into shares of Common Stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of Common Stock then issued and outstanding, (the “Beneficial Ownership Limitation”), provided that the holder may reset the Beneficial Ownership Limitation to a higher or lower number (not to exceed 9.99% of the total number of Common Shares issued and outstanding immediately after giving effect to a conversion) upon providing written notice to the Company. Any such notice providing for an increase to the Beneficial Ownership Limitation will be effective 61 days after delivery to the Company.

In the event of the Company’s liquidation, dissolution, or winding up holders of Series A Preferred, any such distribution shall be distributed among the holders of Common Stock, Series A Preferred and any other class or series of preferred stock of the Corporation entitled to participate with the Common Stock in a liquidating distribution, pro rata in proportion to the shares of Common Stock then held by them and the maximum number of shares of Common Stock which they would have the right to acquire upon conversion of shares of Series A Preferred, assuming the full conversion of all Common Stock Equivalents then held by them.

Shares of Series A Preferred Stock generally have no voting rights, except as required by law. Holders of Series A Preferred Stock are not entitled to receive any dividends payable to holders of Common Stock.

The foregoing description of the Series A Preferred Stock does not purport to be complete and is qualified by reference to the Series A Certificate of Designation, a copy of which was filed as Exhibit 3.1 to our Current Report filed November 8, 2022, and is incorporated herein by reference.

Warrants to Purchase Common Stock

As of December 31, 2022, we had warrants to purchase an aggregate of 7,917,222 shares of common stock with expiration dates between April and November 2027 at exercise price ranging from $0.05 to $4.50 per share. In addition, we have an unknown number of common shares to be issued under the Convertible Notes Payable financing agreements, due to the variable conversion features.

Options to Purchase Common Stock

On November 5, 2021, at our annual shareholder meeting the Second Amended and Restated 2017 Stock Incentive Plan was adopted to increase the shares issuable under the plan from 1,333,333 to 75,000,000 shares. All terms of the Plan shall remain the same with the exception of the number of shares reserved for issuance under the Plan. We have 75,000,000 shares available for issuance under the Second Amended and Restated 2017 Stock Incentive Plan. There are no outstanding unexercised stock option grants as of December 31, 2022. The Company filed registration statements on Form S-8 to register 1,333,333 shares of our common stock related to the 2017 Stock Incentive Plan and First Amended and Restated 2017 Stock Incentive Plan.

Dividend Policy

We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying dividends on our common stock in the foreseeable future. We currently intend to use all our available funds to develop our business. We can give no assurances that we will ever have excess funds available to pay dividends.

Change in Control Provisions

Our articles of incorporation and by-laws provide for a maximum of nine directors, and the size of the Board cannot be increased by more than three directors in any calendar year. There is no provision for classification or staggered terms for the members of the Board of Directors.

Our articles of incorporation also provide that except to the extent the provisions of Delaware General Corporation Law require a greater voting requirement, any action, including the amendment of the Company’s articles or bylaws, the approval of a plan of merger or share exchange, the sale, lease, exchange or other disposition of all or substantially all of the Company’s property other than in the usual and regular course of business, shall be authorized if approved by a simple majority of stockholders, and if a separate voting group is required or entitled to vote thereon, by a simple majority of all the votes entitled to be cast by that voting group.

Our bylaws provide that only the Chief Executive Officer or a majority of the Board of Directors may call a special meeting. The bylaws do not permit the stockholders of the Company to call a special meeting of the stockholders for any purpose.

Articles of Incorporation and Bylaws Provisions

Our articles of incorporation, as amended, and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or tender offers or delaying or preventing a change in control, including changes a stockholder might consider favorable. In particular, our articles of incorporation and bylaws among other things:

	·	permit our board of directors to alter our bylaws without stockholder approval; and

	·	provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.

Such provisions may have the effect of discouraging a third party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage some types of transactions that may involve an actual or threatened change in control of our company. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage some tactics that may be used in proxy fights. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.

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However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

Market Price of and Dividends on Common Equity and Related Stockholder Matters

As of March 4, 2019, we began to trade on the OTC Pink Sheet stocks system because our bid price had closed below $0.01 for more than 30 consecutive calendar days. As of March 17, 2020, we commenced trading on the OTCQB Market ("OTCQB") after successfully up-listing from the OTC Pink Market.

The quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions. Consequently, the information provided below may not be indicative of our common stock price under different conditions.

Period Ended	High		Low
Year Ending December 31, 2023
March 31, 2023	$	0.075	$	0.032

Year Ending December 31, 2022
December 31, 2022	$	0.160	$	0.049
September 30, 2022	$	1.200	$	0.150
June 30, 2022	$	5.250	$	0.900
March 31, 2022	$	6.450	$	2.400

Year Ending December 31, 2021
December 31, 2021	$	7.800	$	2.550
September 30, 2021	$	14.250	$	5.700
June 30, 2021	$	26.850	$	12.150
March 31, 2021	$	85.500	$	15.900

On October 7, 2022, FINRA (the Financial Industry Regulatory Authority) approved and announced the Reverse Stock Split of 150-for-1.

Transfer Agent

The transfer agent for our common stock is Direct Transfer, LLC, One Glenwood Avenue, Suite 1001, Raleigh, NC, 27603. Their telephone number is 919.744.2722.

Recent Sales of Unregistered Securities

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(a)(2) of the Securities Act of 1933. All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.

We have compensated consultants and service providers with restricted common stock during the development of our business and when our capital resources were not adequate to provide payment in cash.

During the three months ended December 31, 2022, we had the following sales of unregistered sales of equity securities.

	·	Lenders converted principal of $1,682,698 into 5,560,082 shares of our common stock.

	·	The Company issued 1,000,000 shares of common stock, net, to lenders as commitment fees to secure additional debt financings.

	·	The Company issued 1,800 shares of preferred stock to a lender as a commitment fee to secure additional debt financing.

EQUITY COMPENSATION PLAN INFORMATION

At December 31, 2022 there are no outstanding stock options.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents certain consolidated statements of operations information and presentation of that data as a percentage of change from year-to-year.

	Years ended December 31, *(Dollars in thousamds)*
	2022			2021			$ Variance			% Variance
Net revenue		-			-			-			-
Cost of good sold		-			-			-			-
Gross profit		-			-			-			-
Operating expenses	$	1,341		$	1,383		$	(42	)		-3	%
Operating (loss)		(1,341	)		(1,383	)		42			-3	%
Other expense
Change in fair value of derivative		(1,348	)		(973	)		(375)			-39	%
Interest expense, net		(1,964	)		(3,243	)		1,279			-39	%
Gain (Loss) on conversions		205			(931	)		1,136			-122	%
Gain on forgiveness/settlement of debt		183			1,025			(842	)		-82	%
Total other expenses		(2,924	)		(4,122	)		1,198			-29	%
Net (Loss) from continuing operations		(4,265	)		(5,505	)		1,240			-23	%
Income (Loss) from discontinued operations net of taxes		(1,931	)		32			(1,963	)		-6134	%
Gain on deconsolidation of discontinued operations		1,713			-			1,713			-100	%
Net Profit (Loss) on discontinued operations		(218	)		32			(250	)		-100	%
Net (loss)	$	(4,483	)	$	(5,473	)	$	990			-18	%

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YEAR ENDED DECEMBER 31, 2022 COMPARED TO THE YEAR ENDED DECEMBER 31, 2021

Operating Expenses

Operating expenses for the year ended December 31, 2022 were $1,341,000 as compared to $1,383,000 for the year ended December 31, 2021. The primary reason for the decrease was compensation and related expenses.

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Other Expense

Other expenses for the year ended December 31, 2022, were $2,924,000 as compared to $4,122,000 for the year ended December 31, 2021. The other expense for the year ended December 31, 2022, included (i) change in fair value of the derivative liability of $1,348,000; (ii) interest expense of $1,964,000; (iii) gain on conversions of $205,000; and (iv) gain on debt forgiveness of $183,000. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. The decrease in non-cash interest related to accrued interest expense, write-off of original issue discount and the derivative liability calculated on our notes payable.

On April 5, 2021, we entered into a Warrant Settlement Agreement dated March 31, 2021, with St. George and Iliad to resolve a dispute related to the calculation of shares issuable under warrants issued in prior financings whereby we agreed that upon the exercise of the warrant of up 14,250,000 shares of our common stock that the balance of the warrant related to a 2018 financing agreement would be cancelled. We recorded a loss on debt settlement of $2,422,000 as of December 31, 2021. The 14,250,000 warrants were exercised during 2021. In 2021, the Company recognized a gain on extinguishment of $1,025,000 due to the change in the fair value of the shares.

The other expense for the year ended December 31, 2021 included (i) change in derivative liability of $973,000; (ii) interest expense of $3,243,000; and (iii) loss on debt conversions of $931,000; offset by (iv) gain on settlement of debt of $1,025,000. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. The non-cash interest related to accrued interest expense on our notes payable. The loss on debt conversions related to the conversion of our notes payable at prices below the market price.

Earnings (Loss) from Discontinued Operations

On December 29, 2022, we entered into a Settlement Agreement and Mutual General Release (“Settlement Agreement”) with EZ-CLONE Enterprises whereby our ownership percentage was reduced to 19.6%. As a result, EZ-CLONE results for the year ended December 31, 2022 are reflected as loss on discontinued operations of $1,931,00 as compared to a profit for the year ended December 31, 2021 of $32,000. Eliminating the various assets and liabilities relating to EZ-CLONE at December 31, 2022 resulted in a gain of $1,713,000.

Net Loss

Net loss for the year ended December 31, 2022 was $4,483,000 as compared to $5,473,000 for the for the year ended December 31, 2021 for the reasons discussed above.

We expect losses to continue as we implement our business plan.

LIQUIDITY AND CAPITAL RESOURCES

Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.

The accompanying financial statements have been prepared assuming that we will continue as a going concern. However, since inception, we have sustained significant operating losses and such losses are expected to continue for the foreseeable future. As of December 31, 2022, we had an accumulated deficit of $164 million, cash and cash equivalents of $94,000 and a working capital deficit of $3,400,000 excluding convertible debt and the derivative liability. Additionally, we used cash in operating activities of $1,537,000 and $3,656,000 for the years ended December 31, 2022 and 2021, respectively, excluding discontinued operations. We will require additional cash funding to fund operations beyond June 15, 2023. Accordingly, management has concluded that we do not have sufficient funds to support operations within one year after the date the financial statements are issued and, therefore, we concluded there was substantial doubt about the Company’s ability to continue as a going concern.

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To fund further operations, we will need to raise additional capital. We may obtain additional financing in the future through the issuance of its common stock, or through other equity or debt financings. Our ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, we will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and our ability to achieve its strategic objective. Historically, the Company has been successful in its ability to raise the financing necessary to continue operations without interruption. There can be no assurance that financing will be available on acceptable terms, or at all. The financial statements contain no adjustments for the outcome of these uncertainties. These factors raise substantial doubt about our ability to continue as a going concern and have a material adverse effect on our future financial results, financial position and cash flows.

Operating Activities

Net cash used in operating activities from continuing operations for the year ended December 31, 2022 was $1,537,000. This amount was primarily related to a net loss of $4,265,000 from continuing operations, reduced by non-cash expenses of $2,560,000 including; (i) non-cash interest expense of $1,882,000; (ii) change in derivative liability of $1,348,000; (iii) net working capital increase of $77,000 and offset by; (iv) gain on debt conversions of $205,000; and (v) gain on debt forgiveness of $183,000.

Investing Activities

Cash used in investing activities for the year ended December 31, 2022, excluding discontinued operations, represent advances on the purchase of Bridgetown assets of $160,000.

Financing Activities

Net cash provided by financing activities from continuing operations for the year ended December 31, 2022 was $1,594,000. The amount related to proceeds from note payable of 1,727,000, offset by repayment of debt of $123,000 and purchase of shares from the reverse stock split.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 3 to Form 10-K for the year ended December 31, 2022), the following policies involve a higher degree of judgment and/or complexity:

Fair Value Measurements and Financial Instruments – ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level 1 – Quoted prices in active markets for identical assets and liabilities;

Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and.

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2022 and 2021 are based upon the short-term nature of the assets and liabilities.

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Derivative financial instruments -We evaluate all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a Binomial pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

Stock Based Compensation – We have share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options to purchase shares of our common stock at the fair market value at the time of grant. Stock-based compensation cost is measured by us at the grant date, based on the fair value of the award, over the requisite service period using an estimated forfeiture rate. For options issued to employees, we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit. Grants of stock options and stock to non-employees and other parties are accounted for in accordance with the ASC 718.

Convertible Securities – Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to December 31, 2015. We will evaluate our contracts based upon the earliest issuance date.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item. Nevertheless, we have no investments in any market risk sensitive instruments either held for trading purposes or entered into for other than trading purposes.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to our consolidated financial statements beginning on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with our accountants on accounting and financial disclosures.

ITEM 9A. CONTROLS AND PROCEDURES

a) Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of December 31, 2022, that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.

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Identified Material Weaknesses

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Management identified the following material weakness during its assessment of internal controls over financial reporting:

Audit Committee:

The current Audit Committee consists of the Chairman and Chief Executive Officer. On December 31, 2022 the only independent director resigned from the board and audit committee. Thus, only one non-independent director currently sits on the committee. We expect to expand this committee during 2023 once a qualified candidate is identified.

Personnel: We do not employ a full time Chief Financial Officer. David Dohrmann serves as both Chief Executive Officer and Interim Chief Financial Officer. We utilize a consultant to assist with our financial reporting. There are limited personnel to assist with the accounting and financial reporting function, which results in: (i) a lack of segregation of duties and (ii) controls that may not be adequately designed or operating effectively and have not been formally documented. Despite the existence of material weaknesses, the Company believes the financial information presented herein is materially correct and fairly presents the financial position and operating results of the year ended December 31, 2022, in accordance with GAAP. During 2023, the Company intends to seek qualified accounting staff to expand its internal accounting and reporting functions.

Contractual Terms and Obligations

The Company entered into various financing agreements involving stock purchase agreements, notes and warrants. The terms of these legal instruments contain complex legal terms, conditions and calculations. Managements understanding of certain terms and conditions of the warrant agreements was not adequate to insure proper accounting and disclosure of the warrant terms.

(b) Management's Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed by, or under the supervision of, our CEO and CFO, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America (GAAP). Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the 2013 Internal Control-Integrated Framework. Based on its evaluation, management has concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their cost.

ITEM 9B. OTHER INFORMATION

There were no disclosures of any information required to be filed on Form 8-K during the year ended December 31, 2022 that were not filed.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors and Executive Officers

The following table sets forth certain information about our current directors and executive officers as of March 31, 2023:

Name	Age	Position and Office Held	Since
David Dohrmann	56	Director, Chief Executive Officer	July 1, 2022
		Chief Financial Officer	July 1, 2022
		President	December 2, 2020
		Secretary, Treasurer	December 31, 2022

All directors hold office until their successors are duly appointed or until their earlier resignation or removal.

Business Experience Descriptions

Set forth below is certain biographical information regarding each of our executive officers and directors.

Mr. Dohrmann – Mr. Dohrmann has served as a General Partner of Penché Partners, a San Francisco based venture capital firm since January 2020. Prior to Penché, he served as the Chief Executive Officer of Gazillion Entertainment from August 2015 until December of 2018. From February 2013 to October 2016, Dohrmann was also a Managing Director at Roth Capital Partners, an Investment Bank, where he focused on Venture Capital investments. From September 2010 to January 2012, Dohrmann was the founder & CEO of Playchemy Inc., a San Francisco based developer of online and mobile games.

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From 2005 to 2010, Mr. Dohrmann served as a partner and headed the digital media and entertainment practice at Security Research Associates, a San Francisco based investment banking Firm focused on the emerging growth small & microcap Companies. From 2002 until 2005 he served as a partner and investment banker at Halpern Capital, an Investment Banking firm also focused on serving emerging growth Companies in the small and micro cap arena. From 2000 to 2002 Mr. Dohrmann was VP of Corporate Development for Sagent Inc., a Nasdaq traded company acquired by Group 1 Software in 2003. From 1992 to 1997 Mr. Dohrmann was VP of Institutional Sales at the Investment Banking firm Donaldson Lufkin & Jenrette.

Mr. Dohrmann received a Bachelor of Arts Degree from the University of Southern California in 1989. Mr. Dohrmann’s public company experience and knowledge of investment banking, corporate development, institutional sales, venture capital, his focus and work with public small and microcap Companies and as an operating executive will provide GrowLife with valuable perspective and guidance for corporate development initiatives as President of the Company.

Certain Significant Employees

There are no significant employees required to be disclosed under Item 401(c) of Regulation S-K.

Family Relationships

There are no family relationships among our directors and executive officers.

Involvement in Certain Legal Proceedings

None of our current directors or executive officers has, to the best of our knowledge, during the past ten years:

	·	Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time hereof, or any corporation or business association of which he was an executive officer at or within two years before the time hereof;

	·	Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

	·	Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

	·	Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

	·	Engaging in any type of business practice; or

	·	Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

	·	Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;

	·	Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated; or

	·	Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated.

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Compensation Committee Interlocks and Insider Participation

We only have one director, thus we have no independent members of the board of directors to serve on our compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or our compensation committee.

Code of Conduct and Ethics

We have adopted conduct and ethics standards titled the code of ethics, which is available at www.growlifeinc.com. These standards were adopted by our board of directors to promote transparency and integrity. The standards apply to our board of directors, executives and employees. Waivers of the requirements of our code of ethics or associated polices with respect to members of our board of directors or executive officers are subject to approval of the full board.

Section 16(a) Beneficial Ownership Reporting Compliance

Our executive officers, directors and 10% stockholders are required under Section 16(a) of the Exchange Act to file reports of ownership and changes in ownership with the SEC. Copies of these reports must also be furnished to us.

Based solely on a review of copies of reports furnished to us, as of December 31, 2022 our executive officers, directors and 10% holders complied with all filing.

ITEM 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Overview of Compensation Program

This Compensation Discussion and Analysis describes the material elements of compensation awarded to, earned by or paid to each of our executive officers named in the Compensation Table on page 22 under “Remuneration of Executive Officers” (the “Named Executive Officers”) who served during the year ended December 31, 2022. This compensation discussion primarily focuses on the information contained in the following tables and related footnotes and narrative for the last completed fiscal year. We also describe compensation actions taken after the last completed fiscal year to the extent that it enhances the understanding of our executive compensation disclosure. The principles and guidelines discussed herein would also apply to any additional executive officers that the Company may hire in the future.

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The Compensation Committee of the Board has responsibility for overseeing, reviewing and approving executive compensation and benefit programs in accordance with the Compensation Committee’s charter. The members of the Compensation Committee are David Dohrmann. We expect to appoint at least one independent Director to serve on the Compensation Committee during 2023.

Compensation Philosophy and Objectives

The major compensation objectives for the Company’s executive officers are as follows:

	·	to attract and retain highly qualified individuals capable of making significant contributions to our long-term success;

	·	to motivate and reward named executive officers whose knowledge, skills, and performance are critical to our success;

	·	to closely align the interests of our named executive officers and other key employees with those of its shareholders; and

	·	to utilize incentive-based compensation to reinforce performance objectives and reward superior performance.

Role of Chief Executive Officer in Compensation Decisions

The Board approves all compensation for the chief executive officer. The Compensation Committee makes recommendations on the compensation for the chief executive officer and approves all compensation decisions, including equity awards, for our executive officers. Our chief executive officer makes recommendations regarding the base salary and non-equity compensation of other executive officers that are approved by the Compensation Committee in its discretion.

Setting Executive Compensation

The Compensation Committee believes that compensation for the Company’s executive officers must be managed to what we can afford and in a way that allows for us to meet our goals for overall performance. During 2020 and 2019, the Compensation Committee and the Board compensated its Chief Executive Officers, President and Chief Financial Officer at the salaries indicated in the compensation table. This compensation reflected our financial condition. The Compensation Committee does not use a peer group of publicly traded and privately held companies in structuring the compensation packages.

Executive Compensation Components for the Year Ended December 31, 2022

The Compensation Committee did not use a formula for allocating compensation among the elements of total compensation during the year that ended December 31, 2022. The Compensation Committee believes that in order to attract and retain highly effective people it must maintain a flexible compensation structure. For the year that ended December 31, 2022, the principal components of compensation for named executive officers were base salary.

Base Salary

Base salary is intended to ensure that our employees are fairly and equitably compensated. Generally, base salary is used to appropriately recognize and reward the experience and skills that employees bring to the Company and provides motivation for career development and enhancement. Base salary ensures that all employees continue to receive a basic level of compensation that reflects any acquired skills which are competently demonstrated and are consistently used at work.

Base salaries for the Company’s named executive officers are initially established based on their prior experience, the scope of their responsibilities and the applicable competitive market compensation paid by other companies for similar positions. Our officers were compensated as described above based on the financial condition of the Company.

Performance-Based Incentive Compensation

The Compensation Committee believes incentive compensation reinforces performance objectives, rewards superior performance and is consistent with the enhancement of stockholder value. All of the Company’s Named Executive Officers are eligible to receive performance-based incentive compensation. The Compensation Committee did not recommend or approve payment of any performance-based incentive compensation to the Named Executive Officers during the year ended December 31, 2022 based on our financial condition.

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Ownership Guidelines

The Compensation Committee does not require our executive officers to hold a minimum number of our shares. However, to directly align the interests of executive officers with the interests of the stockholders, the Compensation Committee encourages each executive officer to maintain an ownership interest in the Company.

Stock Option Program

Stock options are an integral part of our executive compensation program. They are intended to encourage ownership and retention of the Company’s common stock by named executive officers and employees, as well as non-employee members of the Board. Through stock options, the objective of aligning employees’ long-term interest with those of stockholders may be met by providing employees with the opportunity to build a meaningful stake in the Company.

The Stock Option Program assists us by:

	-	enhancing the link between the creation of stockholder value and long-term executive incentive compensation;

	-	providing an opportunity for increased equity ownership by executive officers; and

	-	maintaining competitive levels of total compensation.

Stock option award levels are determined by the Compensation Committee and vary among participants’ positions within the Company. Newly hired executive officers or promoted executive officers are generally awarded stock options, at the discretion of the Compensation Committee, at the next regularly scheduled Compensation Committee meeting on or following their hire or promotion date. In addition, such executives are eligible to receive additional stock options on a discretionary basis after performance criteria are achieved.

Options are awarded at the closing price of our common stock on the date of the grant or last trading day prior to the date of the grant. The Compensation Committee’s policy is not to grant options with an exercise price that is less than the closing price of our common stock on the grant date.

Generally, the majority of the options granted by the Compensation Committee vest quarterly over two to three years of the 5-10-year option term. Vesting and exercise rights cease upon termination of employment and/or service, except in the case of death (subject to a one-year limitation), disability or retirement. Stock options vest immediately upon termination of employment without cause or an involuntary termination following a change of control. Prior to the exercise of an option, the holder has no rights as a stockholder with respect to the shares subject to such option, including voting rights and the right to receive dividends or dividend equivalents.

Retirement and Other Benefits

We have no other retirement, savings, long-term stock award or other type of plans for the Named Executive Officers.

Perquisites and Other Personal Benefits

During the year ended December 31, 2022, we provided the Named Executive Officers with medical insurance and nominal health club benefits. The Company paid $14,225 in life insurance for Mr. Hegyi. No other perquisites or other personal benefits were provided to Named Executive Officers. The committee expects to review the levels of perquisites and other personal benefits provided to Named Executive Officers annually.

Employment and consulting agreements are discussed below.

Tax and Accounting Implications

Deductibility of Executive Compensation

Subject to certain exceptions, Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") generally denies a deduction to any publicly held corporation for compensation paid to its chief executive officer and its three other highest paid executive officers (other than the principal financial officer) to the extent that any such individual's compensation exceeds $1 million. “Performance-based compensation” (as defined for purposes of Section 162(m)) is not taken into account for purposes of calculating the $1 million compensation limit, provided certain disclosure, shareholder approval and other requirements are met. We periodically review the potential consequences of Section 162(m) and may structure the performance-based portion of our executive compensation to comply with certain exceptions to Section 162(m). However, we may authorize compensation payments that do not comply with the exceptions to Section 162(m) when we believe that such payments are appropriate and in the best interests of the stockholders, after taking into consideration changing business conditions or the officer's performance.

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Accounting for Stock-Based Compensation

We account for stock-based payments including its Stock Option Program in accordance with the requirements of ASC 718, “Compensation-Stock Compensation.”

COMPENSATION COMMITTEE REPORT

The Compensation Committee, sets and administers policies that govern the Company's executive compensation programs, and incentive and stock programs. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K for year ended December 31, 2022.

THE COMPENSATION COMMITTEE

David Dohrmann (Chairman)

EXECUTIVE COMPENSATION

REMUNERATION OF EXECUTIVE OFFICERS

The following table provides information concerning remuneration of the chief executive officer, the chief financial officer and another named executive officer for the years ended December 31, 2022 and 2021:

Summary Compensation Table

____________

(1) These amounts reflect the grant date market value as required by Regulation S-K Item 402(n)(2), computed in accordance with FASB ASC Topic 718.

(2) Mr. Dohrmann became Chief Executive Officer and member of the board on July 1, 2022 with a base salary of $250,000. We paid insurance of $16,940 for Mr. Dohrmann during the year ended December 31, 2022.

(3) Mr. Hegyi was paid a salary of $275,000 during the year ended December 31, 2021. We paid insurance of $14,225 for Mr. Hegyi during the year ended December 31, 2021. On June 30, 2022 Mr. Hegyi resigned from all positions with the Company

(4) Mr. Fasci was hired on January 1, 2021, as the Company’s Chief Financial Officer at an annual salary of $165,000. Mr. Fasci was also granted an option to purchase 500,000 shares of the Company’s Common Stock under the Company’s 2018 Stock Incentive Plan at an exercise price of $0.12 per share. Mr. Fasci resigned as Chief Financial Officer on November 4, 2021 effective December 1, 2021.

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Grants of Stock Based Awards during the year ended December 31, 2022

The Compensation Committee did not grant any stock-based awards or performance-based incentive compensation to the Named Executive Officers for the year ended December 31, 2022 or 2021.

Pension Benefits

We do not provide any pension benefits.

Nonqualified Deferred Compensation

We do not have a nonqualified deferral program.

Employment Agreements

Employment Agreement with Dave Dohrmann

On June 30, 2022 the Board of Directors approved an Employment Agreement with Dave Dohrmann pursuant to which we engaged Mr. Dohrmann as its Chief Executive Officer for a period of five years and a member of the Board of Directors.

Mr. Dohrmann’s annual compensation is $250,000. Mr. Dohrmann is also entitled to receive an annual bonus equal to five percent (5%) of the Company’s EBITDA for that year commencing in 2023. The annual bonus shall be paid no later than 31 days following the completion of the annual audit of each calendar year.

Mr. Dohrmann is entitled to participate in all group employment benefits that are offered by us to its senior executives and management employees from time to time, subject to the terms and conditions of such benefit plans, including any eligibility requirements.

If we terminate Mr. Dohrmann’s employment at any time prior to the expiration of the Term without Cause, as defined in the Employment Agreement, or if Mr. Dohrmann terminates his employment at any time for “Good Reason” or due to a “Disability”, Mr. Dohrmann will be entitled to receive (i) his Base Salary amount through the end of the Term; and (ii) his Annual Bonus amount for each year during the remainder of the Term.

Potential Payments upon Termination or Change in Control

The Company’s Employment Agreement with Dave Dohrmann has provisions providing for severance payments amounting to $300,000 in addition to his then current salary should he be terminated without cause or as a result of a change in control, plus the bonus that would have been earned during the remainder of the Term.

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DIRECTOR COMPENSATION

We primarily use stock grants to incentive compensation to attract and retain qualified candidates to serve on the Board. This compensation reflected the financial condition of the Company. In setting director compensation, we consider the significant amount of time that Directors expend in fulfilling their duties to the Company as well as the skill-level required by our members of the Board. On February 1, 2018, a director compensation program was implemented. The directors are compensated at up to $60,000 annually and the annual share award is based on the close price on January 31 of that year.

During year ended December 31, 2022, neither Dave Dohrmann nor Marco Hegyi receive any compensation for his service as a director. The compensation disclosed in the Summary Compensation Table on page 22 represents the total compensation.

Director Summary Compensation

On December 31, 2021 and January 1, 2023, we issued 8,000 and 500,000 shares of our common stock, respectively, to Thom Kozik that was valued at $24,000 and $25,000, respectively.

Compensation Paid to Board Members

Our independent non-employee directors are not compensated in cash. The only compensation has been in the form of stock awards. There is a stock compensation plan for independent non-employee directors.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the ownership of our common stock as of March 31, 2023 by:

	·	each director and nominee for director;

	·	each person known by us to own beneficially 5% or more of our common stock;

	·	each officer named in the summary compensation table elsewhere in this report; and

	·	all directors and executive officers as a group.

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules more than one person may be deemed a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

Each beneficial owner named has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. The address of each beneficial owner is 11335 NE 122nd Way, Suite 105, Kirkland, WA 98034 and the address of more than 5% of common stock is detailed below.

	Shares Beneficially Owned
Name of Beneficial Owner	Number			Percentage (1)
Directors and Named Executive Officers-
David Dohrmann (2)		-		*
Thom Kozik (3)		508,000		*

Total Directors and Officers (2in total)		-				%
Greater Than 5% Ownership
Bucktown Capital LLC		(4	)		9.99	%
Silverback Capital Corporation		(5	)		9.99	%

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* Less than 1%.

(1) Based on 27,886,190 shares of common stock outstanding as of March 31, 2023.

(2) Reflects the shares beneficially owned by David Dohrmann.

(3) Reflects the shares beneficially owned by Thom Kozik, a Director of the Company, beneficial ownership includes 1,220,000 common shares issued to him as compensation for his services to the Board represents 1% of the outstanding shares on December 31, 2022. Mr. Kozik reigned effective December 31, 2022

(4) According to the Schedule 13G filed with the SEC on March 7, 2022, by Bucktown Capital LLC (“Bucktown”), on behalf of Bucktown, and Fife Trading Inc. (“Fife Trading”) , sole manager of reporting person Bucktown, and John Fife (“Fife”) as sole member of reporting person Bucktown and the president and sole shareholder of Fife Trading. Mr. Fife has beneficial ownership by virtue of his role as a control person of Fife Trading and Bucktown. The principal business address of each of Bucktown, Fife Trading and Fife is 303 East Wacker Drive, Suite 1040, Chicago, IL 60601. Bucktown has rights to convert a Promissory Note into shares of the Issuer’s common stock which, except for a contractual 9.99% cap on the amount of outstanding shares that Bucktown may own, would exceed the cap. Thus, the number of shares of the Issuer’s common stock beneficially owned by Bucktown as of the date of its 13G filing was 11,052,305 shares, which is 9.99% of the Issuer's 110,633,688 shares outstanding on November 22, 2021 (as reporting in the company's 10-Q filed November 23, 2021).

(5) According to the Schedule 13G filed with the SEC on March 3, 2022, by Silverback Capital Corporation (“Silverback”), Silverback has rights to convert a Promissory Note into shares of the Issuer’s common stock which, except for a contractual 9.99% cap on the amount of outstanding shares that Silverback may own. Thus, the number of shares of the Issuer’s common stock beneficially owned by Silverback as of the date of its 13G filing was 14,479,650 shares, which is 9.99% of the Issuer's 134,517,394 shares outstanding on February 15, 2022 (as reported by the OTC Market Group Inc. on February 28, 2022). Gillian Gold acts as Manager and control person of Silverback. The principal business address of Silverback is 614 North Dupont Highway, Suite 210, Dover, Delaware, 19901.

There are no other persons known by us who owns beneficially 5% or more of our common stock as of March 31, 2023.

Review and Approval of Related Person Transactions

We have operated under a Code of Conduct for many years. Our Code of Conduct requires all employees, officers and directors, without exception, to avoid the engagement in activities or relationships that conflict, or would be perceived to conflict, with the Company’s interests or adversely affect its reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate upon full disclosure of the transaction, following review and approval to ensure there is a legitimate business reason for the transaction and that the terms of the transaction are no less favorable to the Company than could be obtained from an unrelated person.

The Audit Committee is responsible for reviewing and approving all transactions with related persons. The Company reviews all relationships and transactions in which the Company and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. As required under SEC rules, transactions that are determined to be directly or indirectly material to the Company or a related person are disclosed.

Since January 1, 2019, the Company engaged in the following reportable transactions with our directors, executive officers, holders of more than 5% of our voting securities, and affiliates or immediately family members of our directors, executive officers and holders of more than 5% of our voting securities.

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Related Party Transactions

Transactions with Marco Hegyi

On October 21, 2018, a 5-year Warrant for Mr. Hegyi to purchase up to 66,666 shares of our common stock at an exercise price of $1.50 per share vested. The warrant was valued at $390,000 and we recorded $178,750 as compensation expense for the year ended December 31, 2018. On October 15, 2018, Mr. Hegyi received Warrants to purchase up to 320,000 shares of our common stock at an exercise price of $1.80 per share and which vest on October 15, 2018, 2019 and 2020. The Warrants are exercisable for 5 years. The Warrants were forfeited in conjunction with Mr. Hegyi’s resignation effective June 30, 2022.

On October 15, 2018, the Board of Directors approved an Employment Agreement with Marco Hegyi pursuant to which we engaged Mr. Hegyi as its Chief Executive Officer through October 15, 2021. Mr. Hegyi resigned effective June 30, 2022.

Transaction with Thom Kozik

Mr. Kozik was appointed as a director on October 5, 2017, and resigned effective December 31, 2022. On February 22, 2019, we issued 54,054 shares of our common stock to Mr. Kozik valued at $1.11 per share or $60,000. On April 16, 2020, we issued 20,000 shares of our common stock to Mr. Kozik valued at $0.295 per share or $5,900. On December 31, 2022 we issued 1,200,000 shares of our common stock to Mr. Kozik valued at $0.02 per share or $24,000. On January 1, 2023 we issued 500,000 shares of our common stock to Mr. Kozik valued at $0.05 per share or $25,000. These issuances were an award for independent director services.

Director Independence

The Board has affirmatively determined that Thom Kozik was independent prior to his resignation as of December 31, 2022. For purposes of making that determination, the Board used NASDAQ’s Listing Rules even though the Company is not currently listed on NASDAQ.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Committee Pre-Approval Policy

The Audit Committee has established a pre-approval policy and procedures for audit, audit-related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions. The policy sets out the specific services pre-approved by the Audit Committee and the applicable limitations, while ensuring the independence of the independent auditors to audit the Company's financial statements is not impaired. The pre-approval policy does not include a delegation to management of the Audit Committee’s responsibilities under the Exchange Act. During the year ended December 31, 2022, the Audit Committee pre-approved all audit and permissible non-audit services provided by our independent auditors.

Service Fees Paid to the Independent Registered Public Accounting Firm

The Audit Committee engaged the CPA firm Macias Gini & O’Connell LLP (“MGO”) on October 14, 2021 to perform an annual audit of the Company’s financial statements for the fiscal year ended December 31, 2022 and 2021. MGO also performed a review of the Company’s financial statements for the three months ended September 30, 2021. BPM, LLP performed the annual audit for 2020 and 2019. BPM also performed a review of the Company’s financial statements for each of the first three quarters of 2021.The following is the breakdown of aggregate fees billed for and during the last two fiscal years. The following is the breakdown of aggregate fees paid for the last two fiscal years:

	Year Ended
	December 31, 2022		December 31, 2021
Audit Fees	$	140,000	$	87,626
Audit related fees				49,220
	$	140,000	$	136,846

	-	“Audit Fees” are fees paid for professional services for the audit of our financial statements.

	-	“Audit-Related fees” are fees paid for professional services not included in the first category, specifically, PCAOB interim reviews for quarterly filings, and accounting consultations on matters addressed during the audit.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) FINANCIAL STATEMENTS:

The Company’s financial statements, as indicated by the Index to Consolidated Financial Statements set forth below, begin on page F-1 of this Form 10-K, and are hereby incorporated by reference. Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Title of Document		Page

Report of Independent Registered Public Accounting Firm For the year ended December 31, 2022 and 2021 (PCAOB ID 324)		F-1

Consolidated Balance Sheets As of December 31, 2022 and 2021		F-2

Consolidated Statements of Operations For the years ended December 31, 2022 and 2021		F-3

Consolidated Statements of Changes in Stockholders’ Deficit For the years ended December 31, 2022 and 2021		F-4

Consolidated Statements of Cash Flows For the years ended December 31, 2022 and 2021		F-5

Notes to the Financial Statements		F-6

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(b) Exhibits

Exhibit No.		Description

3.1		Certificate of Incorporation. Filed as an exhibit to the Company’s Form 10-SB General Form for Registration of Securities of Small Business Issuers filed with the SEC on December 7, 2007, and hereby incorporated by reference.

3.2		First Amendment to Second Amended and Restated Bylaws Amendment, dated August 6, 2022, incorporated herein by reference.

3.3		Certificate of Amendment of Certificate of Incorporation of GrowLife, Inc. dated October 23, 2017 to increase the authorized shares of Common Stock from 3,000,000,000 to 6,000,000,000 shares. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 24, 2017, and hereby incorporated by reference.

3.4		Amendment to Articles of Incorporation dated November 20, 2019. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on November 26, 2019, and hereby incorporated by reference.

3.5		Certificate of Amendment of Certificate of Incorporation of GrowLife, Inc. dated November 8, 2021, to increase the authorized shares of Common Stock from 120,000,000 to 740,000,000 shares. Filed herewith.

3.6		Amendment to Articles of Incorporation citing Reverse Stock Split, dated September 29, 2022

3.7		Certificate of Designation of Series A Convertible Preferred Stock of GrowLife, Inc., Filed as an exhibit to the Company’s Form 8-K filed with the SEC on November 28, 2022.

4.1		GrowLife, Inc. Second Amended and Restated 2017 Stock Incentive Plan filed as an Annex 1 to the Company’s Definitive Revised Schedule 14A filed with the SEC on September 24, 2021, and hereby incorporated by reference.

4.2		Form of Warrants. Filed as exhibits to the Company’s Form 8-K and filed with the SEC on February 28, 2020, and hereby incorporated by reference.

10.1		Compilation of Securities Purchase Agreement and Warrant to Purchase Common Stock dated February 9, 2018 entered into by and between GrowLife, Inc. and St. George Investments LLC. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on February 15, 2018, and hereby incorporated by reference.

10.2		Compilation of Securities Purchase Agreement, Secured Promissory Notes, and Security Agreement by and between GrowLife, Inc. and Iliad Research and Trading, L.P. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on August 16, 2018, and hereby incorporated by reference.

10.3		Rights Offering to Shareholders filed in Amendment No.1 of Form S-1. Filed with the SEC on September 18, 2018, and hereby incorporated by reference. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on September 21, 2018, and hereby incorporated by reference.

10.4		Rights Offering to Shareholders filed in Amendment No.1 of Form S-1. Filed with the SEC on September 18, 2018, and hereby incorporated by reference. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on September 21, 2018, and hereby incorporated by reference.

10.5		Purchase and Sale agreement dated October 10, 2018, by and between GrowLife, Inc. and EZ-CLONE Enterprises LLC. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 18, 2018, and hereby incorporated by reference.

10.6		Compilation of Securities Purchase Agreement, Warrant, Secured Promissory Notes, and Security Agreement by and between GrowLife, Inc. and Iliad Research and Trading, L.P. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 17, 2018, and hereby incorporated by reference.

10.7		Compilation of Securities Purchase Agreement, Secured Promissory Notes, and Security Agreement by and between GrowLife, Inc. and Odyssey Research and Trading, LLC. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on July 30, 2019, and hereby incorporated by reference.

10.8		Amendment No. 1 to Purchase and Sale Agreement dated October 23, 2019, entered into by between GrowLife, Inc. and William Blackburn. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on November 12, 2019, and hereby incorporated by reference.

10.9		Compilation of Securities Purchase Agreement, Secured Promissory Notes, and Security Agreement. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on February 5, 2020, and hereby incorporated by reference.

10.10		Compilation of Labrys Securities Purchase Agreement, Self-Amortization Promissory Note and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 15, 2020, and hereby incorporated by reference.

10.11		Compilation of EMA Securities Purchase Agreement, Self-Amortization Promissory Note and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 15, 2020, and hereby incorporated by reference.

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10.12		Compilation of FF Securities Purchase Agreement, Self-Amortization Promissory Note and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on October 15, 2020, and hereby incorporated by reference.

10.13		Amendment 2 to Compilation of Labrys Securities Purchase Agreement, Self-Amortization Promissory Note and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on December 7, 2020, and hereby incorporated by reference.

10.14		Amendment 3 to Compilation of Labrys Securities Purchase Agreement, Self-Amortization Promissory Note and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on January 5, 2021, and hereby incorporated by reference.

10.15		Compilation of Bucktown Capital, LLC Securities Purchase Agreement, and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on March 5, 2021, and hereby incorporated by reference.

10.16		St. George and Iliad joint Warrant Settlement Agreement. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on April 9, 2021, and hereby incorporated by reference.

10.17		Compilation of Bucktown Capital, LLC Securities Purchase Agreement, and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on March 5, 2021, and hereby incorporated by reference.

10.18		Compilation of Bucktown Capital, LLC Securities Purchase Agreement, and Other Agreements. Filed as an exhibit to the Company’s Form 8-K and filed with the SEC on November 12, 2021, and hereby incorporated by reference.

10.19		Securities Purchase Agreement and Convertible Promissory Note with Sixth Street Lending LLC dated January 4, 2022.

10.20		Securities Purchase Agreement and Convertible Promissory Note with Sixth Street Lending LLC dated March 8, 2022.

10.21		Compilation of AJB Capital Investments LLC, Securities Purchase Agreement, and Other Agreements dated May 17, 2022.

10.22		Asset Purchase Agreement, dated September 1, 2022, with Bridgetown Mushrooms, LLC

10.23		Dohrmann Employment Agreement, dated September 30, 2022

10.24		Securities Purchase Agreement, Promissory Note, Security Agreement and Registration Rights Agreement, dated September 28, 2022, between Growlife, Inc. and AJB Capital Investments, LLC

10.25		Securities Purchase Agreement and Convertible Note dated October 17, 2022, between GrowLife Inc. and 1800 Diagonal Lending LLC

10.26		Note Purchase Agreement, Warrant and Convertible Promissory Note dated November 2, 2022 between GrowLife Inc. and Quick Capital LLC

10.27		Compilation of Securities Purchase Agreement, Promissory Note, Common Stock Purchase Agreement, dated November 9, 2022, between GrowLife, Inc. and Coventry Enterprises, LLC, filed as exhibits to Form 8-K filed November 28, 2022

10.28		Securities Purchase Agreement and Convertible Promissory Note dated November 11, 2022, between GrowLife Inc, and 1800 Diagonal Lending LLC, filed as exhibits to Form 8-K filed December 2, 2022

14.1		Code of Conduct and Ethics dated May 15, 2014. Attached as an exhibit to the Company’s Form 8-K filed and with the SEC on June 9, 2014, and hereby incorporated by reference.

21.1		Subsidiaries of the Registrant, Filed herewith.

23.1		Consent of Macias Gini & O’Connell LLP Independent Registered Account Firm Relating to the Consolidated Financial Statements of the Company for the year ended December 31, 2022

31.01		Certification of Principal Executive Officer Pursuant to Rule 13a-14 *

31.02		Certification of Principal Financial Officer Pursuant to Rule 13a-14 *

32.01		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act *

32.02		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act *

99.1		Amended and Restated Audit Committee Charter, dated October 16, 2015. Attached as an exhibit to the Company’s Form 8-K and filed with the SEC on October 26, 2015, and hereby incorporated by reference.

99.2		Compensation Committee Charter dated May 15, 2014. Attached as an exhibit to the Company’s Form 8-K dated June 3, 2014 and filed with the SEC on June 9, 2014, and hereby incorporated by reference.

99.3		Amended and Restated Nominations and Governance Charter, dated October 16, 2015.Attached as an exhibit to the Company’s Form 8-K and filed with the SEC on October 26, 2015, and hereby incorporated by reference.

99.4		Amended and Restated Insider Trading Policy, dated October 16, 2015. Attached as an exhibit to the Company’s Form 8-K and filed with the SEC on October 26, 2015, and hereby incorporated by reference.

101.INS*		Inline XBRL Instance Document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed Herewith.

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

GrowLife, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of GrowLife, Inc. (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the accompanying financial statements, the Company has suffered recurring losses from operations, incurred negative cash flows from operating activities, and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on the entity’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Derivative Liabilities

Description of the Matter

As disclosed in Note 7 to the financial statements, The Company has issued several convertible notes which were outstanding as of December 31, 2022. Under the terms of the note agreements, the note holders have the right to convert principal and accrued interest outstanding into shares of common stock at a discounted price compared to the market price of the common stock at the date of conversion. The embedded conversion features of the notes are recognized as derivative liabilities and management measures the fair value of the derivative liabilities using a Binomial Option Pricing Model. Auditing the Company’s valuation of its derivatives is challenging as the valuation methodologies used by the Company are complex by their nature and the methodologies incorporate significant assumptions that impact the fair value measurement, including the discount rate and forecasted volatility of the Company’s common stock price.

How We Addressed the Matter in Our Audit

To test the valuation of the derivative liabilities, our audit procedures included, among others, evaluating the methodologies used in the valuation model and testing the significant assumptions. For example, we compared the forecasted volatility of the Company’s common stock price to its historical volatility. We also assessed the completeness and accuracy of the underlying data and engaged an external valuation specialist to assist in our evaluation of the significant assumptions and methodologies used by the Company. As part of our procedures, we also evaluated the Company’s financial statement disclosures related to derivative liabilities which are included in Note 12 to the financial statements.

Macias Gini & O’Connell LLP

We have served as Growlife, Inc.’s auditor since 2021

Irvine, CA

June 13, 2023

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GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

	December 31, 2022			December 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	94,208		$	6,275
Advances		160,000			-
Current assets of discontinued operations		-			2,203,932
Total current assets		254,208			2,210,207

Long term assets of discontinued operations		-			1,897,823
TOTAL ASSETS	$	254,208		$	4,108,030

LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Accounts payable		850,619			829,909
Accrued expenses		209,768			171,464
Notes payable- PPP/EIDL loans		716,252			874,570
Notes payable		1,877,896			13,117
Convertible notes payable, net		2,323,516			2,570,570
Derivative liabilities		2,686,892			1,698,272
Current liabilities of discontinued operations		-			3,548,517
Total current liabilities		8,664,942			9,706,419

LONG TERM LIABILITIES:
Long term liabilities of discontinued operations		-			335,222
Total long term liabilities		-			335,222

STOCKHOLDERS' DEFICIT
Series A Preferred stock - $0.0001 par value, 10,000,000 shares authorized, 1,800 shares and no shares issued and outstanding at 12/31/2022 and 12/31/201, respectively		-			-
Common stock - $0.0001 par value, 740,000,000 shares authorized, 7,083,254 and 786,331 shares issued and outstanding at 12/31/2022 and 12/31/2021 , respectively		708			79
Additional paid in capital		156,385,473			154,380,348
Accumulated deficit		(164,796,915	)		(160,314,038	)
Total stockholders' deficit		(8,410,734	)		(5,933,611	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	254,208		$	4,108,030

The accompanying notes are an integral part of these consolidated financial statements.

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GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

	For Year Ended
	December 31, 2022			December 31, 2021

	$	-		$	-
Cost of goods sold		-			-
Gross Profit		-			-
Operating expenses		1,341,468			1,382,519
Loss from operations		(1,341,468	)		(1,382,519	)

OTHER INCOME (EXPENSE):
Change in fair value of derivative		(1,347,845	)		(973,101	)
Interest expense, net		(1,963,736	)		(3,243,162	)
Gain (Loss) on debt conversions, net		204,868			(931,494	)
Gain on forgiveness/settlement of debt		183,449			1,025,400
Total other expense, net		(2,923,264	)		(4,122,357	)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(4,264,732	)		(5,504,876	)
Income taxes		-			-

NET LOSS FROM CONTINUING OPERATIONS		(4,264,732	)		(5,504,876	)

INCOME (LOSS) ON DISCONTINUED OPERATIONS
Income (Loss) from discontinued operations, net of income tax		(1,931,250	)		32,208
Gain on deconsolidation of discontinued operations		1,713,105
NET INCOME (LOSS) ON DISCONTINUED OPERATIONS		(218,145	)		32,208

NET LOSS	$	(4,482,877	)	$	(5,472,668	)

BASIC AND DILUTED INCOME (LOSS) PER SHARE
Net Loss on continuing operations	$	(1.86	)	$	(9.86	)
Net Income (Loss) on discontinued operation	$	(0.09	)	$	0.06
Net Loss	$	(1.95	)	$	(9.80	)

Weighted average shares of common stock outstanding- basic and diluted		2,297,827			558,371

The accompanying notes are an integral part of these consolidated financial statements.

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GROWLIFE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)

	Series A										Additional						Total
	Preferred Stock				Common Stock						Paid			Accumulated			Stockholders'
	Shares		Amount		Shares			Amount			in Capital			Deficit			(Deficit)

Balance as of December 31, 2020		-	$	-		345,621		$	35		$	147,666,863		$	(154,841,370	)	$	(7,174,472	)

Stock based compensation for stock options						-			-			15,476			-			15,476
Shares issued for services						8,000			1			23,999						24,000
Shares issued for convertible note conversions						332,305			33			5,239,460			-			5,239,493
Shares issued for liability settlement						95,000			9			1,397,091						1,397,100
Shares issued for warrant exercise						5,425			1			37,459						37,460
Net loss for the year ended December 31, 2021						-			-			-			(5,472,668	)		(5,472,668	)
Balance as of December 31, 2021		-	$	-		786,351		$	79		$	154,380,348		$	(160,314,038	)	$	(5,933,611	)

Shares issued for convertible note conversions						5,560,082			555			1,682,143						1,682,698
Shares issued for note commitments, net		1,800		-		1,000,000			100			327,692						327,792
Repurchase of shares in connection with reverse stock split						(263,159	)		(26	)		(10,142	)					(10,168	)
Fair value of warrants issued												5,433						5,433
Net loss for the year ended December 31, 2022															(4,482,877	)		(4,482,877	)
Balance as of December 31, 2022		1,800	$	-		7,083,274		$	708		$	156,385,473		$	(164,796,915	)	$	(8,410,734	)

The accompanying notes are an integral part of these consolidated financial statements.

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GROWLIFE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For Year Ended
	December 31, 2022			December 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(4,482,877	)	$	(5,472,668	)
(Income) Loss from discontinued operations		1,931,250			(32,208	)
Gain on discontinued operations		(1,713,105	)		-
Net loss from continuing operations		(4,264,732	)		(5,504,875	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		-			15,476
Non-cash interest expense		1,882,488			1,415,936
Loss on cashless warrant conversion		-			37,460
(Gain) Loss on debt conversion		(204,868	)		931,494
Change in fair value of derivative		1,347,845			973,101
(Gain) on forgiveness of debt		(183,449	)		(206,287	)
Gain on settlement of accounts payable		-			(1,025,400	)
Fair value of derivatives expensed upon conversion		-			1,429,138
Changes in operating assets and liabilities:
Accounts payable		38,605			96,601
Accrued expenses		38,303			(25,650	)
Net cash used in operating activities from continuing operations		(1,345,808	)		(1,863,007	)
Net cash provided by operating activities by discontinued operations		30,310			299,884
CASH USED BY OPERATING ACTIVITIES		(1,315,498	)		(1,563,123	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of advances		(160,000	)		-
Net cash used in investing activities by discontinued operations		(11,190	)		(20,000	)
CASH USED IN INVESTING ACTIVITIES		(171,190	)		(20,000	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debt		1,254,305			1,728,873
Proceeds from notes payable		473,000			369,574
Repayment of convertible notes		(110,150	)		(553,550	)
Repayment of notes payable		(13,117	)		(49,144	)
Purchase of shares in reverse stock split		(10,168	)		-
Net cash provided by financing activities from continuing operations		1,593,870			1,495,753
Net cash used in financing activities by discontinued operations		(19,249	)		-
CASH PROVIDED BY FINANCING ACTIVITIES		1,574,621			1,495,753

NET CHANGE IN CASH AND CASH EQUIVALENTS		87,933			(87,370	)

CASH AND CASH EQUIVALENTS, beginning of period		6,275			93,645

CASH AND CASH EQUIVALENTS, end of period	$	94,208		$	6,275

Non-cash investing and financing activities:
Value of shares issued for convertible note conversion	$	1,682,698		$	2,502,596
Value of shares issued for liability settlement	$	1,046,425		$	1,397,100
Value of shares issued for loan commitment fees	$	327,792			-

The accompanying notes are an integral part of these consolidated financial statements.

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GROWLIFE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF BUSINESS AND ORGANIZATION

GrowLife, Inc. (“GrowLife” or the “Company”) is incorporated under the laws of the State of Delaware and is headquartered in Kirkland, Washington. The Company was founded in 2012 with the Closing of the Agreement and Plan of Merger with SGT Merger Corporation.

On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc., a California corporation (the “Agreement”). On November 5, 2019, the Company amended the Agreement with one 24.5% shareholder of EZ-CLONE Enterprises, Inc. (“EZ-CLONE”), to extend the date to purchase the remaining 49% of stock of EZ-CLONE in exchange for a 20% extension fee (a total of $171,000 for the 49% or $85,500 for each 24.5% shareholder) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). The Company did not close the purchase of the remaining 49% of stock of EZ-CLONE by the extended deadline.

On September 15, 2020, the Company received notice that William Blackburn and Brad Mickelsen (“Plaintiffs”), minority shareholders of EZ-CLONE Enterprises, Inc., a majority owned subsidiary of the Company, filed a complaint against the Company and its officers in the Superior Court of California, County of Sacramento (“Complaint”) for claims related to breach under the Purchase and Sale Agreement dated October 15, 2018 between the Company and Plaintiffs. The Complaint also alleges that the Company and its Officers made certain false representations and other claims to consummate the Transaction and as a result has failed to complete the second closing as required under Purchase and Sale Agreement. As of December 4, 2020, the Company’s officers were dismissed from the case. The complaint sought rescission of the Purchase and Sale Agreement, unspecified damages in excess of ten thousand dollars, and other equitable relief. See Note 17 for description of Legal Proceedings.

On September 15, 2020, the Company filed a notice of removal with the California Superior Court, County of Sacramento and the United States District Court for the Eastern District of California. The case was removed to Federal District Court for the Eastern District of California and Plaintiffs filed an Ex Parte Application for TRO and an Order for Preliminary Injunction with the Federal Court. The TRO was granted on September 16, 2020 and a preliminary injunction hearing was scheduled for September 29, 2020. After reviewing all pleadings and oral arguments at the hearing, the Court issued a ruling granting Plaintiffs’ request for a preliminary injunction.

On December 29,2022, the Company entered into a Settlement Agreement and Mutual General Release (“SAMGA”) with Mr. Blackburn whereby: (i) both parties agreed to settle all disputes and potential disputes, (ii) EZ-CLONE assumes all obligations relating to the warehouse lease, (iii) 32.7% of the stock held by the Company was retired, (iv) 3.9% of the stock held by the Company was transferred to Mr. Blackburn, and (v) the Company received anti-dilution rights for a period of five years. As a result, the Company’s ownership percentage has decreased from 51% to 19.6% and Mr. Blackburn ownership percentage has increased from 24.5% to 51%, and Mr. Mickelsen ownership percentage increased from 24.%% to 29.4%. Mr. Mickelsen refused to participate in negotiating the SAMGA.

On May 10, 2023, Mr. Mickelson filed a Motion for Summary Judgment in the original lawsuit against Growlife and the former CEO, seeking 100% of the damages claimed for breach of contract, and is no longer pursuing recission. Growlife’s filed an Opposition on June 9, 2023. Growlife expects to prevail against the Motion and to ultimately defeat the claims in the complaint.

On November 5, 2021, the Company held its 2021 Annual Meeting of Stockholders, where stockholders approved an increase in the authorized shares of common stock (“Common Stock”) from 120,000,000 to 740,000,000 shares. As such, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware on November 8, 2021. As a result of the increase, the Company an aggregate 750,000,000 authorized shares consisting of: (i) 740,000,000 shares of common stock, par value $0.0001 per share, and (ii) 10,000,000 shares of preferred stock, par value $0.0001 per share.

On October 7, 2022, FINRA (the Financial Industry Regulatory Authority) announced the Reverse Stock Split of 150-for-1 which was previously approved by the Company’s shareholders at the Company’s November 5, 2021 annual meeting of stockholders. All share and per share amounts have been adjusted in these condensed consolidated financial statements to reflect the effects of the reverse stock split.

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NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred net losses from continuing operations of $4,264,732 and $5,504,876 for the years ended December 31, 2022 and 2021, respectively. Net cash used in operating activities from continuing operations was $1,345,808 and $1,863,007 for the years ended December 31, 2022 and 2021, respectively.

The Company anticipates that it will record losses from operations for the foreseeable future. As of December 31, 2022, the Company’s accumulated deficit was $164,796,915. The Company has limited capital resources, and operations to date have been funded with the proceeds from private equity and debt financings. These conditions raise substantial doubt about our ability to continue as a going concern.

The Company believes that its cash on hand will be sufficient to fund our operations only until June 15, 2023. The Company needs additional financing to implement our business plan and to service our ongoing operations and pay our current debts. There can be no assurance that we will be able to secure any needed funding, or that if such funding is available, the terms or conditions would be acceptable to us. If we are unable to obtain additional financing when it is needed, we will need to restructure our operations, and divest all or a portion of our business. We may seek additional capital through a combination of private and public equity offerings, debt financings and strategic collaborations. Debt financing, if obtained, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, and could increase our expenses and require that our assets secure such debt. Equity financing, if obtained, could result in dilution to the Company’s then-existing stockholders and/or require such stockholders to waive certain rights and preferences. If such financing is not available on satisfactory terms, or is not available at all, the Company may be required to delay, scale back, eliminate the development of business opportunities and our operations and financial condition may be materially adversely affected.

NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES: ADOPTION OF ACCOUNTING STANDARDS

Basis of Presentation - The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned and subsidiaries. Inter-Company items and transactions have been eliminated in consolidation.

Discontinue Operations - On December 29, 2022, the Company completed the Settlement and Mutual Release of a majority of its ownership in EZ-CLONE. The assets, liabilities and results of the EZ-CLONE business and the related cash flows have been reported as discontinued operations on the accompanying Balance Sheet and in the Consolidated Statements of Operations and Consolidated Statements of Cash Flows, respectively, through the date of sale. These changes have been applied to all periods presented. Unless otherwise noted, discussion within these notes to the consolidated financial statements relates to continuing operations. Refer to Note 4 for additional information on discontinued operations.

Cash and Cash Equivalents - We classify highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at US banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit. At December 31, 2022, the Company had no uninsured deposits.

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Level 1 – Quoted prices in active markets for identical assets and liabilities;

Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and.

Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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Derivative Financial Instruments –Pursuant to ASC 815 “Derivatives and Hedging”, the Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The Company then determines if embedded derivative must bifurcated and separately accounted for. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The variable conversion features of the Convertible Notes Payable and certain warrants are considered derivatives, see Note 12. For derivative financial instruments, the Company uses the Binomial pricing model to value the derivative instruments at inception and on subsequent valuation dates. The Company uses the following assumptions when using the model: (i) risk-free interest rate of 1%; (ii) expected life of one year; (iii) expected dividend of 0%; and (iv) expected volatility ranging from 140% – 184%. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.

In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The amendment is meant to simplify the accounting for convertible instruments by removing certain separation models in subtopic 470-20 for convertible instruments. The amendment also changed the method used to calculate dilutes EPS for convertible instruments and for instruments that may be settled in cash. The amendment is effective for years beginning after December 15, 2023, with early adoption for years beginning after December 15, 2020 including interim periods for those fiscal years. The Company adopted ASU No. 2020-06 in the first quarter of 2022. The adoption did not have an impact on the Company’s financial statements.

Convertible Securities – Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to September 30, 2015. The Company evaluates its contracts based upon the earliest issuance date.

Net Loss Per Share - Under the provisions of ASC Topic 260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. The common stock equivalents have not been included as they are anti-dilutive.

As of December 31, 2022, there are warrants for the purchase of 7,917,222 shares of common shares at a $0.053 average exercise price. In addition, we have an unknown number of common shares to be issued under the convertible notes financing agreements and warrants because the number of shares ultimately issued depends on the price at which the holder converts its debt to shares and exercises its warrants. The lower the conversion or exercise prices, the more shares that will be issued to the holder upon the conversion of debt to shares. The Company will not know the exact number of shares of stock issued to the holder until the debt is actually converted to equity.

As of December 31, 2022, there were (i) no stock option grants outstanding; and (ii) warrants for the purchase of 7,917,222 shares of common shares at a $0.053 average exercise price. In addition, the Company has an unknown number of common shares to be issued under the various convertible debt financing agreements. Also, certain agreements will allow for conversion should the Company default on terms in the agreements.

Dividend Policy - The Company has never paid any cash dividends and intends, for the foreseeable future, to retain any future earnings for the development of our business. Our future dividend policy will be determined by the board of directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.

Use of Estimates - In preparing these consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates and assumptions included in our consolidated financial statements relate to the valuation of long-lived assets, estimates of sales returns, inventory reserves and accruals for potential liabilities, and valuation assumptions related to derivative liability, equity instruments and share based compensation.

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Recent Accounting Pronouncements

Based on the Company’s review of accounting standard updates issued , there have been no other newly issued or newly applicable accounting pronouncements that have had, or are expected to have, a significant impact on the Company’s consolidated financial statements.

NOTE 4 –BUSINESS COMBINATIONS, ACQUISITION PAYABLE AND DISCONTINUED OPERATIONS

Acquisition and Disposition of EZ-CLONE Enterprises, Inc.

On October 15, 2018, the Company closed the Purchase and Sale Agreement with EZ-CLONE Enterprises, Inc. (“EZ-CLONE”), a California corporation (the “Agreement”). The total purchase price was $4 million of which $1,500,000 is payable in cash and $2.5 million payable in stock. At closing, we paid 51% of this amount totaling $2,040,000 via a (i) a cash payment of $645,000; and (ii) the issuance of 715,385 restricted shares of our common stock valued $1,395,000. The Agreement called for the Company, upon delivery of the remaining 49% of EZ-Clone stock, to acquire such stock within one year for $1,960,000, payable as follows: (i) a cash payment of $855,000; and (ii) the issuance of Company’s common stock at a value of $1,105,000.

On November 5, 2019, the Company amended the Agreement with one 24.5% shareholder of EZ-CLONE to extend the date to purchase the remaining 49% of stock of EZ-CLONE in exchange for a 20% extension fee (a total of $171,000 for the 49% or $85,500 for each 24.5% shareholder) of the $855,000 cash payable at the earlier of the closing of $2,000,000 in funding or nine months (July 2020). The Company did not close the purchase of the remaining 49% of stock of EZ-CLONE by the extended deadline.

On September 15, 2020, the Company received notice that William Blackburn and Brad Mickelsen (“Plaintiffs”), minority shareholders of EZ-CLONE Enterprises, Inc., a majority owned subsidiary of the Company, filed a complaint against the Company in the Superior Court of California, County of Sacramento (“Complaint”) for claims related to breach under the Purchase and Sale Agreement dated October 15, 2018 between the Company and Plaintiffs. As of December 4, 2020, the Company’s officers were dismissed from the case. The Plaintiffs are seeking rescission of the Purchase and Sale Agreement, unspecified damages in excess of ten thousand dollars, and other equitable relief. See Note 17 for description of Legal Proceedings.

The Company accounted for the acquisition in accordance with ASC 805, “Business Combinations”. ASC 805 defines the acquirer in a business combination as the entity that obtains control of one or more businesses in a business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 requires an acquirer to recognize the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date.

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For accounting purposes, from October 15, 2018 the Company consolidated EZ-Clone given their control and recorded its obligation to acquire the remaining interest in EZ-Clone. The Company considerd EZ-Clone to be 100% owned. At December 31, 2021 the Company has recorded $2,131,000 as a liability, $1,026,000 of which is due in cash and $1,105,000 is due in stock. Such amounts are included in the Current Liabilities of Discontinue Operations on the Balance Sheet at December 31, 2021.

Settlement Agreement with EZ-CLONE Enterprises, Inc.

On December 29, 2022, to avoid the costs, risks, and uncertainties inherent in litigation, the Company, EZ-CLONE and William Blackburn (collectively, the “EZ Parties”) entered into that certain Settlement Agreement and General Mutual Release (the “Settlement Agreement) whereby the Company and the EZ Parties agreed to settle, compromise, fully, and finally resolve all the disputes and potential disputes between them pursuant to the terms and conditions of the EZ Agreement. Among other things, the Company relinquished such number of shares such that the Company owns an aggregate number of EZ-CLONE shares less than 20% and in exchange EZ-CLONE assumed the obligations of the Company under the lease for the real property on which EZ-CLONE conducts its business. Both Parties agree that the terms of the Settlement Agreement are fair and equitable and that all such disputes, known or unknown, between them are forever discharged and extinguished. By agreement of the parties the Settlement Agreement is deemed performed and complete as of December 31, 2022. As a result of the Settlement agreement, the Company deconsolidated its investment in EZ-Clone, and recognized a gain on deconsolidation of $1.7 million. The gain on the deconsolidation was primarily the result of the derecognition of the $2.1 million owed in connection with the acquisition of EZ-CLONE. The Company now records its investment in EZ-CLONE using the cost method of accounting and has valued its minority interest at zero based on the projected operations in the foreseeable future and unlikely ability to liquidate the Company’s remaining investment interest.

Summarized Discontinue Operations Financial Information

The following table summarizes the major line items for the EZ-CLONE business that are included in the Consolidated Statements of Operations:

	For the Year Ended
	December 31, 2022			December 31, 2021
Net Revenue	$	1,638,540		$	6,199,089
Cost of goods sold		797,683			3,405,655
Gross Profit		840,857			2,793,434
Operating expenses		2,872,472			2,876,566
(Loss) from operations		(2,031,615	)		(83,132	)
Non-operating (income) expense		5,635			(137,927	)
Profit (loss) before income taxes		(2,037,250	)		54,795
Income taxes		(106,000	)		22,587
Net income (loss)	$	(1,931,250	)	$	32,208

The following table summarizes the major line items for the EZ-CLONE business that are included in the Consolidated Balance Sheet:

	Balance Sheet
	December 31, 2021
Current assets of discontinued operations:
Cash	$	357,588
Accounts Receivable, net		366,789
Inventory, net		1,299,560
Deposits and advances		179,995
		2,203,932
Non-current assets of discontinued operations
Fixed assets, net		249,906
Right of use asset		407,166
Intangible assets and goodwill		1,240,751
		1,897,823
Total Assets	$	4,101,755

Current liabilities of discontinued operations
Accounts payable	$	316,436
Accrued liabilities		802,930
Notes payable		298,151
Liability for acquisition of EZ-Clone		2,131,000
		3,548,517
Non-current liabilities of discontinued operations
Deferred income taxes		106,000
Right of use liability		229,222
		335,222
Total Liabilities	$	3,883,739
Net Assets	$	218,016

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NOTE 5- ACCOUNTS PAYABLE

Accounts payable were $850,619, and $829,909 as of December 31, 2022 and 2021, respectively. Such liabilities consisted of amounts due to vendors for audit, legal and other expenses incurred by the Company.

NOTE 6- ACCRUED EXPENSES

Accrued expenses were $202,765 and $171,465 as of December 31, 2022 and 2021, respectively. Such liabilities consisted of amounts due to sales tax, payroll and restructuring expense liabilities.

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NOTE 7 –NOTES PAYABLE

Notes Payable as of December 31. 2022 consisted of the following:

	Interest Rate		Principal		Accrued Interest		Discount			Balance
Government Assistance Notes
Paycheck Protection Program		1%		362,500		10,117					372,617
Paycheck Protection Program		1%		337,050		6,585					343,635
			$	699,550	$	16,702				$	716,252
Promissory Notes
Promissory notes		5%		127,500		4,847					132,347
Coventry Enterprises 11-9-22		10%		250,000		3,144		(140,795	)		112,349
AJB Capital 12-29-22		10%		1,870,000		-		(236,800	)		1,633,200
			$	2,247,500	$	7,991	$	(377,595	)	$	1,877,896

	Interest Rate		Principal		Accrued Interest		Discount			Balance
Convertible Promissory Notes
Silverback 2-12-21		10%	$	995,130	$	117,520	$	-		$	1,112,650
Dublin Holdings 2-6-21		8%		491,643		1,080		-			492,723
Dublin Holdings 8-25-21		8%		335,000		38,616		-			373,616
Dublin Holdings 11-5-21		8%		225,000		21,899		-			246,899
1800 Diagonal 10-17-22		8%		88,000		622		(36,338	)		52,284
1800 Diagonal 11-14-22		8%		60,500		1,458		(27,791	)		34,167
Quick Capital 11-2-22		12%		95,556		1,898		(86,277	)		11,177
			$	2,290,829	$	183,093	$	(150,406	)	$	2,323,516

Notes Payable as of December 31, 2021 consisted of the following:

	Interest Rate		Principal		Accrued Interest		Balance
Government Assistance Notes
Economic Injury Disaster Loan (GLI)		3.75%		149,900		15,652		165,552
Paycheck Protection Program		1%		362,500		6,350		368,850
Paycheck Protection Program		1%		337,050		3,118		340,168
			$	849,450	$	25,120	$	874,570
Amortizing Promissory Note
First Fire		12%		12,141		976		13,117
			$	12,141	$	976	$	13,117

Convertible Promissory Notes
Silverback 2-12-21	10%	$	995,130	$	212,169	$	1,207,299
Dublin Holdings 2-6-21	8%		780,791		10,303		791,094
Dublin Holdings 8-25-21	8%		335,000		9,511		344,511
Dublin Holdings 11-5-21	8%		225,000		2,666		227,666
		$	2,335,921	$	234,649	$	2,570,570

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Government Assistance Notes Payable

On April 17, 2020, the Company received $362,500 under the Paycheck Protection Program of the U.S. Small Business Administration’s (SBA) 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). The interest rate is one percent (1%). At December 31, 2022 and December 31, 2021, the Company recorded interest expense of $3,712 and $2,638, respectively. The loan was due April 2022. The Company is utilizing the funds in accordance with the legal requirements and expects this loan to be forgiven.

On June 19, 2020, the Company received two loans totaling $149,900 under the Economic Injury Disaster Loan Program of the U.S. Small Business Administration’s 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). Repayment terms on the loans are monthly principal and interest totaling approximately $1,392 over a 30-year term at 3.75%. In addition, the loan contains a 12-month payment deferral beginning on the loan date. There is no prepayment penalty on the EIDL loans. This loan plus accrued interest was forgiven on February 1, 2022.

On February 3, 2021, the Company received $337,050 under the Paycheck Protection Program of the U.S. Small Business Administration’s (SBA) 7(a) Loan Program pursuant to the Coronavirus, Aid, Relief and Economic Security Act (CARES Act), Pub. Law 116-136, 134 Stat. 281 (2020). The interest rate is one percent (1%). At December 31, 2022, the Company recorded interest expense of $3,113 at 1%. The loan is due February 2023. The Company is utilizing the funds in accordance with the legal requirements and expects this loan to be forgiven.

Promissory Notes

Promissory Notes

At December 31, 2022 the Company had outstanding unsecured borrowings from three individuals which total $127,500. The Notes carry an interest rate of five percent (5%) per annum.

Coventry Enterprises LLC

On November 9, 2022, the Company entered into the following agreements with Coventry Enterprises LLC: (i) Securities Purchase Agreement; and (ii) Promissory Note. The total amount of the Note is $250,000; the Note carries an aggregate original issue discount of $50,000. Additionally under the Securities Purchase Agreement the Company agreed to issue 200,000 shares of Common Stock and 1,800 shares of Preferred Stock which is convertible into 1,800,000 shares of Common Stock (the “Commitment Shares”) to the Investor as additional consideration for the Note. The Note carries an interest rate of ten percent (10%) per annum and matures on November 9, 2023. Upon default by the Company the interest rate increases to eighteen percent (18%). Upon default by the Company, the Note is convertible by Coventry into the Company’s common stock at ninety percent (90%) of the lowest trading price during the previous twenty trading days. The Note requires monthly payments of $39,286 commencing April 9, 2023 and ending November 9, 2023

AJB Capital Investments LLC

On May 17, 2022, the Company entered into the following agreements with AJB Capital Investments LLC: (i) Securities Purchase Agreement; and (ii) Promissory Note; (iii) Common Stock Purchase Warrant; and (iv) Security Agreement. The total amount of the Note is $750,000; the Note carries an aggregate original issue discount of $75,000 and transaction expenses of $56,000. The Note carries an interest rate of ten percent (10%) per annum and matures on November 17, 2022. Should the Note be extended at that time the interest rate increases to fifteen percent (15%). Upon default by the Company, the Note is convertible by AJB Capital into the Company’s common stock at the lesser of the lowest trading price during the previous twenty trading days either (i) ending on the date of conversion of the Note or (ii) the date of the Note. In connection with executing the Note the Company issued 50,000 shares of its common stock as an initial commitment fee. Should the Note be extended, the Company was obligated to issue an additional 33,333 shares as an extension commitment fee. The Warrant agreement allows for AJB to purchase 6,000,000 shares at $0.05 per share and has a five-year term. The Company recorded an original issue discount of approximately $519,250 related to the original issue discount, shares issued and warrants. This Note was refinanced with AJB on December 29, 2022.

On September 28, 2022, the Company entered into the following agreements with AJB Capital Investments LLC: (i) Securities Purchase Agreement; and (ii) Promissory Note; and (iii) Security Agreement. The total amount of the Note is $220,000; the Note carries an aggregate original issue discount of $20,000 and transaction expenses of $5,000. The Note carries an interest rate of ten percent (10%) per annum and was to mature on May 28, 2023. Should the Note be extended at that time the interest rate increases to fifteen percent (15%). Upon default by the Company, the Note is convertible by AJB Capital into the Company’s common stock at the lesser of the lowest trading price during the previous twenty trading days either (i) ending on the date of conversion of the Note or (ii) the date of the Note. In connection with executing the Note the Company issued 53,333 shares of its common stock as an initial commitment fee. Proceeds from the Note in the amount of $151,048 were used to pay off the outstanding balance due 1800 Diagonal. This Note was refinanced with AJB on December 29,2022.

On December 29, 2022, the Company entered into the following agreements with AJB Capital Investments LLC: (i) Securities Purchase Agreement; and (ii) Promissory Note; and (iii) Security Agreement. The total amount of the Note is $1,870,000; the Note carries an aggregate original issue discount of $168,300 and transaction expenses of $30,000. The Note carries an interest rate of ten percent (10%) per annum and matures on June 29, 2024. Should the Note be extended at that time the interest rate increases to fifteen percent (15%). Upon default by the Company, the Note is convertible by AJB Capital into the Company’s common stock at the lesser of the lowest trading price during the previous twenty trading days either (i) ending on the date of conversion of the Note or on (ii) the date of the Note. In connection with executing the Note the Company issued 700,000 shares of its common stock as an initial commitment fee. $970,000 of this Note was used to replace the Notes dated May 17 and September 28, 2022. $580,000 of this Note was used to repurchase the 50,000 and 53,333 commitment shares issued in obtaining the May 17 and September 28, 2022 Notes per those Securities Purchase Agreements. Such repurchased shares were cancelled. The Company expensed the $580,000 as additional interest expense in recording this Note as debt issuance costs related the May and September AJB Note Agreements. The Note requires monthly payments as follows: (i) $15,583 from February through June 2023, (ii) $115,759 from July 2023 through January 2024, and (iii) $230,750 from February through June 2024.

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Convertible Promissory Notes

Silverback Capital Corporation

During 2020 Silverback Capital Corporation (“Silverback”) purchased from Iliad $993,855 of Iliad’s outstanding note balance with the Company. During the year ended December 31, 2021, Silverback Capital Corporation converted principal and accrued interest of $746,632 into 9,510,000 shares of our common stock at an average per share conversion price of $0.0757. The Company recognized $447,324 loss on Silverback debt conversions during the year ended December 31, 2021.

During the three months ended March 31, 2021, Silverback purchased all of the remaining outstanding notes the Company had with Chicago Ventures, Iliad and Odyssey of $1,139,182. Silverback assumed the terms of the original notes. On March 16, 2021, the Company executed the following agreements with Silverback: (i) Securities Purchase Agreement; and (ii) Convertible Promissory Note for $165,000.

The 10% Notes are convertible at the holder’s option into the Company’s common stock at 65% of the lower of $1.35 or the current fair market value of the stock. During the year ended December 31, 2022, Silverback converted principle and interest of $524,938 into 3,277,000 shares of our common stock at an average per share conversion price of $0.16.

Bucktown Capital LLC/Dublin Holdings

On February 26, 2021, the Company executed the following agreements with Bucktown Capital LLC (“Bucktown”): (i) Securities Purchase Agreement; (ii) Secured Convertible Promissory Note; and (iii) Security Agreement (collectively the “Bucktown Agreements”).

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The total amount of funding under the Bucktown Agreements is $3,088,000 as represented in the Secured Convertible Promissory Note (“Note”). The total purchase price for this Note is $2,850,000; the Note carries an aggregate original issue discount of $228,000 and a transaction expense amount of $10,000. The Note is comprised of two (2) tranches (each, a “Tranche”), consisting of (i) an initial Tranche in an amount equal to $928,000 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Note and the Bucktown Agreements (the “Initial Tranche”), and (ii) an additional Tranche, which is exclusively dedicated for the purchase of the remaining equity interest in EZ-CLONE, in the amount of $2,160,000.00, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of the Note and the Bucktown Agreements (the “Subsequent Tranche”). The Initial Tranche shall correspond to $68,000 of the OID and the Transaction Expense Amount and may be converted into shares of Common Stock at any time after the Purchase Price Date. The Subsequent Tranche corresponds to the Investor Note and $160,000 of the aggregate OID. The Bucktown Agreement limits the shares to be held at any time not to exceed 9.9% of the Company’s outstanding shares.

The Company agreed to reserve three times the number of shares based on the redemption value with a minimum of 23,340,000 shares of its common stock for issuance upon conversion of the Note, if that occurs in the future. If not converted sooner, the Note is due on or before February 26, 2022. The Note has an interest rate of eight percent (8%). The Note is convertible, at Bucktown’s option, into the Company’s common stock at $0.30 per share (“Lender Conversion Price”), subject to adjustment as provided for in the Note. However, in the event the Market Capitalization (as defined in the Note) falls below the Minimum Market Capitalization the Lender Conversion Price shall equal the lower of the Lender Conversion Price and the Market Price as of any applicable date of Conversion.

On August 25, 2021, and on November 5, 2021, the Company entered into the following agreements with Bucktown: (i) Securities Purchase Agreements; (ii) Secured Convertible Promissory Notes; and (iii) Security Agreements. The total amount for these Notes is $560,000; the Note carries an aggregate original issue discount of $50,000 and a transaction expense amount of $10,000. The Notes have an interest rate of eight percent (8%). The Note is convertible, at Bucktown’s option, into the Company’s common stock at $0.10 per share (“Lender Conversion Price”), subject to adjustment as provided for in the Note. However, in the event the Market Capitalization (as defined in the Note) falls below the Minimum Market Capitalization the Lender Conversion Price shall equal the lower of the Lender Conversion Price and the Market Price as of any applicable date of Conversion.

On June 30, 2022 Dublin Holdings assumed the three notes from Bucktown. The were no changes to any of the debt agreements.

During the year ended December 31, 2022, Bucktown/Dublin converted principal of $347,500 into 1,609,466 shares of our common stock at a per share conversion price of $0.216.

The Company’s obligation to pay the Notes, or any portion thereof, are secured by all the Company’s assets.

1800 Diagonal Lending LLC

On October 17, 2022, and on November 11, 2022, the Company entered into the following agreements with 1800 Diagonal Lending LLC: (i) Securities Purchase Agreements; and (ii) Convertible Promissory Notes. The total amount for these Notes is $148,500; the Note carries an aggregate original issue discount of $13,500 and a transaction expense amount of $7,000. The Notes are due one year from the issuance date. The Notes have an interest rate of eight percent (8%). Upon default by the Company the interest rate increases to twenty-two percent (22%). After six months from the issue date, the Notes are convertible, at 1800 Diagonal’s option, into the Company’s common stock at seventy-five percent (75%) of the average of the lowest three days closing price over the prior fifteen trading days.

Quick Capital LLC

On November 2, 2022, the Company entered into the following agreements with Quick Capital LLC: (i) Note Purchase Agreement, (ii) Convertible Promissory Note, and (iii) Common Stock Purchase Warrant. The total amount for this Note is $95,555; the Note carries an aggregate original issue discount of $9,555. and a transaction expense amount of $11,000. Additionally under the Note Purchase Agreement the Company agreed to issue 100,000 shares of Common Stock (the “Commitment Shares”) to the Investor as additional consideration for the Note. The Note is due eight months from the issuance date. The Note has an interest rate of twelve percent (12%). Upon default by the Company the interest rate increases to twenty-four percent (24%). The Note is convertible, at Quick Capital’s option, into the Company’s common stock at the lower of $0.06 or seventy-five percent (75%) of the average of the lowest two days closing price over the prior fifteen trading days. Upon default by the Company the conversion price is adjusted to $0.03 per share. The Warrant agreement allows for Quick Capital to purchase 1,911,111 shares at $0.05 per share and has a five-year term.

NOTE 8 – DERIVATIVE LIABILITIES

The Convertible Notes payable include a conversion feature that pursuant ASC 815 “Derivatives and Hedging”, has been identified as an embedded derivative financial instrument and which the Company accounts for under the fair value method of accounting. In additions, certain warrants issued by the Company also meet the criteria that requires them to be accounted for as derivative liabilities.

Certain convertible notes payable convert at a discount to the market price of common stock. In addition, for many of these notes the exercise price of the embedded conversion feature are adjustable based upon issuances of other securities with lower purchase price. As a result, management has deemed that these embedded conversion features meet the requirements to be accounted as derivatives. The debt is convertible at range of 75% to 50% of the fair value of the Company’s common stock requiring the conversion feature to be bifurcated from the host debt contract and accounting for separately as a derivative, resulting in periodic revaluations. The notes underlying the derivatives are short term in nature and generally converted to stock in less than one year. The derivative is valued at period end with the key inputs being current stock price and the conversion feature.

There was a derivative liability of $2,336,892 and $1,698,272 as of December 31, 2022 and December 31, 2021, respectively. For the year ended December 31, 2022 and December 31, 2021, the Company recorded non-cash expense of $997,845 and $973,101, respectively, related to the “change in fair value of derivative” expense related to the convertible note financing.

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Derivative liabilities for the year ended was as follows:

	For the Year Ended
	December 31, 2022			December 31, 2021
Balance, Beginning of Year	$	1,698,272		$	1,101,436
Additions		687,020			1,402,519
Conversions		(1,046,245	)		(1,778,784	)
Change in fair value		1,347,845			973,101
Balance, End of Year	$	2,686,892		$	1,698,272

NOTE 9 – RELATED PARTY TRANSACTIONS AND CERTAIN RELATIONSHIPS

Transaction with Thom Kozik

Mr. Kozik was appointed as a director on October 5, 2017. On April 16, 2020, the Company issued 20,000 shares of the Company’s common stock to Mr. Kozik valued at $0.295 per share or $5,900. On December 31, 2021, and January 1, 2023 the Company issued 8,000 and 500,000 shares, respectively, of the Company’s common stock to Mr. Kozik valued at $3.00 and $0.05 per share or $24,000 and $25,000, respectively. These issues were an award for independent director services. Mr. Kozik resigned his position on the board effective December 31, 2022.

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NOTE 10 – EQUITY

Authorized Capital Stock

On October 9, 2019, the Company approved the reduction of authorized capital stock, whereby the total number of the Company’s authorized common stock decreased from 6,000,000,000 by a ratio of 1 for 50, to 120,000,000 shares. On November 20, 2019, the Company filed a Certificate of Amendment of Certificate of Incorporation with the Secretary of State of the State of Delaware. The reverse stock split of 1 for 150 was effective at the open of business on November 27, 2019 whereupon the shares of the Company’s common stock began trading on a split-adjusted basis. Our CUSIP number will change to 39985X203.

On October 7, 2022, FINRA (the Financial Industry Regulatory Authority) announced the Reverse Stock Split of 150-for-1 of the Company’s common stock.

Preferred Stock

The purpose of authorizing our board of directors to issue non-voting preferred stock and determine our rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of non-voting preferred stock, while providing flexibility in connection with possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire or could discourage a third party from seeking to acquire, a majority of our outstanding voting stock. Other than the Series B and C Preferred Stock discussed below, there are no shares of preferred stock presently outstanding, and we have no present plans to issue any shares of preferred stock.

As of December 31, 2022, the Company had issued and outstanding 1,800 shares of Series A preferred stock. Such shares were issued as a portion of a commitment fee to obtain financing and are convertible into 1,800,000 shares of common stock.

Capital Stock Issued and Outstanding

As of December 31, 2022, the Company had issued and outstanding securities of 7,083,255 shares of common stock.

Voting Common Stock

Holders of the Company’s common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. An election of directors by our stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote on the election. On all other matters, the affirmative vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote is required for approval, unless otherwise provided in our articles of incorporation, bylaws or applicable law. Holders of common stock are entitled to receive proportionately any dividends as may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock.

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.

The Company has compensated consultants and service providers with restricted common stock during the development of our business and when our capital resources were not adequate to provide payment in cash.

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During the year ended December 31, 2022, the Company had the following issuances of unregistered equity securities to accredited investors unless otherwise indicated:

Debt of $1,072,488 was converted into 5,560,082, shares of our common stock at an average per share conversion price of $0.21.

The Company issued 1,000,000 shares, net, of the Company’s common stock as commitment fees associated with various debt agreements at an average per share price of $0.058.

During the year ended December 31, 2021, the Company had the following issuances of unregistered equity securities to accredited investors unless otherwise indicated:

Debt of $2,927,596 was converted into 340,285 shares of our common stock at an average per share conversion price of $8.60.

Liability settlements of $2,442,500 was converted into 95,000 shares of our common stock at an average per share conversion price of $25.711.

The Company issued 5,425 shares of the Company’s common stock in a cashless exercise of warrants.

The Company issued 8,000 shares of the Company’s common stock to Thom Kozik, valued at $3.00 per share or $24,000. This issuance was an annual award for independent director services.

Warrants

The Company had the following warrant activity during the year ended December 31, 2022:

In April, 2022 in connection with promissory notes the Company issued common stock purchase warrants for the purchase of 6,444 shares of the Company’s common stock. The exercise price is $4.50 per share and is exercisable for a term of five years. The number of warrants and exercise price is after adjustment for the reverse split on October 7, 2022.

On May 18, 2022 the Company issued a common stock purchase warrant to AJB Capital for the purchase of 6,000,000 shares of the Company’s common stock. The exercise price is $0.05 per share and is exercisable for a term of five years. The warrant purchase agreement protected AJB Capital from the impact of any reverse split but afforded them the benefit of any stock split.

On November 2, 2022 the Company issued a common stock purchase warrant to Quick Capital for the purchase of 1,911,111 shares of the Company’s common stock. The exercise price is $0.05 per share and is exercisable for a term of five years.

As the exercise price of the warrants issued to AJB Capital and Quick Capital are adjustable based upon based upon the issuance of other securities with lower purchase prices, management has deemed these warrants should be accounted for as a derivative. See Note 8 for further information on derivative liabilities.

The Company had the following warrant activity during the year ended December 31, 2021:

On December 31, 2021, the Company entered into Amendment No. 3 to the Self-Amortization Promissory Note (“Amendment No. 3”) as originally issued by the Company to Labrys on August 31, 2020 (the “Note”), Pursuant to Amendment No. 3 the Company issued a common stock purchase warrant for the purchase of 1,033,057 shares of the Company’s common stock (the “Warrant”) to the Holder on December 31, 2021. The exercise price is $0.121 or $125,000. The three year warrant expires on December 31, 2023.

The Company issued 154 shares of common stock related to the exercise of warrants for $485, or $3.151 per share.

On April 5, 2021, the Company finalized a joint Warrant Settlement Agreement dated March 31, 2021 with St. George and Iliad to settle a dispute regarding prior financings. The Company agreed to issue St. George 11,750,000 shares of the Company’s common stock to cancel a warrant related to a February 9, 2018 subscription agreement. The Company agreed to issue Iliad 2,500,000 shares of the Company’s common stock to cancel a warrant related to a October 15, 2018 securities Purchase agreement. We recorded a loss on debt settlement of $2,423,000 for the year ended December 31, 2021 and accrued the liability as of December 31, 2021.

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NOTE 11– STOCK OPTIONS

Description of Stock Option Plan

On November 5, 2021, at our annual shareholder meeting the Second Amended and Restated 2017 Stock Incentive Plan was adopted to increase the shares issuable under the plan from 1,333,333 to 75,000,000 shares. All terms of the Plan shall remain the same with the exception of the amount of shares reserved for issuance under the Plan. We have 75,000,000 shares available for issuance under the Second Amended and Restated 2017 Stock Incentive Plan. The Company had no outstanding stock options as of December 31, 2022; and, had outstanding unexercised stock option grants totaling 506,667 shares at an average exercise price of $1.496 per share as of December 31, 2021, all of which were forfeited in 2021. The Company filed registration statements on Form S-8 to register 1,333,333 shares of our common stock related to the 2017 Stock Incentive Plan and First Amended and Restated 2017 Stock Incentive Plan.

Determining Fair Value under ASC 718

The Company records compensation expense associated with stock options and other equity-based compensation using the Black-Scholes-Merton option valuation model for estimating fair value of stock options granted under our plan. The Company amortizes the fair value of stock options on a ratable basis over the requisite service periods, which are generally the vesting periods. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company estimates the volatility of our common stock based on the historical volatility of its own common stock over the most recent period corresponding with the estimated expected life of the award. The Company bases the risk-free interest rate used in the Black Scholes-Merton option valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. The Company has not paid any cash dividends on our common stock and does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero in the Black-Scholes-Merton option valuation model and adjusts share-based compensation for changes to the estimate of expected equity award forfeitures based on actual forfeiture experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is changed.

Stock Option Activity

During the year ended December 31, 2021, the Company had the following stock option activity:

Stock option grants for 506,667 and 43,333 shares of common stock were forfeited in the year ended December 31, 2022 and December 31, 2021, respectively. No options to purchase common shares were exercised during either year.

As of December 31, 2022, and December 31, 2021, there are zero and 506,667, respectively, options to purchase common stock at an average exercise price of $219.00 per share outstanding under the 2017 Amended and Restated Stock Incentive Plan.

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NOTE 12 – COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Legal Proceedings

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of the Company’s business. Although we cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and may be adjusted from time to time according to developments.

As of September 30, 2019, the Company closed retail stores in Portland, Maine, Encino, California and Calgary, Canada. The Company has recorded restructuring reserves related to the store closures. The Company cannot determine the outcome of these proceedings.

On April 23, 2021, the Company was notified that it was in default on its notes held by Silverback Capital Corporation. The reason for the default was the Company’s inability to provide the reserve share requirement as specified in the notes. The penalty for the reserve share default was an increase in the outstanding note balances by 15%, an increase in the conversion discount by 5%, and a default interest rate on the outstanding note balances of 22%. The company recorded such amounts as debt extinguishment and as all amount were considered due on demand, such amount was expensed.

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As a result of the reserve share default, on May 7, 2021, Silverback demanded immediate payment in full of all their notes. On May 10, 2021, when Silverback had not been paid in full, Silverback presented another default notice for lack of payment. The penalty for the non-payment default was an increase in the outstanding note balances by another 15%, an additional increase in the conversion discount by 5%, and a default interest rate on the outstanding note balances of 22%. The company recorded such amount as debt extinguishment and as all amounts were considered due in demand, such amount was immediately expensed.

Employment Agreements

Employment Agreement with Dave Dohrmann

NOTE 13 – INCOME TAXES

The Company has incurred losses since inception, which have generated net operating loss carryforwards. The net operating loss carryforwards arise solely from United States sources.

The Company has net operating loss carryforwards of approximately $25.8 million of which $14.1 million related to years prior to 2018 which expire in 2022 through 2038. Because it is more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards, the deferred tax asset related to the net operating loss carryforwards has a corresponding 100% valuation allowance. Additionally, under the Tax Reform Act of 1986, the amounts of, and benefits from, net operating losses may be limited in certain circumstances, including a change in control.

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Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. There can be no assurance that the Company will be able to utilize any net operating loss carryforwards in the future. The Company is subject to possible tax examination for the years 2014 through 2021.

NOTE 14– SUBSEQUENT EVENTS

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

These were the material events after December 31, 2022:

Asset Purchase Agreement

On June 2, 2022, GrowLife, Inc., a Delaware corporation (“Company” or “Purchaser”) entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Bridgetown Mushrooms, LLC, an Oregon limited liability company (“Seller”) and Trevor Huebert (“Executive”), pursuant to which the Company would purchase and assume, certain assets, properties, rights and interests relating to the Seller’s business (“Assets”) which is the processing, marketing, storing, selling and distributing fresh and dried mushroom products (“Business”). On November 14, 2022, the parties executed the First Amendment to Asset Purchase Agreement (“First Amendment”), pursuant to which the parties amended the purchase price structure among other things. On January 6, 2023, the Company, Seller, and Executive consummated and closed the acquisition and acquired the Assets related to the Business (the “Closing Date”) for cash consideration and additional consideration. On January 11, 2023, the Company and Seller entered into certain post-closing amendments including a Second Amendment to Asset Purchase Agreement (“Second Amendment”), further revising the purchase price structure and assumption of cert Seller debt obligations, a Pledge and Security Agreement (“Pledge Agreement”), and an Amended and Restated Promissory Note (“Note”). The cash consideration, paid prior to the Closing Date, was in the aggregate amount of $157,000, the additional consideration consists of: (i) $43,000 in the form of cancellation and forgiveness of the indebtedness owed to Purchaser by Seller under a secured promissory note dated May 19, 2022 (the “Prior Loan”); (ii) $138,546 in the form of promissory note, which shall be payable in installments of (1) $38,546 on January 31, 2023, (2) $50,000 on February 28, 2023, and (3) $50,000 on March 31, 2023; (iii) $340,000 in the form of shares of restricted shares of the common stock, which calculated as of the Closing Date was equal to an aggregate of 5,923,345 (the “Stock Consideration”), to be issued and distributed pursuant to the terms and conditions of the Asset Purchase Agreement, and (iv) the assumption of $161,546 of debt which is secured by the assets of the Seller.

The assets acquired from Seller and Executive included tangible assets, intellectual property, registrations and approvals, inventory, data, records, and certain other assets. The Asset Purchase Agreement contains customary representations and warranties and covenants by each party. Both parties are obligated, subject to certain limitations, to indemnify the other under the Asset Purchase Agreement for certain customary and other specified matters, including breaches of representations and warranties, breaches of covenants and for certain liabilities and third-party claims.

Securities Purchase Agreement and Convertible Promissory Note

On January 11, 2023, Growlife, Inc. a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Investor”), pursuant to which the Company sold 1800 Diagonal a promissory note in the principal amount of $88,200 (the “Note”). The Note carries a one-time interest charge of twelve percent (12%) (the “Interest Rate”) which was applied on the issuance date to the principal (22% upon the occurrence of an event of default) and has a maturity date of January 11, 2024. The Note included an original issue discount of $9,450 and transaction expenses of $3,750 and was purchased for an aggregate of $75,000. The Note was funded by the Investor on January 13, 2023.

The Note requires that the Company make monthly payments for accrued interest and outstanding principal, which shall be paid in ten (10) payments each in the amount of $9,878.40 (a total payback to the Holder of $98,784.00). The first payment shall be due March 1, 2023, with nine (9) subsequent payments each month thereafter. The Company shall have a five (5) day grace period with respect to each payment. The Company has right to accelerate payments or prepay in full at any time with no prepayment penalty.

The Investor may in its option, at any time following an Event of Default, as defined in the Note, convert all or any part of the outstanding and unpaid amount of this Note into fully paid and non-assessable shares of Common Stock at a conversion price per share equal to 75% of the lowest daily volume weighted average price (“VWAP”) of our common stock during the 10 trading days prior to the date of conversion. Additionally, the Company agreed to reserve five times the number of shares of our common stock which may always be issuable upon conversion of the Note.

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Securities Purchase Agreement and Convertible Promissory Note

On February 1, 2023 (the “Issue Date”), Growlife, Inc. a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Fourth Man LLC, a Nevada limited liability company (the “Investor”), pursuant to which the Company sold Investor a convertible Promissory Note (the “Note”) in the principal aggregate amount of $125,000.00, which carries an original issue discount in the amount of $21,250.00, plus $10,762.50 in transaction fees accordingly the Company received proceeds of $92,987.50 of the purchase price. The Purchase Agreement and the Note require the Company to pay interest on the unpaid Principal Amount at the rate of ten percent (10%) (the “Interest Rate”) per annum (with the understanding that the first twelve months of interest (equal to $12,500.00) shall be guaranteed and earned in full as of the Issue Date). The Note is due and payable, in full, as of the maturity date, which is twelve (12) months from the Issue Date. The Note may not be prepaid or repaid in whole or in part and the Investor has the right, at any time on or following the Issue Date, to convert all or any portion of the outstanding and unpaid Principal Amount and interest into fully paid and non-assessable shares of the Company’s common stock. The per share conversion price into which Principal Amount and interest under the Note is $0.035 per share, subject to adjustment as provided in the Note. Additionally, the Note may not be converted into shares of our common stock if such conversion would result in the Investor, or its affiliates owning an aggregate of more than 4.99% of the then outstanding shares of our common stock.

Warrants

In addition to the Note, the Company issued the Investor Common Stock Purchase Warrants granting the Investor the right to purchase up to 625,000 shares of common stock of the Company at an exercise price of $0.08 per share for a period of Five (5) years. Additionally, the Investor has the right to exercise the Warrants on a cashless basis if the trade price of a share of common stock of the Company exceeds the exercise price. If the Company issues shares or any securities convertible into shares at an effective price per share lower than the exercise price of the Warrants, the exercise price of the Warrants shall be reduced to such lower price, subject to customary exceptions. The Investor may not exercise the Warrants if such exercise would result in the Investor, together with any affiliates, beneficially owning in excess of 4.9% of the Company’s outstanding common stock immediately after giving effect to such exercise.

Securities Purchase Agreement and Convertible Promissory Note

On March 21, 2023 (the “Issue Date”), Growlife, Inc. a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Fourth Man LLC, a Nevada limited liability company (the “Investor”), pursuant to which the Company sold Investor a Convertible Promissory Note (the “Note”) in the principal aggregate amount of $125,000.00, which carries an original issue discount in the amount of $21,250, and $10,762 of transactions costs accordingly the Company received $92,987 of the purchase price. Additionally under the Purchase Agreement the Company agreed to issue 3,125,000 shares of Common Stock (the “Commitment Shares”) to the Investor as additional consideration for the purchase of the Note, which shall be earned in full as of the Closing Date, March 23, 2023. The Purchase Agreement and Note require the Company to pay interest on the unpaid Principal Amount at the rate of ten percent (10%) (the “Interest Rate”) per annum (with the understanding that the first twelve months of interest (equal to $12,500.00) shall be guaranteed and earned in full as of the Issue Date). The Note is due and payable, in full, as of the maturity date, which is twelve (12) months from the Issue Date. Upon default, the Note provides the debt may be converted into shares of the Company. The Conversion Price is $0.01 per share, subject to adjustment as provided for in the Note. Conversions are subject to adjustment for any stock dividend, stock split, stock combination, rights offerings, reclassification, or similar transaction that proportionately decreases or increases the common stock.

Additionally and in connection with the issuance of the Note, the Company issued the Commitment Shares (as defined in the Purchase Agreement) to Investor as a commitment fee, provided, however, that 2,125,000 of the Commitment Shares (subject to equitable adjustments resulting any stock dividend, stock split, stock combination, rights offerings, reclassification, or similar transaction that proportionately decreases or increases the Common Stock) may be cancelled and extinguished if the Note is fully repaid and satisfied on or prior to June 21, 2023.

Securities Purchase Agreement and Convertible Promissory Note

On March 24, 2023, Growlife, Inc. a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with 1800 Diagonal Lending LLC, a Virginia limited liability company (the “Investor”), pursuant to which the Company sold 1800 Diagonal a promissory note in the principal amount of $54,725 (the “Note”). The Note carries an interest charge of eight percent (8%) (the “Interest Rate”) which was applied on the issuance date to the principal (22% upon the occurrence of an event of default) and has a maturity date of March 24, 2024. The Note included an original issue discount of $9,725 and transaction expenses of $4,250 and was purchased for an aggregate of $40,750. The Note was funded by the Investor on March 28, 2023.

The Investor may in its option, at any time following an Event of Default, as defined in the Note, convert all or any part of the outstanding and unpaid amount of this Note into fully paid and non-assessable shares of Common Stock at a conversion price per share equal to 75% of the average of the three lowest closing prices of our common stock during the 15 trading days prior to the date of conversion. Additionally, the Company agreed to reserve five times the number of shares of our common stock which may always be issuable upon conversion of the Note.

Securities Purchase Agreement and Convertible Promissory Note

On March 28, 2023, Growlife, Inc. a Delaware corporation (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with One44 Capital, LLC, a Nevada limited liability company (the “Investor”), pursuant to which the Company sold One44 Capital a promissory note in the principal amount of $150,000 (the “Note”). The Note carries an interest rate of ten percent (10%) (the “Interest Rate”) (24% upon the occurrence of an event of default) and has a maturity date of March 28, 2024. The Note included an original issue discount of $15,000 and transaction expenses of $6,750 and was purchased for an aggregate of $40,750. The Note was funded by the Investor on March 28, 2023.

The Investor may in its option, at any time following six months from the issuance date convert all or any part of the outstanding and unpaid amount of this Note into fully paid and non-assessable shares of Common Stock at a conversion price per share equal to 60% of the lowest closing prices of our common stock during the 20 trading days prior to the date of conversion. Additionally, the Company agreed to reserve 19,230,700 shares of our common stock which may always be issuable upon conversion of the Note.

Debt Conversions

On January 12, January 23, March 1, and April 24, 2023, Silverback Capital Corporation converted principal of $129,492 into 5,695,000 shares of the Company’s common stock at an average per share conversion price of $0.0227.

On March 24, 2023, Dublin Holdings converted principal of $55,000 into 1,948,627 shares of the Company’s common stock at a per share conversion price of $0.0282.

On January 1, 2023, the Company converted $116,890 of principal and accrued interest of Notes into 2,922,257 shares of the Company’s common stock at a per share conversion price of $0.04.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, GrowLife, Inc. (the "Registrant") has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	GROWLIFE, INC.

Date: June 13, 2023	By:	/s/ David Dohrmann
		David Dohrmann
		Chief Executive Officer and Director (Principal Executive Officer)

	By:	/s/ David Dohrmann
		David Dohrmann
		(Interim Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

SIGNATURES	TITLE	DATE

/s/ David Dohrmann	Chief Executive Officer and Director	June 13, 2023
David Dohrmann	(Principal Executive Officer)

/s/ David Dohrmann	Interim Principal Financial/Accounting Officer	June 13, 2023
David Dohrmann

GROWLIFE, INC. 10-K