NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1.
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DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
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Description of Business
AmeriCann, Inc. ("the Company", “we”, “our”, or "the Issuer") was organized under the laws of the State of Delaware on June 25, 2010.
On January 17, 2014, a privately held limited liability company acquired approximately 93% of the Company's outstanding shares of common stock from several of the Company's shareholders which resulted in a change in control of the Company.
The Company's business plan is to design, develop, lease and operate state-of-the-art cultivation, processing and manufacturing facilities for licensed cannabis businesses throughout the United States.
The Company's activities are subject to significant risks and uncertainties including failure to secure funding to expand its operations.
Certain prior period amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on net loss.
All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Summary of Significant Accounting Policies
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s consolidated financial statements. The consolidated financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States and have been consistently applied in the preparation of the consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of AmeriCann, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management are valuation of equity instruments, deferred tax asset valuation and allowance and collectability of long-lived assets. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at the date of purchase.
Income Taxes
In accordance with ASC Topic 740, Income Taxes, the provision for income taxes is computed using the asset and liability method. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the consolidated balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the consolidated financial statements. The resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.
We expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the consolidated financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of September 30, 2020 and 2019, we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. We currently have no federal or state tax examinations nor have we had any federal or state examinations since our inception. To date, we have not incurred any interest or tax penalties.
For federal tax purposes, our 2017 through 2019 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations.
Concentration of Credit Risks and Significant Customers
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, notes receivable, deposits tenant receviables and notes receivable. We place our cash with high credit quality financial institutions. As of September 30, 2020, we had outstanding notes receivable of $119,512 and tenant receivables of $124,617 with BASK, Inc. ("BASK"), a related party. As of September 30, 2019, we had outstanding notes receivables of $148,763 with BASK and a note and a receivable in the amount of $1,761,675 with WGP (exclusive of provision for doubtful accounts of $1,761,675). Balance due from Wellness Group Pharms ("WGP") was collected in full in February 2020.
For the year ended September 30, 2020, all of the Company’s revenue was earned from one customer, BASK. As of September 30, 2020, the BASK tenant receivable balance was $124,617.
Financial Instruments and Fair Value of Financial Instruments
We adopted ASC Topic 820, Fair Value Measurement, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 establishes a common definition for fair value to be applied to existing US GAAP that requires the use of fair value measurements that establishes a framework for measuring fair value and expands disclosure of fair value measurements.
ASC Topic 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
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Level 1:
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Observable inputs such as quoted market prices in active markets for identical assets or liabilities
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Level 2:
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Observable market-based inputs or unobservable inputs that are corroborated by market data
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Level 3:
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Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
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The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. We had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. We had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. The carrying value of short-term financial instruments, including cash and cash equivalents, tenant and notes receivable, accounts payable and accrued expenses, and short-term borrowings approximate fair value due to the relatively short period to maturity for these instruments. The long-term borrowings approximate fair value since the related rates of interest approximates current market rates.
Derivative Liabilities
We evaluate stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each consolidated balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. We determined that none of our financial instruments meet the criteria for derivative accounting as of September 30, 2020 and 2019.
Operating leases
Effective October 1, 2019, we adopted Topic 842 using the effective date method. Under this method, periods prior to adoption remain unchanged. We determine if an arrangement is a lease at inception.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).
Long-Lived Assets
Our long-lived assets consisted of property, plant and equipment and are reviewed for impairment in accordance with the guidance of the Topic ASC Topic 360, Property, Plant, and Equipment. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairment losses recognized for the years ended September 30, 2020 and 2019.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment begins in the month following the month when the asset is placed into service and is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to twenty years. Property, plant and equipment consist of:
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September 30,
2020
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September 30,
2019
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Buildings and improvements
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$
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7,608,087
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$
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7,221,600
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Computer equipment
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349,576
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349,576
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Furniture and equipment
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2,764
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2,764
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Total
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7,960,427
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7,573,940
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Accumulated depreciation
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(448,006
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)
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(1,152
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)
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Property, plant and equipment, net
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$
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7,512,421
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$
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7,572,788
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Depreciation expense for the years ended September 30, 2020 and 2019 amounted to $446,854 and $1,152, respectively.
Equity Instruments Issued to Non-Employees for Acquiring Goods or Services
Effective October 1, 2019, the Compnay adopted ASU 2018-07, Compensation – “Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting”, which addresses aspects of the accounting for nonemployee share-based payment transactions. Upon adoption, all of the issuances of stock to non-employees for goods and services are treated in the same matter as share based awards to employees. The adoption did not have an impact on the Company’s financial statements.
Non-Cash Equity Transactions
Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received, whichever is more readily determinable.
Stock-Based Compensation
The Company accounts for share-based awards to employees in accordance with ASC Topic 718, Stock Compensation Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Effective October 1, 2019, the Company adopted ASU 2018-07, Compensation – “Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting”, which addresses aspects of the accounting for nonemployee share-based payment transactions.
Related Parties
A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests, is also a related party.
Revenue Recognition
Effective October 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) when the performance obligations are satisfied. Currently, we derive all of our revenues from property leases. Property leases are not within the scope of ASC 606.
Property lease revenue is earned through annual leases for facilities used in agricultural/manufacturing activities and the Company records revenues on a straight-line basis over the term of these leases. Property lease revenues from these sources are recurring on an annual basis. Unearned property lease revenues were $0 at both September 30, 2020 and 2019. The Company also receives a revenue participation fee which is considered a variable payment and thus is recorded in the period earned in accordance with ASC 842.
Advertising Expense
Advertising, promotional and selling expenses consist of sales and marketing expenses, and promotional activity expenses. Expenses are recognized when incurred.
General and Administrative Expense
General and administrative expenses consist of professional service fees, rent and utility expenses, meals, travel and entertainment expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.
Loss per Share
We compute net loss per share in accordance with the ASC Topic 260. The ASC specifies the computation, presentation and disclosure requirements for loss per share for entities with publicly held common stock.
Basic loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Shares issuable upon the exercise of equity instruments such as warrants and options were not included in the loss per share calculations for 2020 and 2019 because the inclusion would have been anti-dilutive.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which provides guidance requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statement of income. The Company adopted Topic 842 effective October 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company’s contracts are or contain leases, (2) lease classification and (3) initial direct costs. In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements - Leases (Topic 842)." The Company did not elect the hindsight practical expedient. This update provides an optional transition method that allows entities to elect to apply the standard using the modified retrospective approach at its effective date, versus recasting the prior years presented. If this adoption method is elected, an entity would recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company elected this adoption method on October 1, 2019 and the adoption did not result in any cumulative impact to retained earnings.
Additionally, the Company’s adoption of Topic 842 did not have a significant impact on the recognition, measurement or presentation of lease revenue and lease expenses within the consolidated statements of operations or the consolidated statements of cash flows. The Company’s adoption of Topic 842 did not have a material impact on the timing or amount of the Company’s lease revenue as a lessor in its sublease agreement. The Company’s prepaid land lease balance that was recorded in current and other assets in the Company’s September 30, 2019 balance sheet has been classified as a component of the Company’s right-of-use assets effective October 1, 2019. The consolidated financial statements for the year ended September 30, 2020 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with the Company’s historical accounting policy. See Note 10, Commitments and Contingencies, for more information.
Recently Issued Accounting Pronouncements
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 objective of this update is to simplify the accounting for convertible preferred stock by removing the existing guidance in ASC 470-20, “Debt: Debt with Conversion and Other Options,”, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives. In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract. This amendment also further revises the guidance in ASU 260, “Earnings per Share,” to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the timing of adoption and impact of the updated guidance on its financial statements.
In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” This guidance removes certain exceptions to the general principles in Topic 740 and provides consistent application of U.S. GAAP by clarifying and amending existing guidance. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the timing of adoption and impact of the updated guidance on its financial statements.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had a working capital deficit of $232,158 as of September 30, 2020, an accumulated deficit of $18,722,552 and $18,013,209 at September 30, 2020 and 2019, respectively, and had a net loss of $709,343 for the year ended September 30, 2020. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. While the Company is attempting to increase operations and generate additional revenues, the Company's cash position may not be significant enough to support the Company's daily operations. Management intends to raise additional funds through the sale of its securities.
Management believes that the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3.
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CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts in the consolidated statements of cash flows:
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September 30,
2020
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September 30,
2019
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|
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Cash and cash equivalents
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$
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183,009
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$
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455,843
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Restricted cash
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10,150
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836,219
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Total cash, cash equivalents, and restricted cash shown in the cash flow statement
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$
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193,159
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$
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1,292,062
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Amounts included in restricted cash represent those required to be set aside by the Cannabis Control Commission in Massachusetts as well as by a contractual agreement with a lender for the payment of specific construction related expenditures as part of the Company’s property development in Massachusetts.
Notes and other receivables as of September 30, 2020 and 2019, consisted of the following:
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September 30,
2020
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September 30,
2019
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Notes and other receivables from WGP, a licensed medical marijuana cultivator; $673,294 note secured by real and personal property of the borrower, interest rate of 18.0%; accrued consulting and legal fees of $206,675, construction advances of $332,357 and accrued interest of $549,349 at September 30, 2019. Net of reserves of $1,761,675 as of September 30, 2019. Balance was collected in full in February 2020.
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|
$
|
-
|
|
|
$
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-
|
|
|
|
|
|
|
|
|
|
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Related party note receivable from BASK, a non-profit corporation, interest rate of 18.0%; monthly principal and interest payments of $4,422, maturing in 2023.
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119,512
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|
|
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148,763
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|
|
|
|
|
|
|
|
|
|
|
|
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119,512
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|
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148,763
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Less: Current portion
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|
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(37,165
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)
|
|
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(32,270
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)
|
|
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$
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82,347
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|
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$
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116,493
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The notes and other receivables from WGP were fully reserved due to ongoing disputes between the Company and WGP. The Company filed a Demand for Arbitration against WGP on April 7, 2017. On January 18, 2018, the arbitration panel awarded the Company $1,045,000 plus interest at the rate of 18% per year from April 18, 2015 to March 18, 2018 for $550,000. In addition to the principal and interest awarded of $1,595,000, the Company was also awarded its attorneys’ fees and arbitration fees. The Company reversed the previously recorded reserve on the receivable with WGP in the amount of $1,761,675 since on February 5, 2020 the Company received cash of $2,069,138 from WGP as payment in full for the fully reserved notes and other receivables which include principal, interest, attorneys’ fees and arbitration fees.
Unrelated
On August 25, 2020, the Company borrowed $153,000 from an unrelated party. The loan is unsecured, bears interest at a rate of 10% and is due and payable on August 25, 2021. The loan may not be prepaid. After October 29, 2019, the Company may not repay the loan without the consent of the lender. At any time after February 21, 2021, the full value of any unpaid principal is convertible into the Company’s common stock at a variable conversion price. The conversion price is equal to: (a) if the market price is greater than or equal to $1.10, the greater of (1) the variable conversion price (defined as market price multiplied by 65 percent) and (2) $0.72, and (b) if the market price is less than $1.10, the lesser of (1) the variable conversion price and (2) $0.72. The Company incurred debt issuance costs of $3,000 which was recorded as a debt discount. Amortization expense related to the debt discount was $250 during the year ended September 30, 2020.
On August 2, 2019 the Company secured a $4,000,000 investment from an unrelated third party in the form of a loan. The loan was evidenced by a note which bears interest at the rate of 11% per year, is due and payable on August 2, 2022 and is secured by a first lien on Building 1 at the MCC.
The note holder also received a warrant which allows the holder to purchase 600,000 shares of the Company’s common stock at a price of $1.50 per share. The warrant will expire on the earlier of (i) August 2, 2024 or (ii) twenty days after written notice of the holder that the daily Volume Weighted Average Price of the Company’s common stock was at least $4.00 for twenty consecutive trading days and the average daily volume of trades of the Company’s common stock during the twenty trading days was at least 150,000 shares.
The broker for the loan received a cash commission of $320,000 plus warrants to purchase 48,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on August 2, 2024. The cash commission and the fair value of the warrants amounting to $52,392 were recognized as a discount to the note.
The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 600,000 warrants was $562,762 which was recognized as additional paid in capital and a corresponding debt discount.
At September 30, 2020, the outstanding principal on this note was $4,000,000 and the unamortized debt discount was $571,483. All debt discounts are being amortized on a straight-line basis over the terms of the note. Amortization expense related to the debt discounts was $311,370 for the year ended September 30, 2020.
December 2017 Convertible Note Offering
On December 29, 2017 the Company sold convertible notes in the principal amount of $800,000 to a group of accredited investors. The notes bear interest at 8% per year, are unsecured, and were due and payable on December 31, 2018. On December 31, 2018, the maturity date of the notes were extended to December 31, 2019. The notes were fully paid off in January 2020.
The original notes included a provision to be converted at any time into shares of the Company's common stock at an initial conversion price of $1.50 per share.
The note holders also received warrants which entitle the note holders to purchase up to 533,333 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on October 17, 2022.
The placement agent for the offering received a cash commission of $64,000, plus warrants to purchase 106,667 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on December 29, 2022.
The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 640,000 warrants was $607,024 which was recognized as additional paid in capital and a corresponding debt discount. After such allocation, the effective conversion price on the issuance date was less than the fair value of the stock into which the notes were convertible, giving rise to a beneficial conversion feature of $128,976 which was recognized as additional paid in capital and a corresponding debt discount.
The $64,000 paid to the placement agent was allocated on a pro-rata basis to the warrants and the debt which was recorded as an offset to additional paid in capital and an increase in debt discount of $48,562 and $15,438, respectively.
During February 2019, a loan in the principal amount of $30,000 was converted into 20,000 shares of common stock.
During May 2018, a loan in the principal amount of $575,000 was converted into 383,333 shares of common stock. In addition, interest payable in the amount of $15,233 was converted into 10,155 shares.
At September 30, 2020 and September 30, 2019, the outstanding principal on these notes was $0 and $195,000, respectively. All debt discounts are being recognized on a straight-line basis over the terms of the notes. Amortization expense related to the debt discounts were $0 and $51,749 for the years ended September 30, 2020 and 2019, respectively.
February 2018 Convertible Note Offering
On February 12, 2018 the Company sold convertible notes in the principal amount of $810,000 to a group of accredited investors. The notes bear interest at 8% per year, are unsecured, and are due and payable on December 31, 2018. On December 31, 2018, the notes were extended to mature on December 31, 2019. At the option of the note holders, the notes may be converted at any time into shares of the Company's common stock at an initial conversion price of $1.50 per share.
The note holders also received warrants which entitle the note holders to purchase up to 540,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.50 per share and expire on October 17, 2022.
The Company allocated the proceeds between the note and the warrants based on their relative fair values. The relative fair value of the 540,000 warrants was $523,013 which was recognized as additional paid in capital and a corresponding debt discount. After such allocation, the effective conversion price on the issuance date was less than the fair value of the stock into which the note is convertible, giving rise to a beneficial conversion feature of $286,987 which is recognized as additional paid in capital and a corresponding debt discount.
During January 2019, a loan in the amount of $35,000 was repaid in cash.
In October 2018, a loan in the principal amount of $45,000 was converted into 30,000 shares of common stock. In addition, interest payable in the amount of $1,992 was converted into 1,328 shares.
During July 2018, loans in the principal amount of $375,000 were converted into 250,000 shares of common stock. In addition, interest payable in the amount of $14,704 was converted into 9,802 shares.
In May 2019, loans in the principal amount of $150,000 were converted into 100,000 shares of common stock. In addition, interest payable in the amount of $19,521 was converted into 13,014 shares.
In April 2019, loans in the amount of $15,000 were converted to 10,000 shares of common stock.
A loan in the amount of $40,000 was repaid in January 2020. On December 31, 2019, the remaining outstanding note in the amount of $150,000 was extended to mature on December 31, 2020.
At September 30, 2020 and September 30, 2019, the outstanding principal on these notes was $150,000 and $190,000, respectively. All debt discounts are being recognized on a straight-line basis over the terms of the notes. Amortization expense related to the debt discounts were $0 and $87,001 for the years ended September 30, 2020 and 2019, respectively.
Related Party
SCP. On February 1, 2016, we entered into an agreement with an unrelated party which provided us with borrowing capacity of $200,000. On May 1, 2016, the agreement was amended to increase the borrowing capacity to $1,000,000. On July 14, 2016, Strategic Capital Partners (“SCP”) assumed the $521,297 loan borrowed against this credit line, increasing the total balance owed to SCP to $2,431,646. SCP is controlled by Benjamin J. Barton, one of our officers and directors and a principal shareholder. The amounts borrowed from SCP were used to fund our operations.
On July 14, 2016, we entered into a debt modification agreement whereby a portion of the debt was converted into common stock and the remaining debt was renegotiated into two promissory notes.
Of the amounts owed to SCP, $500,000 was converted into 400,000 shares of our common stock ($1.25 conversion rate).
The remaining $1,756,646 owed to SCP was divided into two promissory notes.
The first note, in the principal amount of $1,000,000, bears interest at 9.5% per year and matures on December 31, 2019. Interest is payable quarterly. The note can be converted at any time, at the option of the lender, into shares of our common stock, initially at a conversion price of $1.25 per share.
The second note, in the principal amount of $756,646, bears interest at 8% per year and matures on December 31, 2019. Interest is payable quarterly. The note is not convertible into shares of our common stock but is secured by a first lien on all amounts due to us by WGP. Any payments received from the sale, lease or commercialization of the property in Denver, and any amounts received from WGP, will be applied to the principal amount of the note. Otherwise, all unpaid principal and interest will be due on December 31, 2019.
In connection with the debt modification agreement, we issued SCP warrants to purchase 800,000 shares of our common stock, exercisable at a price of $1.50 per share, and warrants to purchase an additional 800,000 shares of common stock, exercisable at a price of $3.00 per share. Both sets of warrants expired on June 30, 2020. We allocated the relative fair values to the warrants, stock options, and convertible debt, as determined by the Black Scholes option pricing model. Based on the Black Scholes option pricing model, a net debt premium of $72,651 was allocated to the warrants which are reflected in additional paid-in-capital. The debt premium is being amortized on a straight-line basis over the term of the notes.
On September 30, 2019, both notes were amended and combined into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022. Additionally, the conversion option in the first note was eliminated. The new note is secured by all amounts due from WGP or its affiliates. The note holders also received warrants to purchase 1,500,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.25 per share and expire on December 31, 2022. The debt modification was deemed substantial and was accounted for as a debt extinguishment. The fair value of the 1,500,000 warrants was $977,110 and was recognized as loss on extinguishment of debt and the remaining unamortized premium and discount was written off during the year ended September 30, 2019.
The Company made principal payments on the note of $1,175,000 during the year ended September 30, 2020. Accrued interest on the note was $26,246 and $12,283 at September 30, 2020 and September 30, 2019, respectively.
At September 30, 2020, the outstanding principal on this note was $581,646, and the unamortized debt premium was $0. Amortization of debt premium was $0 and $25,673 for the years ended September 30, 2020 and 2019, respectively.
During the year ended September 30, 2020, the Company also incurred $180,000 of consulting expenses with SCP of which $65,000 remains outstanding at September 30, 2020.
NOTE 6.
|
RELATED PARTY TRANSACTIONS
|
BASK. On April 7, 2016, we signed agreements with BASK. BASK is one of a limited number of organizations that has received a provisional or final registration to cultivate, process and sell medical and adult use cannabis by the Massachusetts Cannabis Control Commission.
Pursuant to the agreements, we agreed to provide BASK with financing for construction and working capital required for BASK’s approved dispensary and cultivation center in Fairhaven, MA.
On August 15, 2018, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 and setup a new loan with payments over 5 years with 18% interest. At September 30, 2020 and 2019, the outstanding balance on the note receivable was $119,512 and $148,763, respectively.
On July 26, 2019, the Company entered into a 15-Year Triple Net lease of Building 1 of the MCC with BASK. The lease commenced on September 1, 2019 and includes an annual base rent of $135,000 and a revenue participation fee equivalent to 15% of BASK's gross revenues. As of September 30, 2020, the BASK tenant receivable balance was $124,617.
Tim Keogh, our Chief Executive Officer, is a Board Member of BASK.
NOTE 7.
|
EARNINGS PER SHARE
|
The following table sets forth the computation of basic and diluted net loss per share:
|
|
Year Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(709,343
|
)
|
|
$
|
(4,903,668
|
)
|
|
|
|
|
|
|
|
|
|
Basic weighted average outstanding shares of common stock
|
|
|
23,504,820
|
|
|
|
22,984,703
|
|
Dilutive effects of common share equivalents
|
|
|
-
|
|
|
|
-
|
|
Dilutive weighted average outstanding shares of common stock
|
|
|
23,504,820
|
|
|
|
22,984,703
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share of common stock
|
|
$
|
(0.03
|
)
|
|
$
|
(0.21
|
)
|
As of September 30, 2020, we have excluded 1,850,000 of stock options and 9,638,650 of warrants and 100,000 shares that would be issued from conversion of outstanding convertible notes from the computation of diluted net loss per share since the effects are anti-dilutive. As of September 30, 2019, we have excluded 750,000 of stock options 11,238,650 of warrants and 256,667 shares that would be issued from the conversion of outstanding convertible notes from the computation of diluted net loss per share since the effects are anti-dilutive.
Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur. The Company accounts for income taxes pursuant to ASC Topic 740. The Company has made an early adoption of ASU 2015-17 Balance Sheet Classification of Deferred Taxes.
Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses and other items. Loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur.
The components of the deferred income tax assets and liabilities arising under ASC Topic 740 were as follows:
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
2,838,966
|
|
|
$
|
2,438,893
|
|
Deferred tax liabilities
|
|
|
-
|
|
|
|
-
|
|
Valuation allowance
|
|
|
(2,838,966
|
)
|
|
|
(2,438,893
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
The types of temporary differences between the tax basis of assets and their financial reporting amounts that give rise to a significant portion of the deferred assets and liabilities are as follows:
|
|
Year Ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
Temporary Difference
|
|
|
Tax Effect
|
|
|
Temporary Difference
|
|
|
Tax Effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss
|
|
$
|
709,343
|
|
|
$
|
174,144
|
|
|
$
|
4,903,668
|
|
|
$
|
1,209,245
|
|
Tax impact true up
|
|
|
-
|
|
|
|
20,927
|
|
|
|
-
|
|
|
|
-
|
|
Other temporary differences
|
|
|
835,040
|
|
|
|
205,002
|
|
|
|
(1,756,726
|
)
|
|
|
(433,209
|
)
|
Net deferred tax assets
|
|
|
1,544,383
|
|
|
|
400,073
|
|
|
|
3,146,942
|
|
|
|
776,036
|
|
Valuation allowance
|
|
|
(1,544,383
|
)
|
|
|
(400,073
|
)
|
|
|
(3,146,942
|
)
|
|
|
(776,036
|
)
|
Total deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred liability
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should a significant change in ownership occur.
At September 30, 2020 and September 30, 2019, the Company had approximately and $11,564,017 and 10,019,634 respectively, in unused federal net operating loss carryforwards, which will begin to expire principally in the year 2034. A deferred tax asset at each date of approximately $379,146 and $776,036 resulting from the loss carryforwards and other temporary differences has been offset by a 100% valuation allowance. The change in the valuation allowance for the period ended September 30, 2020 and September 30, 2019 was approximately $ (400,073) and $(776,036).
A reconciliation of the U.S. statutory federal income tax rate to the effective tax rate is as follows:
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
U.S. Federal statutory graduated rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State income tax rate, net of federal benefit
|
|
|
3.55
|
%
|
|
|
3.66
|
%
|
Total rate
|
|
|
24.55
|
%
|
|
|
24.66
|
%
|
|
|
|
|
|
|
|
|
|
Less: Net operating loss for which no benefit is currently available
|
|
|
(24.55
|
)%
|
|
|
(24.66
|
)%
|
Net effective rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Company’s income tax filings are subject to audit by various taxing authorities. The Company’s open audit periods are September 30, 2017, 2018, and 2019. In evaluating the Company’s provisions and accruals, future taxable income, and reversal of temporary differences, interpretations and tax planning strategies are considered. The Company believes its estimates are appropriate based on current facts and circumstances.
Preferred Stock
The Company has authorized 20,000,000 shares of $.0001 par value preferred stock. No preferred shares were outstanding at September 30, 2020 and 2019.
Common Stock
On December 12, 2017, the Company entered into an amended and restated equity line agreement with Mountain States Capital, LLC (MSC). Under the equity line agreement, MSC agreed to provide the Company with up to $10,000,000 of funding through the purchase of shares of the Company's common stock.
During the term of the Agreement, the Company, at its sole discretion, may deliver a Put Notice to MSC, which will specify the dollar amount which the Company wants to draw down under the Equity Line. The amount the Company can draw down at any one time is the lesser of twice the average of the 10-day average daily trading volume (computed by multiplying the volume weighted average price for each day by the number of shares traded for that day), or $500,000.
A closing will occur on the date which is no earlier than five trading days following and no later than seven trading days following the applicable Put Notice. On each Closing Date, the Company will sell, and MSC will purchase, the shares of the Company's common stock specified in the Put Notice.
The amount to be paid by MSC on a particular Closing Date will be determined by dividing the dollar amount specified in the Put Notice by the Purchase Price. The Purchase Price is 90% of the lowest daily volume weighted average price of the Company's common stock during the Pricing Period. The Pricing Period, with respect to a particular Put Notice, is five consecutive trading days including, and immediately following, the delivery of a Put Notice. However, no Put Notice may be delivered on a day that is not a Trading Day.
The equity line agreement expired on August 14, 2019.
During the year ended September 30, 2019, the Company submitted Put Notices for a total of 715,981 shares for $1,211,000 in cash.
During the year ended September 30, 2019, the Company converted debt and interest of $261,513 into 174,342 shares of common stock.
During the year ended September 30, 2019, we issued 119,734 shares of stock for services valued $154,998.
During the year ended September 30, 2020, we issued 191,490 shares of stock for services valued $90,000.
During the year ended September 30, 2019, the Company issued 388,000 shares of common stock for total proceeds of $475,500 from the exercise of warrants.
Stock Options
On August 18, 2017, our board of directors adopted a stock incentive plan (“the plan”) that provides for the grant of Incentive Stock Options, Non-Qualified Stock Options or Stock Bonuses to persons who are employees of the Company, employees of subsidiaries of the Company, directors, officers, and consultants. Under the plan, the Company may grant up to 1,500,000 options, each to purchase one share of common stock, subject to an exercise price and vesting schedule to be established by the board of directors at the time of the grant.
The fair value of the options granted during the years ended September 30, 2020 and 2019 were established using the Black Scholes option pricing model using the following assumptions:
|
●
|
Risk-free interest rate – 0.28% to 1.55%
|
|
●
|
Expected term – 4.8 to 5.0 years
|
|
●
|
Volatility – 118% to 142%
|
Options Issuances in 2020
On September 30, 2020, the Company awarded a total of 500,000 options to two executives at an exercise price of $1.50 per share. The options vested immediately and can be exercised at any time on or before September 30, 2025.
On September 30, 2020, the Company also awarded a total of 500,000 options to two executives at an exercise price of $3.00 per share. The options vested immediately and can be exercised at any time on or before September 30, 2025.
As these options were fully vested at grant date, the full value of $301,770 was recognized immediately as stock based compensation expense and no further expense will be recognized associated with these awards.
Options Issuances in 2019
On September 30, 2019, the Company awarded a total of 600,000 options to two executives at an exercise price of $1.50 per share. The options vested immediately and can be exercised at any time on or before August 2, 2024.
As these options were fully vested at grant date, the full value of $488,793 was recognized immediately as stock based compensation expense and no further expense will be recognized associated with these awards.
On August 27, 2019, the Company awarded a total of 300,000 options to an executive at an exercise price of $1.50 per share. The options vest over a period of 2.5 years and can be exercised any time on or before August, 27, 2024.
The following table shows the stock option activity for the years ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2018
|
|
|
150,000
|
|
|
$
|
2.21
|
|
|
|
2.9
|
|
|
$
|
-
|
|
Granted
|
|
|
900,000
|
|
|
|
1.50
|
|
|
|
4.8
|
|
|
|
-
|
|
Outstanding as of September 30, 2019
|
|
|
1,050,000
|
|
|
$
|
1.64
|
|
|
|
4.4
|
|
|
$
|
-
|
|
Granted
|
|
|
1,000,000
|
|
|
$
|
2.25
|
|
|
|
5.0
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(200,000
|
)
|
|
$
|
1.50
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2020
|
|
|
1,850,000
|
|
|
$
|
1.99
|
|
|
|
4.2
|
|
|
$
|
-
|
|
Vested and expected to vest at September 30, 2020
|
|
|
1,850,000
|
|
|
$
|
1.99
|
|
|
|
4.2
|
|
|
$
|
-
|
|
Exercisable at September 30, 2020
|
|
|
1,850,000
|
|
|
$
|
1.99
|
|
|
|
4.2
|
|
|
|
|
|
Stock based compensation expense related to the options was $471,971 and $578,790 for the years ended September 30, 2020 and 2019, respectively. At September 30, 2020, unrecognized stock-based compensation associated with stock options amounted to $0. During the years ended September 30, 2020 and 2019, we received proceeds of $0 from stock option exercises.
Warrants
Warrant Issuances in 2020
The Company did not issue any warrants during the year ended September 30, 2020.
Warrant Issuances in 2019
As disclosed in Notes 5 and 10, the Company issued warrants to purchase up to 600,000 shares of common stock at an exercise price of $1.50 per share and expire on August 2, 2024. The fair value of the warrants was determined using the Black-Scholes option pricing model.
In August 2019, as part of the Company's $4,000,000 financing, the Company issued warrants to purchase 48,000 shares of the Company's stock to the placement agent as commission. The warrants are exercisable at a price of $1.50 per share and expire on August 2, 2024.
In September 2010, as part of the Company's debt modification, the Company issued warrants to purchase up to 1,500,000 shares of the Company's stock to the noteholder. The warrants are exercisable at a price of $1.25 per share and expire on December 31, 2022.
The fair value of the warrants issued in 2019 was determined using the Black-Scholes option pricing model using the following assumptions:
|
●
|
Expected term – 3.25 to 5 years
|
|
●
|
Volatility – 119% to 144%
|
|
●
|
Risk-free rate – 1.56% to 1.67%
|
|
●
|
Stock price - $0.95 to $1.23
|
|
●
|
Expected dividends – $0
|
The following table shows the warrant activity for the years ended September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2018
|
|
|
9,478,650
|
|
|
$
|
1.55
|
|
|
$
|
2.6
|
|
|
$
|
-
|
|
Granted
|
|
|
2,148,000
|
|
|
|
1.33
|
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
(388,000
|
)
|
|
|
1.23
|
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2019
|
|
|
11,238,650
|
|
|
|
1.52
|
|
|
|
2.30
|
|
|
$
|
-
|
|
Expired
|
|
|
(1,600,000
|
)
|
|
|
2.25
|
|
|
|
|
|
|
$
|
|
|
Outstanding as of September 30, 2020
|
|
|
9,638,650
|
|
|
|
1.39
|
|
|
|
1.80
|
|
|
|
-
|
|
Exercisable at September 30, 2020
|
|
|
9,638,650
|
|
|
|
1.39
|
|
|
|
1.50
|
|
|
$
|
-
|
|
NOTE 10.
|
COMMITMENTS AND CONTINGENCIES
|
MCC. On January 14, 2015, we entered into an agreement to purchase a 52.6 acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. We are developing the property as the MCC. Plans for the may include the construction of sustainable greenhouse cultivation and processing facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program. We paid the seller $100,000 upon the signing of the agreement which amount will be applied toward the purchase price at the closing.
Between August 2015 and September 2016, there were several amendments to the Agreement to extend the closing date to October 14, 2016. As consideration for the extensions, the Company, at closing, agreed to increase the purchase price to $4,325,000 and paid the seller $725,000, which was be applied to the purchase price of the land if and when the Company closes on this transaction. As of September 30, 2016, the Company had paid $925,000 that was to be applied to the purchase price of the land at closing. On October 17, 2016, the Company closed on the land purchase via a sales-leaseback transaction. See ‘Operating Leases’ section below for additional information.
Operating Leases
Land
On October 17, 2016, the Company closed the acquisition of the 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The deposits of $925,000 previously paid by the Company to the seller, Boston Beer Company ("BBC"), were credited against the total purchase price of $4,475,000. The remaining balance of $3,550,000 was paid to BBC by Massachusetts Medical Properties, LLC ("MMP"). The property is located approximately 47 miles southeast of Boston. In August 2019, the Company completed construction of Building 1 at MCC.
As part of a simultaneous transaction, the Company assigned the property rights to MMP for a nominal fee and entered a lease agreement pursuant to which MMP agreed to lease the property to the Company for an initial term of fifty (50) years. We have the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.
The lease payments will be the greater of (a) $30,000 per month; (b) $0.38 per square foot per month of any structure built on the property; or (c) 1.5% of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The lease payments will be adjusted up (but not down) every five (5) years by any increase in the Consumer Price Index.
Effective October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $6,980,957 and $4,256,869, respectively. As part of the adoption, prepaid land lease balance of $2,724,088 was classified as a component of the Company’s ROU assets.
The Company constructed Building 1 on the leased land and on September 1, 2019, BASK, commenced its 15-year sublease of Building 1 which includes a base rent plus 15% of BASK’s gross revenues. This sublease income is recorded as Rental income - related party on the Company’s consolidated statements of operations.
As of September 30, 2020, the Company’s right-of-use assets were $6,914,080, the Company’s current maturities of operating lease liabilities were $4,728, and the Company’s noncurrent lease liabilities were $4,243,224. During the year ended September 30, 2020, the Company had operating cash flows from operating leases of $256,125.
The table below presents lease related terms and discount rates as of September 30, 2020.
|
|
As of September 30, 2020
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
|
|
Operating leases
|
|
|
46
|
|
Weighted average discount rate
|
|
|
|
|
Operating leases
|
|
|
7.9
|
%
|
The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of September 30, 2020 are as follows:
2021
|
|
|
341,500
|
|
2022
|
|
|
341,500
|
|
2023
|
|
|
341,500
|
|
2024
|
|
|
341,500
|
|
2025
|
|
|
341,500
|
|
Thereafter
|
|
|
14,001,500
|
|
Total lease payments
|
|
|
15,709,000
|
|
Less: Interest
|
|
|
(11,461,048
|
)
|
|
|
$
|
4,247,952
|
|
Less: operating lease liability, current portion
|
|
|
(4,728
|
)
|
Operating lease liability, long term
|
|
$
|
4,243,224
|
|
Office space
The Company leases its office space located at 1555 Blake St., Unit 502, Denver, CO 80202 for $2,500 per month with a lease term of less than 12 months.
Lease expense for office space was $18,303 and $15,055 for the years ended September 30, 2020 and 2019, respectively.
Aggregate rental expense under all leases totaled $401,021 and $410,162 for the years ended September 30, 2020 and 2019, respectively.
NOTE 11.
|
SUBSEQENT EVENTS
|
On October 12, 2020, an outstanding convertible note in the amount of $150,000 originally due on December 31, 2020 was extended to mature on December 31, 2021. All accrued interest is to be paid by December 31, 2020.
On December 4, 2020, the outstanding $4,000,000 loan due to an unrelated party was increased by $500,000 and the maturity date of the loan was extended to August 1, 2023. All other provisions of the original $4,000,000 loan remain the same. The proceeds of this loan will be used to develop Building 2 at the Company's Massachusetts Cannabis Center.