Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.19.1
Commitments and Contingencies
 12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 19 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease Commitments

 

The Company leases facilities under several operating leases that contain rent holidays and customary escalations of lease payments for the type of facilities being leased. The Company recognizes rent expense on a straight-line basis over the expected lease term, including cancelable option periods which the Company fully expected to exercise. The differences between amounts paid and amounts expensed are recorded under Deferred Rents Payable on the balance sheet. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.

 

The location of the Company’s leased facilities and descriptions of the lease agreements are as follows:

 

  ● Delaware – 4,000 square feet of retail space in a multi-use building under a five-year lease that commenced in October 2016 and contains a five-year option to extend the term. The Company developed the space into a cannabis dispensary which is subleased to its cannabis-licensed client. Also in Delaware, in March 2019, the Company entered into a lease of a 100,000 square foot warehouse that it intends to construct into a cultivation and processing facility to be subleased to the same Delaware client. The lease term is 10 years, with an option to extend the term for three additional five-year periods.
     
  ● Nevada – 10,000 square feet of an industrial building that the Company built-out into a cannabis cultivation facility and is subleased to the Company’s cannabis-licensed client under a sub-lease which is coterminous with the Company’s lease for 10 years expiring in 2024.

 

  ● Massachusetts – 10,000 square feet of office space which the Company utilizes as its corporate offices under a 10-year lease with a related party expiring in 2028 which contain a 5-year extension option.

 

  ● Maryland – a 2,700 square foot 2-unit apartment under a lease that expires in July 2020 with an option to renew for a two-year term.

 

For the years ended December 31, 2018 and 2017, rent expense approximated $436,000 and $183,000, respectively.

 

Future minimum lease payments as of December 31, 2018 under all non-cancelable operating leases having an initial or remaining term of more than one year were:

 

2019   $ 398,731  
2020     797,120  
2021     894,450  
2022     882,068  
2023     858,136  
Thereafter     4,547,028  
Total   $ 8,377,533  

 

Terminated Employment Agreement

 

An employment agreement with the former CEO of the Company that provided this individual with salary, car allowances, stock options, life insurance, and other employee benefits, was terminated in 2017.

 

The Company maintained an accrual of approximately $1,043,000 at December 31, 2018 and 2017 for any amounts that may be owed under this agreement, although the Company contends that such agreement is not valid.