Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.19.1
Commitments and Contingencies
 3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 18 – COMMITMENTS AND CONTINGENCIES

 

Lease Commitments

 

The Company is the lessee under five operating leases and one finance lease. These leases 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 expects to exercise. Certain leases require the payment of property taxes, insurance and/or maintenance costs in addition to the rent payments.

 

The details of the Company’s operating 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.
     
  ● Delaware – a 100,000 square foot warehouse leased in March 2019 that the Company 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 has built-out into a cannabis cultivation facility and plans to rent to its cannabis-licensed client under a sub-lease which will be coterminous with this lease 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.

 

The Company leases machinery under a finance lease that expires in February 2022 with such term being a major part of the economic useful life of the machinery.

 

The components of lease expense for the three months ended March 31, 2019 were as follows:

 

Operating lease cost   $ 93,015  
Finance lease cost:        
Amortization of right-of-use assets   $ 2,053  
Interest on lease liabilities     420  
Total finance lease cost   $ 2,473  

 

The weighted average remaining lease term for operating leases is 9.9 years, and for the finance lease is 3.3 years. The weighted average discount rate used to determine the right-of-use assets and lease liabilities was 7.5% for all leases.

 

Future minimum lease payments as of March 31, 2019 under all non-cancelable operating leases having an initial or remaining term of more than one year were:

 

   

Operating

Leases

    

Finance

Lease

  
2019   $ 320,069     $ 9,496  
2020     917,444       12,661  
2021     1,008,227       12,661  
2022     949,935       1,371  
2023     910,166       -  
Thereafter     5,139,851       -  
Total lease payments     9,245,292     $ 36,189  
Less: imputed interest     (2,963,703 )      (3,708 ) 
    $ 6,281,589      $ 32,481  

 

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 March 31, 2019 and December 31, 2018 for any amounts that may be owed under this agreement, although the Company contends that such agreement is not valid.