Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies



Lease Commitments


The Company is the lessee under five operating leases and three finance leases. 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 and office equipment under finance leases that expire in February 2022 through June 2024 with such terms being a major part of the economic useful life of the leased property.


The components of lease expense for the six months ended June 30, 2019 were as follows:


Operating lease cost   $ 339,478  
Finance lease cost:        
Amortization of right-of-use assets   $ 6,744  
Interest on lease liabilities     1,824  
Total finance lease cost   $ 8,568  


The weighted average remaining lease term for operating leases is 9.7 years, and for the finance lease is 3.9 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 June 30, 2019 under all non-cancelable operating leases having an initial or remaining term of more than one year were:








2019   $ 230,744     $ 11,556  
2020     917,444       23,112  
2021     1,008,227       23,112  
2022     949,535       11,823  
2023     910,166       10,451  
Thereafter     5,139,851       3,229  
Total lease payments     9,155,967     $ 83,282  
Less: imputed interest     (2,845,742 )     (11,296 )
    $ 6,310,224     $ 71,986  


Terminated Employment Agreement


An employment agreement with Thomas Kidrin, the former CEO of the Company, that provided Mr. Kidrin with salary, car allowances, stock options, life insurance, and other employee benefits, was terminated by the Company in 2017. The Company maintained an accrual of approximately $1,043,000 at June 30, 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.


In July 2019, Mr. Kidrin, also a former director of the Company, filed a complaint in the Massachusetts Superior Court, alleging that the Company breached the employment agreement and failed to pay all wages owed to him, and requesting compensatory damages, attorney fees, costs, and interest. To date, Mr. Kidrin has not served the complaint upon the Company. The Company believes that the allegations are without merit and will vigorously defend this matter when Mr. Kidrin makes service upon it.