Related Party Transactions
|9 Months Ended|
Sep. 30, 2019
|Related Party Transactions [Abstract]|
|Related Party Transactions||
NOTE 17 – RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 2019, the Company entered into several hemp seed sale transactions with GenCanna, a related party, whereby the Company acquired large quantities of top-grade feminized hemp seeds with proven genetics at volume discounts that it sold to GenCanna at market rates. As previously disclosed in Note 1 – Organization and Description of Business, the Company classified the $33.2 million due from GenCanna as a receivable from a related party, with approximately $29.0 million recognized as revenue from a related party for the nine months ended September 30, 2019, and approximately $4.2M recorded under Unearned Revenue From Related Party on the balance sheet. Upon payment of the receivable balance by GenCanna, the amount in Unearned Revenue From Related Party will be recognized as revenue.
As disclosed in Note 11 – Debt, the Company’s two mortgages with Bank of New England are personally guaranteed by the Company’s CEO and CFO.
In September 2019, the Company granted five-year options to purchase 100,000 shares of common stock to each of the Company’s three independent board members at an exercise price of $0.99. The aggregate fair value of these options of approximately $191,000 is being amortized over the six-month vesting period, of which approximately $92,000 was amortized at September 30, 2019.
In January 2018, the Company granted options to purchase 1.45 million shares of common stock to the Company’s board members at exercise prices ranging from $0.14 to $0.77 and expiring between December 2020 and December 2022. The aggregate fair value of these options of approximately $480,000 was fully amortized by June 30, 2018.
During the nine months ended September 30, 2019 and 2018, options to purchase 350,000 and 400,000 shares of common stock, respectively, were exercised by board members on a cashless basis with the exercise prices paid via the surrender of 139,985 shares of common stock in 2019 and 98,000 shares of common stock in 2018.
In January 2018, options to purchase 200,000 shares of common stock were forfeited by two board members. No options were forfeited by board members in 2019.
The Company’s current corporate offices are leased from a company owned by a related party under a 10-year lease that commenced August 2018 and contains a five-year extension option. Previous to this lease, the Company’s former corporate offices were also leased from a company owned by a related party. For the nine months ended September 30, 2019 and 2018, expenses incurred under these leases approximated $117,000 and $16,000, respectively.
The outstanding Due To Related Parties balances at September 30, 2019 and December 31, 2018 of approximately $416,000 and $276,000, respectively, were comprised of amounts owed of approximately (i) $100,000 and $81,000, respectively, to the Company’s CEO and CFO, (ii) $256,000 and $135,000, respectively, to two companies partially owned by these officers, and (iii) $60,000 in both periods to two stockholders of the Company. Such amounts owed are not subject to repayment schedules.
The outstanding Due From Related Parties balance at December 31, 2018 of approximately $120,000 was comprised of an advance to a company partially owned by the Company’s CEO and CFO. This amount was entirely offset by advances from such related parties. At September 30, 2019, there were no amounts due from related parties.
The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef