NOTE 10 – DEBT

Mortgages

In November 2017, the Company entered into a 10-year mortgage agreement with Bank of New England for the purchase of a 138,000 square foot industrial property in New Bedford, Massachusetts, within which the Company has built a 70,000 square foot cannabis cultivation and processing facility that is leased to ARL. From the start of the mortgage through May 2019, the Company is required to make monthly payments of interest-only at a rate equal to the monthly prime rate plus 2%, with a floor of 6.25%. From May 2019 to May 2024, the Company shall make principal and interest payments at a rate equal to the prime rate on May 2, 2019 plus 2%, with a floor of 6.25%. Principal and interest payments shall continue from May 2024 through the end of the lease at a rate equal to the prime rate on May 2, 2024 plus 2%, with a floor of 6.25%. At December 2018 and 2017, the principal balance on this mortgage was approximately $4.9 million and $2.9 million, respectively.  

The Company maintains another mortgage with Bank of New England for the 2016 purchase of a 45,070 square foot building in Wilmington, Delaware which was developed into a cannabis seed-to-sale facility and is currently leased to the Company’s cannabis-licensed client in the state. The mortgage matures in 2031 with monthly principal and interest payments at a rate of 5.25% through September 2021, and thereafter the rate adjusting every five years to the then prime rate plus 1.5% with a floor of 5.25%. At December 31, 2018 and 2017, the principal balance on this mortgage was approximately $1.8 million and $1.9 million, respectively.

In 2016, the Company entered into a mortgage agreement with DuQuoin State Bank (“DSB”) for the purchase of two properties that it developed into two 3,400 square foot free-standing retail dispensaries that are currently leased to the KPGs. On May 5^th of each year, this mortgage is due to be repaid unless it is renewed for another year at a rate determined at the discretion of DSB’s executive committee. At December 31, 2018 and 2017, the principal balance on this mortgage was approximately $850,000 and $869,000, respectively.

Promissory Notes

In September 2018, the Company raised $3,000,000 from the issuance of a secured promissory note bearing interest at the rate of 10% per annum, with interest payable monthly. The note is due and payable in September 2019, however the Company may elect to prepay the note in whole or part at any time after December 17, 2018 without premium or penalty.

The Company issued three-year warrants, which were attached to this promissory note, to the lender’s designees to purchase 750,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Company recorded a discount on the note of approximately $1.5 million from the allocation of note proceeds to the warrants based on the fair value of such warrants on the issuance date. During 2018, approximately $882,000 of the warrant discount was amortized to interest expense. At December 31, 2018, the carrying value of this note, net of remaining warrant discount of approximately $630,000, was approximately $2.37 million.

During the year ended 2017, the Company raised $9,475,000 from the issuance of promissory notes with interest rates ranging from 4.5% to 12%, all with maturity dates of 12 months or less from the date of issue.

During 2018, holders of previously issued promissory notes with principal balances of $1,075,000 converted such promissory notes into 1,568,375 shares of common stock at conversion prices ranging from $0.65 to $0.90 per share. The conversions resulted in the recording of non-cash losses of approximately $829,000 in the aggregate, based on the market value of the common stock on the conversion dates. 

In August 2017, $2.05 million in principal and approximately $262,000 of accrued interest on promissory notes were converted into 4,385,823 shares of common stock at a conversion price of $0.53 per share. Based on the market value of the common stock on the conversion date, the Company recorded a non-cash loss on conversion of approximately $451,000.

During 2018, the Company issued 2,596,313 shares of common stock  and subscriptions on 79,136 shares of common stock to retire promissory notes with principal balances of $7,495,000 and approximately $95,000 of accrued interest. The Company recorded non-cash losses of approximately $2.5 million based on the fair value of the common stock on the retirement dates.

During 2017, the Company issued 5,385,823 share of commons stock to retire promissory notes with principal balances of $2,300,000 and approximately $312,000 of accrued interest. The Company recorded a non-cash loss of approximately $841,000 based on the fair value of the common stock on the retirement dates.

During 2018 the Company repaid $700,000 of promissory notes. No repayments debt occurred during the same period in 2017.

The aggregate scheduled maturities of the Company’s total debt outstanding, inclusive of the promissory notes and mortgages described within this Note 10 – Debt, and the convertible debentures described in the following Note 11 – Debentures Payable, as of December 31, 2018 were: