The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Description of Business
Grow Condos, Inc. ("GCI" or the "Company") (f/k/a Fanatic Fans Inc. and Calibrus, Inc.) was incorporated on October 22, 1999, in the State of Nevada.
Our wholly owned subsidiary, WCS Enterprises, Inc. (“WCS”) is an Oregon limited liability company which was formed on September 9, 2013 with operations beginning in October 2013. WCS is a real estate purchaser, developer and manager of specific use industrial properties providing "Condo" style turn-key aeroponics grow facilities to support cannabis farmers. WCS intends to own, lease, sell and manage multi- tenant properties so as to reduce the risk of ownership and reduce costs to tenants and owners.
Our wholly owned subsidiary, Smoke on the Water, Inc. was incorporated on October 21, 2016, in the State of Nevada. Smoke on the Water is focused on acquiring properties in the RV and campground rental industry.
On March 7, 2017, Smoke on the Water, Inc. executed a Real Estate Purchase Agreement to acquire the Lake Selmac Resort located at 2700 Lakeshore Drive, Selma, Oregon.
On June 22, 2018, the Board of Directors of the Company approved an amendment to our articles of incorporation to increase our authorized capital to 180,000,000 shares, consisting of 175,000,000 shares of common stock and 5,000,000 shares of preferred stock (the “Recapitalization”) and to change the name of the Company to Grow Capital Inc. The Company filed articles of amendment with the State of Nevada to effect the aforementioned changes on July 10, 2018 and August 28, 2018, respectively. The Company is in the process of seeking approval from the Financial Industry Regulatory Authority ("FINRA") for the above noted corporate actions.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation:
The interim unaudited financial information referred to above has been prepared and presented in conformity with accounting principles generally accepted in the United States applicable to interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. The interim financial information has been prepared on a condensed basis, such that certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in accordance with rules and regulations of the Securities and Exchange Commission. These interim financial statements include all adjustments that, in the opinion of management, are necessary in order to make the financial statements not misleading.
This report on Form 10-Q should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended June 30, 2018 filed on October 12, 2018. Results of the three and six months ended December 31, 2018 are not necessarily indicative of the results that may be expected for the year ended June 30, 2019 and any other future periods.
Reclassifications
Certain amounts in the Company’s consolidated financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have not changed the results of operations of prior periods.
8
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Consolidation
These consolidated financial statements include the accounts of Grow Condos, Inc. and its wholly-owned subsidiaries, WCS, Enterprises, LLC and Smoke on the Water, Inc., as of December 31, 2018. All significant intercompany accounting transactions have been eliminated as a result of consolidation.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe that it is at least reasonably possible that the effect on the financial statements of a condition, situation, or set of circumstances that existed at the date of the financial statements will change in the near term due to one or more future confirming events and the effect of the change would be material to the financial statements.
Going Concern
During the three- and six-month periods ended December 31, 2018, the Company reported a net loss of $
196,492
and $
461,937
, respectively. During the three- and six-month periods ended December 31, 2017, the Company reported a net loss of $
1,288,178
and $
2,052,217
, respectively. The Company believes that its existing capital resources are not adequate to enable it to fully execute its business plan. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. The Company estimates that it will require additional cash resources during fiscal year 2019 and beyond based on its current operating plan and condition. In July and August 2018, the Company began a private placement of its common shares and raised gross proceeds of approximately $1,165,000. The Company used
approximately $900,000 of the proceeds from the private placements to retire the two mortgages held on the WCS condo property (see Note 7 to the unaudited financial statements contained herein). In addition, in September 2018, the Company completed the sale of its land held in the Pioneer Business Park (see Note 3 to the unaudited financial statements contained herein). The Company received proceeds of approximately $74,000 after payment of expenses of the sale and
full retirement of the attached mortgage of approximately $250,000. These actions have reduced the working capital deficit below $300,000 in the current period ended December 31, 2018. The Company expects cash flows from operating activities to improve marginally in the short term, primarily as a result of an increase in cash received from tenants and a decrease in certain operating expenses, although there can be no assurance thereof. In addition, there can be no assurance that new tenants will become available after 2019 when the remaining leases expire for the Eagle Point condominium. If the Company fails to generate positive cash flow or obtain additional financing, when required, the Company may have to modify, delay, or abandon some or all of its business and expansion plans, and potentially cease operations altogether. The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Cash and Cash Equivalents
For financial accounting purposes, cash and cash equivalents are considered to be all highly liquid investments with a maturity of three (3) months or less at the time of purchase.
Lease Receivables and deferred rent
Lease receivables are recognized when rents are due, and for the straight-line adjustment to rents over the term of the lease less an allowance for expected uncollectible amounts. Inherent in the assessment of the allowance for doubtful accounts are certain judgments and estimates including, among others, the customer's willingness or ability to pay, the Company's compliance with lease terms, the effect of general economic conditions and the ongoing relationship with the customer. Accounts with outstanding balances longer than the payment terms are considered past due. We do not charge interest on past due balances. The Company writes off lease receivables when it determines that they have become uncollectible after all reasonable collection efforts have been made. If we record
9
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
bad debt expense, the amount is reflected as a component of operating expenses in the statements of operations. As of December 31, 2018, and June 30, 2018, an allowance for doubtful accounts was recorded in the amount of $2,861. As of December 31, 2018, and June 30, 2018, the Company had recorded deferred rent for the straight-line value of rental income of $6,150 as part of other assets.
Investment In and Valuation of Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the cost of acquisition (excluding acquisition related expenses), construction costs, and mortgage interest during the period the facilities are under construction and prior to readiness for occupancy, and any tenant improvements, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance are expensed as incurred.
The Company is required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of each respective asset to determine the appropriate useful life of the assets. Real estate assets, other than land, are depreciated on a straight-line basis over the estimated useful life of the asset.
The estimated useful lives of the Company's real estate assets by class are generally as follows:
|
Land
|
Indefinite
|
|
Buildings
|
40 years
|
|
Tenant improvements
|
Lesser of useful life or lease term
|
|
Intangible lease assets
|
Lease term
|
Revenue Recognition
We recognize revenue only when all of the following criteria have been met:
|
o
|
persuasive evidence of an arrangement exists;
|
|
o
|
use of the real property has taken place or services have been rendered;
|
|
o
|
the fee for the arrangement is fixed or determinable; and
|
|
o
|
collectability is reasonably assured.
|
Persuasive Evidence of an Arrangement
– We document all terms of an arrangement in a real property lease signed by the tenant, for leases with a term greater than 30 days, prior to recognizing revenue.
Our real property lease agreements, which are governed by the laws of the state of Oregon, usually are non-cancellable and range from six to thirty-six months with a cash security deposit and personal guarantee required. We account for our leases in accordance with Accounting Standard Codification ("ASC") Topic 840,
Leases
, as operating leases. Leases may include escalating rental rates, an option to extend the term of the lease at a fixed rental rate, and an option to purchase the portion of the building being leased at the end of the lease term. Leases may be assigned with our approval. Common area maintenance and water are paid by the Company with the tenant responsible for maintenance, repairs and liability insurance associated with their specific unit within the building. Cash received for purchase options is recorded as deferred option revenue in the accompanying consolidated financial statements. These amounts are recorded to revenue upon the exercise of the option by the tenant or the expiration of the unused option.
Advertising Costs
10
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Advertising costs are expensed as incurred. Advertising expense was $341 and $359 for the three months ended December 31, 2018 and 2017, respectively, and $5,951 and $359 for the six months ended December 31, 2018 and 2017, respectively.
Fair Value of Financial Instruments:
The Company follows the fair value measurement rules, which provides guidance on the use of fair value in accounting and disclosure for assets and liabilities when such accounting and disclosure is called for by other accounting literature. These rules establish a fair value hierarchy for inputs to be used to measure fair value of financial assets and liabilities. This hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 (highest priority), Level 2, and Level 3 (lowest priority).
Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the balance sheet date.
Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3—Inputs are unobservable and reflect the Company’s assumptions as to what market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available.
Investments are reflected in the accompanying financial statements at fair value. The carrying amount of receivables and accounts payable and accrued expenses approximates fair value due to the short-term nature of those instruments.
The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of lease receivables, accounts payable, and accrued liabilities approximate fair value given their short-term nature or effective interest rates, which constitutes level three inputs.
Share-based compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. Restricted stock awards are measured based on the fair market values of the underlying stock on the dates of grant. For service type awards, share-based compensation expense is recognized on a straight-line basis over the period during which the employee is required to provide service in exchange for the entire award. For awards that vest or begin vesting upon achievement of a performance condition, the Company estimates the likelihood of satisfaction of the performance condition and recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model.
The fair value of options is calculated using the Black-Scholes option pricing model to determine the fair value of stock options on the date of grant based on key assumptions such as expected volatility and expected term, so long as the option does not contain provisions that require a more complex model to be used.
Convertible debt and beneficial conversion features
The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion features.
11
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock settled debt
In certain instances, the Company will issue convertible notes which contain a provision in which the price of the conversion feature is priced at a fixed discount to the trading price of the Company’s common shares as traded in the over-the-counter market. In these instances, the Company records a liability, in addition to the principal amount of the convertible note, as stock-settled debt for the fixed value transferred to the convertible note holder from the fixed discount conversion feature. As of December 31, 2018, and June 30, 2018, the Company had recorded within convertible notes, net of discount, the amount of $0 for the value of the stock settled debt for certain convertible notes (see Note 6).
Impairment of long-lived assets
The Company monitors its long-lived assets and finite-lived intangibles for indicators of impairment. If such indicators are present, the Company assesses the recoverability of affected assets by determining whether the carrying value of such assets is less than the sum of the undiscounted future cash flows of the assets. If such assets are found not to be recoverable, the Company measures the amount of such impairment by comparing the carrying value of the assets to the fair value of the assets, with the fair value generally determined based on the present value of the expected future cash flows associated with the assets.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured at rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is recorded when it is not more likely than not that all or a portion of the net deferred tax assets will be realized.
Net (loss) income per share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period and contains no dilutive securities. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. For the three and six months ended December 31, 2018 and 2017, all potentially dilutive securities are anti-dilutive due to the Company's losses from operations.
All dilutive common stock equivalents are reflected in our earnings (loss) per share calculations. Anti-dilutive common stock equivalents are not included in our earnings (loss) per share calculations.
The following table sets forth the number of dilutive shares as of December 31, 2018:
|
Options
|
500,000
|
|
Total dilutive shares
|
500,000
|
Recent accounting pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) adopted amendments to eliminate, integrate, update or modify certain of its disclosure requirements. The amendments are part of the SEC’s efforts to improve disclosure effectiveness and were focused on eliminating disclosure requirements that have become redundant, duplicative, overlapping, outdated, or superseded.
12
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Management has considered all recent accounting pronouncements issued and their potential effect on our financial statements. The Company's management believes that these recent pronouncements will not have a material effect on the Company’s financial statements.
Note 3 – Assets Held for Sale
In April 2016, the Company purchased a parcel of land near Eugene, Oregon within the Pioneer Business Park from a private seller in the amount of $326,629 plus closing costs. As part of the purchase, the Seller financed through a note payable $267,129 of the purchase price (see Note 6). The intent of the Company was to build an industrial condominium building on the parcel, akin to the WCS property. The Company was unable to secure additional funding via debt or equity and due to the hostility of the local county government towards the intended operations of the tenants, the Company in late calendar 2017 abandoned those plans.
In December 2017, the Company made the decision to put the property up for sale. The Company has retained a sales agent and has listed the property for sale at a purchase price of $399,000. The financial statements show the value of the land and the related mortgage under Assets Held for Sale and Liabilities Held for Sale on the balance sheet, respectively. In September 2018, the Company completed the sale of the property for a gross sales price of $349,000 (See Note 6). After payment of all closing costs, the Company recorded a loss on sale of approximately $5,400.
Note 4 – Property and Equipment, Net
Property and improvements consisted of the following as of December 31, 2018 and June 30, 2018:
|
|
|
December 31,
2018
|
|
|
June 30,
2018
|
|
|
Cost
|
|
|
|
|
|
|
|
Buildings and improvements
|
|
$
|
1,360,240
|
|
|
$
|
1,360,240
|
|
|
Land
|
|
|
777,162
|
|
|
|
777,162
|
|
|
Furniture and Fixtures
|
|
|
27,581
|
|
|
|
21,421
|
|
|
|
|
|
2,164,983
|
|
|
|
2,158,823
|
|
|
Less: accumulated depreciation and impairment
|
|
|
(431,623)
|
|
|
|
(416,674)
|
|
|
|
|
$
|
1,733,360
|
|
|
$
|
1,742,149
|
|
Depreciation expense (excluding impairment) amounted to $7,526 and $9,012 for the three months ended December 31, 2018 and 2017, respectively.
Depreciation expense (excluding impairment) amounted to $14,949 and $21,203 for the six months ended December 31, 2018 and 2017, respectively.
Impairment of condo construction deposits and other assets in regard to the land purchased in Eugene during the three and six months ended December 31, 2017 was $0 and $14,486, respectively.
Note 5 – Accrued Liabilities
Accrued Liabilities at December 31, 2018 and June 30, 2018 consist of the following:
|
|
|
December 31,
2018
|
|
|
June 30,
2018
|
|
|
Accrued salaries and wages
|
|
$
|
526,403
|
|
|
$
|
556,588
|
|
|
Accrued expenses
|
|
|
21,432
|
|
|
|
55,432
|
|
|
|
|
$
|
547,835
|
|
|
$
|
612,020
|
|
13
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 – Mortgages Payable
In 2013, upon the acquisition of the condominium property in Eagle Point, Oregon, WCS assumed the mortgage payable of the Seller to Peoples Bank of Commerce, NA. The original principal amount of the mortgage was $930,220, bears interest at the rate of the bank’s prime rate plus 1.75%, and required 58 monthly payments of $5,946 and matures on June 28, 2018 with a balloon payment due at that time of $802,294. The mortgage is secured by liens against certain properties owned by the Seller. In August 2018, the Company paid the mortgage in full. As of December 31, 2018, and June 30, 2018, the balance on the mortgage was $0 and $797,476, respectively.
In 2013, after acquisition, WCS entered into a second mortgage with Peoples Bank of Commerce, NA in the amount of $120,000. The mortgage bears interest at the rate of the bank’s prime rate plus 3% and required 56 monthly payments of $883 and matures on October 15, 2018 with a balloon payment due at maturity of $104,329. The mortgage is collateralized by a deed of trust and assignment of rents with the Seller and WCS in the amount of $120,000. In August 2018, the Company paid the mortgage in full. As of December 31, 2018, and June 30, 2018, balance on the mortgage was $0 and $105,235, respectively.
In April 2016, as more fully described in Note 4, the Company acquired a parcel of land and entered into a mortgage with the seller in the amount of $267,129. The mortgage bears an interest rate of 6% per annum and has a maturity date of the sooner of (a) October 1, 2017 or the date construction begins on the condominium building proposed to be built. As of June 30, 2017, the balance on the mortgage was $267,129. In October 2017, the Company entered into an amended mortgage by making a principal payment of $15,000 and financing the remaining balance of $252,129. The amended mortgage bears interest at the rate of 6% per annum and requires interest only monthly payments of $1,261 from November 2017 through June 2018 with the remaining amount due on the note in the form of a final balloon payment will be due in July 2018. As noted above in Footnote 4, in September 2018, the Company closed on the sale of the parcel of land acquired with financing provided by the mortgage. As a condition of the sale, the mortgage was fully repaid at closing. As of December 31, 2018, and June 30, 2018, the balance on the mortgage was $0 and $250,868, respectively.
In March 2017, as more fully described in Note 3, the Company acquired a RV and campground park in Selma, Oregon. Upon closing, the Company entered into mortgage payable with the Seller in the amount of $625,000 with a maturity date of March 6, 2022. The mortgage bears interest at the rate of 5% per annum covering the monthly payments of $3,355 for the following 12 months, then increases to 6% per annum for the monthly payments of $3,747 for the following 48 months. Upon maturity, the remaining balance due on the note is required to be paid through a balloon payment. As of December 31, 2018, and June 30, 2018, the balance on the mortgage was $609,802 and $613,848, respectively. The note is unsecured.
14
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 – Capital Stock
On June 22, 2018, the Board of Directors of the Company approved an amendment to our articles of incorporation to increase our authorized capital to 180,000,000 shares, consisting of 175,000,000 shares of common stock with par value of $0.001 and 5,000,000 shares of preferred stock with par value of $0.001 per share As of June 30, 2018, and 2017, the Company's authorized common stock consists of 100,000,000 common shares with par value of $0.001 and 5,000,000 shares of preferred stock with par value of $0.001 per share.
Common Stock
Share issuances during the six months ended December 31, 2018:
During the six months ended December 31, 2018, the Company issued a total of 1,237,540 shares to officers and directors as part of their board compensation package. The Company valued those issuances at the closing price of the Company’s stock as traded on the OTCMarkets on the date of grant and recorded stock-based compensation of $148,504.
During the six months ended December 31, 2018, the Company issued 3,000,000 shares to its CEO and President for his initial term of one-year compensation as part of his employment agreement. Of the shares issued, 1,500,000 vested at grant and the remaining 1,500,000 shares vest 180 days after signing of the employment agreement. The Company valued the issuance at $0.12 per share, the closing price of the Company’s stock as traded on the OTCMarkets on the date of grant. Because the share compensation will be all of the compensation earned by the new CEO and President, the Company treated the issuance akin to a cash payment and recorded $360,000 into prepaid expense upon issuance. The Company will ratably amortize the prepaid compensation over the initial 12-month period of employment covered in the employment agreement. For the six months ended December 31, 2018, the Company expensed $180,000 as stock-based compensation.
During the six months ended December 31, 2018, the Company issued a total of 15,392,860 shares in respect to private placements between $0.07 and $0.10 per share and received cash proceeds of $1,165,000.
Preferred Stock
The Company has designated a Series A Convertible Preferred Stock (the "Series A Preferred"). The number of authorized shares totals 5,000,000 and the par value is $0.001 per share. The Series A Preferred shareholders vote together with the common stock as a single class. The holders of Series A Preferred are entitled to receive all notices relating to voting as are required to be given to the holders of the Common Stock. The holders of shares of Series A Preferred shall be entitled to 5 votes per share and have a conversion right granted to the holder to allow to convert into 5 common shares of the Company for each Series A Preferred Share held.
Equity Incentive Plan
In December 2015, the Company adopted the 2015 Equity Incentive Plan (“Incentive Plan”) with a term of 10 years. The Incentive Plan allows for the issuance up to a maximum of 2 million shares of common stock, options exercisable into common stock of the Company or stock purchase rights exercisable into shares of common stock of the Company. The plan is administered by the board of directors unless a separate delegation to an administrator is made by the board of directors. Options granted under the plan carry a maximum term of 10 years, except to a grantee who is also a 10% beneficial owner at the time of grant, in which case the maximum term is 5 years. In addition, exercise prices of options granted must be within a certain percentage of the closing price on date of grant depending on the level of beneficial ownership of common stock of the Company by the grantee. All vesting conditions are set by the board or administrator. In December 2015, the Company filed a registration statement on Form S-8 covering all shares issued or issuable under the Incentive Plan.
15
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Plan
In December 2015, the Company adopted the 2015 Stock Plan (“Stock Plan”). As a condition of adoption of the Stock Plan, the Company entered into a registration statement on Form S-8 and covered the shares issued under the
plan, which registration statement was filed in December 2015. The Stock Plan allows for the issuance up to a maximum of 2 million shares of common stock of the Company. The plan is administered by the board of directors unless a separate delegation to an administrator is made by the board of directors. The Stock Plan shall continue in effect until such time as is terminated by the Board or all shares are issued pursuant to the Stock Plan.
Note 8 – Related Party Transactions
The Company is currently leasing units located in Eagle Point Oregon. The building has approximately 15,000 square feet and is divided into four 1,500 square feet condo style grow rooms which are being leased to four tenants, 1,500 square feet of office space for Grow Condos, Inc., and one 7,500 square feet grow facility. Four units are currently under lease to three different unrelated companies and the 7,500 square foot unit is under lease to a company controlled by our Chairman. The agreement to the lease 7,500 square feet to a company controlled by our Chairman was entered into by the owner prior to purchase of the facility by WCS in 2013. The lease term begins once the tenant improvements are completed and the premises are occupied and continues for a period of 36 months. Four-unit lease terms began in the fiscal year ended June 30, 2016, with cash payments commencing on all four unit leases in the fiscal year ended June 30, 2017. The lease on the 7,500 grow facility commenced in fiscal 2017.
As of December 31, 2018, and June 30, 2018, a related party had advanced the Company, on an unsecured basis, $105,000.
On July 1, 2018, Wayne Zallen resigned as the President and CEO of the Company and David Tobias resigned his position as a member of the Board of Directors. On the same day, Jonathan Bonnette was elected to the Board of Directors filling the vacancy created by the resignation of David Tobias. Mr. Bonnette was also appointed the President and CEO of the Company. Wayne Zallen will remain the Chairman of the Board of Directors and will
continue to serve as the CFO until such time as a replacement can be found. Mr. Zallen’s employment contract was terminated, and the Company and Mr. Zallen have agreed on compensation of $2,500 per month.
In July 2018, the Company entered into an employment agreement with its CEO and President having an initial term of one year including compensation for the first year at $240,000 payable in restricted stock at the valuation rate of $0.08 per share or 3,000,000 shares which have been issued.
During the three months ended September 30, 2018, the Company negotiated a sublease agreement to lease approximately 1,500 square feet of office space at a business center known as Green Valley Corporate Center South located in Henderson, Nevada, effective February 19, 2019, which the Company will use as its new headquarters. The sublease includes a four-month abatement of monthly base rent. Appreciation, LLC holds the master lease from which the Company derives its sublease for its headquarters. Terry Kennedy, the President of Appreciation, provides consulting services to the Company and is also a 10% shareholder. The sublease includes a four-month abatement of monthly base rent. (See Note 9)
In fiscal 2018, the Company was notified by its primary banks that these banks would no longer accept the Company as a client for its banking services. As of June 30, 2018, the Company’s wholly owned subsidiary, WCS, was notified that its bank, which also holds both of its mortgages, would no longer continue to accept WCS as a customer shortly after its fiscal year end. Because the Company rents its properties to those who engage in a federal crime under the Controlled Substances Act, most banks subject to any federal oversight (the Office of the Comptroller of the Currency or any of the Federal Reserve Bank’s of the United States) have declined to do business with any entity that is related in any way to cannabis operations. The Company’s management and directors have as of June 30, 2018 transferred the Company’s cash and its banking operations to an entity owned and controlled by them. The Company has treated the cash transferred as amounts due from this related entity and the cash expended from these accounts on behalf of the Company as reductions of the amounts due from these entities. As of
16
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2018, and June 30, 2018, the amount held in cash by the related entity and reported as a current asset as due from related party was $68,147 and $40,268.
17
GROW CONDOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9- Commitments
During the three months ended September 30, 2018, the Company negotiated a sublease agreement effective February 19, 2019 to lease approximately 1,500 square feet of office space at a business center known as Green Valley Corporate Center South located in Henderson, Nevada, which the Company will use as its new headquarters. The lease has a term of 123 months, an abatement of the first four months of rent, and escalating base monthly rent per square foot ranging between $2.00 to $3.00 per square foot.
Appreciation, LLC holds the master lease from which the Company derives its sublease for its headquarters. Terry Kennedy, the President of Appreciation, provides consulting services to the Company and is also a 10% shareholder.
Note 10- Subsequent Events
On January 2, 2019 the Company issued a total of 882,483 shares of common stock to certain officers and directors as part of their respective employment and/or board compensation package, valued at $54,361, or $0.0616 per share, the closing price of the Company’s common stock on the date of issuance as posted on OTCMarkets.
On January 28, 2019, the Company entered into a consulting agreement with Trevor Hall and appointed Mr. Hall to serve as a part-time Chief Financial Officer (“CFO”) of the Company through December 31, 2019. Mr. Hall succeeded Wayne Zallen as CFO, who resigned from the position in connection with Mr. Hall’s appointment. Mr. Zellen continues to serve as Chairman of the Company’s Board of Directors following his resignation as CFO of the Company. Pursuant to the Agreement, Mr. Hall received $76,000 in compensation, payable as 1,000,000 shares of unregistered common stock of the Company, and will devote enough of his time to the Company as is reasonably necessary to meet the needs of the Company during the term. The shares were issued on January 29, 2019.
On January 31, 2018, the Company issued 250,000 shares of common stock to a consultant for services rendered, valued at $19,500, or $0.078 per share, the closing price of the Company’s stock on the date of issuance as posted on OTCMarkets.
During February 2019, the Company moved its headquarters to 2485 Village View Drive, Suite 180, Henderson, Nevada 89074. In connection with the move, the Company’s telephone number changed to (702) 830-7919.
18