Quarterly report pursuant to Section 13 or 15(d)

Subsequent Events

v3.8.0.1
Subsequent Events
3 Months Ended
Mar. 31, 2018
Subsequent Events [Abstract]  
Subsequent Events

9. Subsequent Events

 

Purchase of The Green Room

 

On March 7, 2018, the Company, through its wholly-owned subsidiary, GS Mendocino, entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Coastal Patient Network d/b/a The Green Room Wellness Center (the “Seller”), pursuant to which GS Mendocino will acquire all of the assets relating to a retail cannabis business in Point Arena, Mendocino County, California (the “Retail Business”) for total cash consideration of $350,000 (the “Purchase Price”), subject to certain closing conditions. Pursuant to the Asset Purchase Agreement, GS Mendocino will purchase certain assets from the Seller, effective upon satisfaction of certain closing conditions, cash and cash equivalents, equipment, inventory, supplies, receivables, trade names, and certain intangible assets of the business. GS Mendocino will not acquire certain intangible assets nor will it assume any of the Seller’s liabilities. The Asset Purchase Agreement contains customary representations and considerations of each of the parties. The final installment payment for the purchase was paid on April 26, 2018.

 

The dispensary became fully operational on April 2, 2018.

 

In connection with the Asset Purchase Agreement, on March 7, 2018, GS Mendocino entered into a short-term lease with the landlord of the building where the Retail Business operates. The lease agreement provides for a term of sixty (60) days, which may be extended for up to an additional thirty (30) days, during which time GS Mendocino and the landlord will negotiate more definitive terms of the arrangement. In addition, GS Mendocino will make lease payments in the amount of $1,200 per month.

 

Coinciding with the lease, the Company through its wholly-owned subsidiary 138 Main Street PA, LLC, entered into a contract on March 1, 2018 to purchase the building for $195,000. The Green Room currently occupies the building. The Company transferred $19,500 into an escrow account on execution of the contract, and will pay the remaining $175,500 at the closing date, which is to be determined. (Note 7).

 

Letter of Intent – Progressive Collectives, LLC

 

On January 26, 2018, the Company entered into a letter of intent with Progressive Collectives, LLC (“Progressive”), pursuant to which Progressive would sell and transfer the assets of a cannabis dispensary business, and the Company would purchase and assume the assets of such cannabis dispensary business, subject to the terms and conditions of the letter of intent with Progressive. Subject to a satisfactory due diligence investigation by the Company, and entry into a definitive agreement by and among the parties, the anticipated closing date of the proposed transaction shall be on or before February 2, 2018, subject to the right of the Company to extend such time for a period of forty-five days thereafter in the event the Company requires additional time to conduct its due diligence investigation. The Company and Progressive have signed extensions of time to complete the due diligence, the most recent one on March 23, 2018, extending the period for due diligence until ten days after Progressive files its 2017 Federal income tax return.

 

April 2018 Stock Offering

 

On April 11, 2018, the Company entered into a subscription agreement (the “April Agreement”) with selected accredited investors (each, an “Investor” and collectively, the “Investors”). Pursuant to the terms of the April Agreement, the Company sold in a private placement (the “April Offering”) at a purchase price of $3.50 per share. The Offering will terminate on May 21, 2018.

 

570 Bryant Street, San Francisco, CA lease

 

On April 13, 2018, Spirulinex, LLC entered into an operating lease for the 4,500 square foot building located at 570 Bryant Street, San Francisco, CA for five years beginning May 1, 2018 and ending April 30, 2023. Upon execution of the lease, Spirulinex will pay $110,000 for May, 2018 rent and $95,000 security deposit. During the 2-4th years of the lease, a monthly rent amount of the security deposit will be applied against the first month of rent for that year. The initial 12 months lease obligation will be $15,000 per month and increasing $1,000 per month for the subsequent four years. Spirulinex has an option to renew the lease for an additional five years at fair market value. The lease is triple net, as all utilities, insurance and taxes will be paid by Spirulinex.

 

Non – Executive Board Advisory Consultant Appointments

 

On April 17, 2018, the Board of Directors (the “Board”) of the Company appointed Luis F. Toledo-Bayouth and Juan Bauzá Salas as non-executive board advisory consultants. In this capacity, Messrs. Toledo-Bayouth and Salas will each provide support and strategic advice to the Company in identifying new business opportunities and expanding its operations in Puerto Rico.

 

As consideration for Mr. Toledo-Bayouth’s services, the Company has agreed to issue him 5,000 restricted shares of common stock, par value $0.001 per share, payable quarterly, subject to his continuous service as a board advisory consultant. In consideration for Mr. Salas’ services, the Company has agreed to pay him (i) $3,000 cash fee payable monthly, commencing immediately; and (ii) 5,000 restricted shares of common stock, par value $0.001 per share, of the Corporation, payable quarterly, subject to his continuous service as a board advisory consultant.

 

685 85th Street, Oakland, California Lease

 

On May 3, 2018, The Company’s majority-owned subsidiary, Sunset Connect Oakland, LLC (“Sunset Connect”) entered into a sublease agreement (the “Sublease”), effective May 1, 2018, with CPlex, LLC, a California limited liability company (“CPLEX), pursuant to which Sunset Connect will sublease from CPLEX approximately 25,000 usable square feet of space in the building located at 685 85th Avenue, Oakland, California (the “Sublease Premises”). Sunset intends to occupy the Sublease Premises for the purpose of cultivating and manufacturing cannabis and cannabis-related products.

 

The Sublease provides for a term of five (5) years (the “Term”), commencing on May 1, 2018 (the “Commencement Date”) and ending on the fifth anniversary of the Commencement Date (the “Expiration Date”), unless sooner terminated in accordance with the terms of the Sublease. On the Expiration Date, Sunset Connect shall have the option to renew the Sublease for an additional term of two (2) years and eleven (11) months, with such additional term expiring on March 30, 2026.

 

Pursuant to the Sublease, Sunset Connect will pay CPLEX an initial monthly base rent of approximately $56,250, or an annual base rent of approximately $675,000, which will increase annually by approximately four percent (4.0%), plus additional monthly fees to cover Sunset Connect’s share of certain operating expenses relating to the Sublease Premises, including utilities, property taxes, insurance, maintenance and security.

 

In connection with the execution of the Sublease, Sunset Connect delivered to CPLEX a cash security deposit in the amount of $112,500 to be held as security for the full and faithful performance by Sunset Connect of the terms, covenants and conditions of the Sublease. In addition, Sunset Connect paid an advance of the first three (3) months of rent in the amount of $168,750.

 

The Sublease contains customary default provisions. If Sunset Connect fails to cure a breach of any of its obligations within specified time periods, the Sublease can be terminated. Sunset Connect may not assign or further sublease all or any part of the Sublease Premises.