NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2019 AND 2018
NOTE 1 –
ORGANIZATION AND NATURE OF
BUSINESS
Overview
Driven Deliveries Inc. (formerly Results-Based Outsourcing Inc)
(the “Company” or “Driven”), formed on July
22, 2013, is engaged in providing
delivery services of
legal cannabis products to consumers in
California.
On August 29, 2018, Driven Deliveries, Inc., a Nevada company
(“Driven Nevada”), was acquired by Results-Based
Outsourcing as part of a reverse merger transaction. As
consideration for the merger, Results-Based
Outsourcing issued the equity holders of Driven Nevada an
aggregate of 30,000,000 post-split shares of their
common.
Following the merger,
the Company adopted the business plan of Driven Nevada as a
delivery company focused on deliveries for consumers of legal
cannabis products, in California. The merger was accounted for as a
recapitalization of the Company, therefore the financial statements
as presented in this report include the historical results of
Driven Nevada.
Risks and Uncertainties
The Company has a limited operating history and has generated
limited revenues from its intended operations. The Company's
business and operations are sensitive to general business and
economic conditions in the U.S. along with local, state, and
federal governmental policy decisions. A host of factors beyond the
Company's control could cause fluctuations in these conditions.
Adverse conditions may include: changes in cannabis regulatory
environment and competition from larger more well-funded companies.
These adverse conditions could affect the Company's financial
condition and the results of its operations.
NOTE 2 – GOING CONCERN ANALYSIS
Going Concern Analysis
For the three months ended March 31, 2019, the Company had a net
loss of $954,387and working capital of $31,036. The Company will
require additional capital in order to operate in the normal course
of business. Management has concluded that due to these conditions,
there is substantial doubt about the company’s ability to
continue as a going concern. The accompanying consolidated
condensed financial statements have been prepared assuming that the
Company will continue as a going concern.
Management’s plans include raising capital though the sale of
debt and/or equity. The Company’s ability to continue as a
going concern is dependent upon its ability to raise capital to
implement the business plan, generate sufficient revenues and to
control operating expenses. While we believe in the viability of
our strategy to generate sufficient revenue, control costs and the
ability to raise additional funds, there can be no assurances that
our strategy will be successful. The Company’s financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result
from the matters discussed herein.
NOTE 3 -
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”)
for interim financial information and the rules and regulations of
the Securities and Exchange Commission (“SEC” for
interim financial information. In the opinion of the
Company’s management, the accompanying condensed financial
statements reflect all adjustments, consisting of normal, recurring
adjustments, considered necessary for a fair presentation of the
results for the interim period ended March 31, 2019. Although
management believes that the disclosures in these unaudited
condensed financial statements are adequate to make the information
presented not misleading, certain information and footnote
disclosures normally included in financial statements that have
been prepared in accordance U.S. GAAP have been condensed or
omitted pursuant to the rules and regulations of the
SEC.
The accompanying unaudited condensed financial statements should be
read in conjunction with the Company’s financial statements
for the year ended December 31, 2018, which contains the audited
financial statements and notes thereto, for the years ended
December 31, 2018 and 2017 included within the Company’s Form
10-K filed with the SEC on April 15, 2019. The interim results for
the three months ended March 31, 2019 are not necessarily
indicative of the results to be expected for the year ended
December 31, 2019 or for any future interim periods. The December
31, 2018 Balance Sheet is derived from the Company's audited
financial statements but does not include all necessary disclosures
for full U.S. GAAP presentation.
Use of estimates
The preparation of financial statements in conformity with U.S.
GAAP 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 revenue and
expense during the reporting period. Actual results could differ
from those estimates.
Concentrations of Credit Risk
The Company maintains its cash accounts at financial institutions
which are insured by the Federal Deposit Insurance Corporation. At
times, the Company may have deposits in excess of federally insured
limits.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be
cash equivalents. As of March 31, 2019, the Company did not have
any cash equivalents.
Equipment
Equipment is stated at cost less accumulated depreciation. Cost
includes expenditures for vehicles and computer equipment.
Maintenance and repairs are charged to expense as incurred. When
assets are sold, retired, or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in operations. The cost of
equipment is depreciated using the straight-line method over the
estimated useful lives of the related assets which is three years
for computer equipment and five years for vehicles. Depreciation
expense was $2,748 and $273 for the three months ended March
31, 2019 and 2018, respectively.
Stock-Based Compensation
The Company accounts for stock-based compensation costs under the
provisions of ASC 718, “Compensation—Stock
Compensation”, which requires the measurement and recognition
of compensation expense related to the fair value of stock-based
compensation awards that are ultimately expected to vest. Stock
based compensation expense recognized includes the compensation
cost for all stock-based payments granted to employees, officers,
and directors based on the grant date fair value estimated in
accordance with the provisions of ASC 718. ASC 718 is also applied
to awards modified, repurchased, or canceled during the periods
reported.
Stock-Based Compensation for Non-Employees
The Company accounts for warrants and options issued to
non-employees under ASU 2018-07, Equity – Equity Based
Payments to Non-Employees, using the Black-Scholes option-pricing
model.
Debt Issued with Warrants
Debt issued with warrants is accounted for under the guidelines
established by ASC 470-20 – Accounting for Debt with
Conversion or Other Options. We record the relative fair value of
warrants related to the issuance of convertible debt as a debt
discount or premium. The discount or premium is subsequently
amortized to interest expense over the expected term of the
convertible debt. The value of the warrants issued with the debt
was de minimis.
Revenue Recognition
As of January 1, 2018, the company adopted ASC 606. The adoption of
ASC 606, Revenue From Contracts With Customers, represents a change
in accounting principle that will more closely align revenue
recognition with the delivery of the Company’s services and
will provide financial statement readers with enhanced disclosures.
In accordance with ASC 606, revenue is recognized when a customer
obtains control of promised services. The amount of revenue
recognized reflects the consideration to which the Company expects
to be entitled to receive in exchange for these services. The
Company used the Modified-Retrospective Method when adopting this
standard. There was no accounting effect due to the initial
adoption. To achieve this core principle, the Company applies the
following five steps:
1)
|
Identify the contract with a customer
|
A contract with a customer exists when (i) the Company enters into
an enforceable contract with a customer that defines each
party’s rights regarding the services to be transferred and
identifies the payment terms related to these services, (ii) the
contract has commercial substance and, (iii) the Company determines
that collection of substantially all consideration for services
that are transferred is probable based on the customer’s
intent and ability to pay the promised consideration. The Company
applies judgment in determining the customer’s ability and
intention to pay.
The Company has three contracts with different customers with the
same terms. All of these qualify as contracts since they have been
approved by both parties, have identifiable rights and payment
terms regarding the services to be transferred, have commercial
substance, and it is probable that the entity will collect the
consideration in exchange for the services.
2)
|
Identify the performance obligations in the contract
|
Performance obligations promised in a contract are identified based
on the services that will be transferred to the customer that are
both capable of being distinct, whereby the customer can benefit
from the service either on its own or together with other resources
that are readily available from third parties or from the Company,
and are distinct in the context of the contract, whereby the
transfer of the services is separately identifiable from other
promises in the contract. To the extent a contract includes
multiple promised services, the Company must apply judgment to
determine whether promised services are capable of being distinct
and distinct in the context of the contract. If these criteria are
not met the promised services are accounted for as a combined
performance obligation.
The Company’s performance obligations are to (1) deliver
cannabis in compliance with California law, and (2) provide a
platform to sell the retailer’s products. These items
represent performance obligations since they are distinct services
and are distinct in the context of the contract.
3)
|
Determine the transaction price
|
The transaction price is determined based on the consideration to
which the Company will be entitled in exchange for transferring
services to the customer. To the extent the transaction price
includes variable consideration, the Company estimates the amount
of variable consideration that should be included in the
transaction price utilizing either the expected value method or the
most likely amount method depending on the nature of the variable
consideration. Variable consideration is included in the
transaction price if, in the Company’s judgment, it is
probable that a significant future reversal of cumulative revenue
under the contract will not occur. None of the Company’s
contracts as of March 31, 2019 contained a significant financing
component. Determining the transaction price requires significant
judgment, which is discussed by revenue category in further detail
below.
The company will perform delivery services in exchange for a flat
fee per delivery and an additional charge per mile. As
mandated by The California Bureau of Cannabis Control, delivery
drivers are required to be on the payroll of a licensed retailer.
In order to fulfill the performance obligation, delivery drivers
are included on the payroll of the customer, and the Company
reimburses the customer for the drivers’ wages at a premium.
The cost of paying the drivers are considered a cost to fulfill a
contract for which the Company receives no benefit, so it is
consideration payable to the customer, which is considered in
determining the transaction price. In addition, the company
currently nets the amounts owed by the customers for deliveries
with the amounts owed to the customers for drivers’ wages. As
such, the company reduces the delivery fee by the drivers’
wages to determine the transaction price. These elements of the
transaction price are based on variable consideration determined to
be constrained and are recognized as of the later of when the
service is rendered or when the Company pays or promises to pay the
consideration, which will generally be on a monthly basis. If the
cost of the drivers’ wages exceeds the total fees for
delivery, the company would present a net negative revenue. For the
three months ended March 31, 2019, the company will show net
negative revenue related to delivery of cannabis.
The transaction price of the commissions is a variable
consideration as the price is determined to be 10% of a delivered
sale from an order generated on the Company’s online
platform. The variable consideration is also constrained as the
amount of the consideration is dependent on the cost of the
products purchased; and is further constrained as the company has
little history to predict the amount to be recognized. Transaction
price for the commissions will be determined as the company
satisfies the performance obligation.
4)
|
Allocate the transaction price to performance obligations in the
contract
|
If the contract contains a single performance obligation, the
entire transaction price is allocated to the single performance
obligation. However, if a series of distinct services that are
substantially the same qualifies as a single performance obligation
in a contract with variable consideration, the Company must
determine if the variable consideration is attributable to the
entire contract or to a specific part of the contract. For example,
a bonus or penalty may be associated with one or more, but not all,
distinct services promised in a series of distinct services that
forms part of a single performance obligation. Contracts that
contain multiple performance obligations require an allocation of
the transaction price to each performance obligation based on a
relative standalone selling price basis unless the transaction
price is variable and meets the criteria to be allocated entirely
to a performance obligation or to a distinct service that forms
part of a single performance obligation. The Company determines
standalone selling price based on the price at which the
performance obligation is sold separately. If the standalone
selling price is not observable through past transactions, the
Company estimates the standalone selling price taking into account
available information such as market conditions and internally
approved pricing guidelines related to the performance
obligations.
The Company will allocate the transaction price of
the delivery fees and to the deliveries that they perform
separately for the customer. The transaction price of the
commissions will be allocated per each sale that the Company
generates for a retailer that is delivered. There are no
discounts to allocate and there have been no changes in the
transaction price to allocate.
5)
|
Recognize revenue when or as the Company satisfies a performance
obligation
|
The Company satisfies performance obligations either over time or
at a point in time. Revenue is recognized at the time the related
performance obligation is satisfied by transferring a promised
service to a customer.
Both performance obligations are satisfied at a point in time, and
as such revenue will be recognized when the delivery is completed.
The revenue will not be recognized for orders not fulfilled, but
the delivery fee is earned even if the delivery is rejected or the
person who placed the order is not present or available at the time
of delivery. The consideration payable to the customer for
drivers’ wages is recognized over time based on the inputs to
determine the drivers’ wage obligations, but the net
transaction price is known and therefore recognized by the end of
each reporting period.
Disaggregation of Revenue
The following table depicts the disaggregation of revenue according
to revenue type.
Revenue Type
|
Revenue
for the three months ended
March
31, 2019
|
Revenue
for the three months ended
March
31, 2018
|
Delivery
Income
|
$
15,370
|
6,968
|
Dispensary
Cost Reimbursements
|
(34,787
)
|
(773
)
|
Delivery
Income, net
|
(19,417
)
|
6,195
|
Commission
Income
|
-
|
-
|
Total
|
$
(19,417
)
|
6,195
|
Due to this reduction of revenue from the reimbursement of wages
for the delivery couriers, the Company is presenting a net negative
revenue for the three months ended March 31, 2019.
Leases
Under
Topic 842, operating lease expense is generally recognized evenly
over the term of the lease. The Company has operating leases
primarily consisting of office space with remaining lease terms of
11 months to 28 months. Current facility leases include our offices
in Las Vegas, Nevada, Long Beach, California and San Diego,
California. Lease costs were $44,060 for the three months ended
March 31, 2019. There was no sublease rental income for the three
months ended March 31, 2019.
Leases
with an initial term of twelve months or less are not recorded on
the balance sheet. For lease agreements entered into or reassessed
after the adoption of Topic 842, we combine the lease and non-lease
components in determining the lease liabilities and right of use
(“ROU”) assets.
Our
lease agreements generally do not provide an implicit borrowing
rate, therefore an internal incremental borrowing rate is
determined based on information available at lease commencement
date for purposes of determining the present value of lease
payments. We used the incremental borrowing rate on December 31,
2018 for all leases that commenced prior to that date.
Lease Costs
|
Three
Months Ended
March 31,
2019
|
Components of total
lease costs:
|
|
Operating lease
expense
|
$
44,060
|
Total lease
costs
|
$
44,060
|
Lease Positions as of March 31, 2019
ROU
lease assets and lease liabilities for our operating leases were
recorded in the condensed consolidated balance sheet as
follows:
|
|
Assets
|
|
Right of use
asset
|
$
250,695
|
Total
assets
|
$
250,695
|
|
|
Liabilities
|
|
Operating lease
liabilities – short term
|
130,539
|
Operating lease
liabilities – long term
|
$
129,255
|
Total lease
liability
|
$
259,794
|
Lease Terms and Discount Rate
Weighted average
remaining lease term (in years) – operating
lease
|
2.15
|
Weighted average
discount rate – operating lease
|
10.91
%
|
Cash
Flows
|
Three
Months Ended
March
31, 2019
|
Cash paid for
amounts included in the measurement of lease
liabilities:
|
|
ROU
amortization
|
$
11,274
|
Cash paydowns of
operating liability
|
$
(7,075
)
|
Supplemental
non-cash amounts of lease liabilities arising from
obtaining
|
|
ROU
assets
|
$
(261,969
)
|
Lease
Liability
|
$
266,869
|
The future minimum lease payments under the lease is are
follows:
2019 (nine
months)
|
$
99,089
|
2020
|
122,174
|
2021
|
58,408
|
Total future
minimum lease payments
|
279,671
|
Less imputed
interest
|
19,907
|
Total
|
$
259,764
|
Basic and Diluted Net Loss per Common Share
Basic loss per common share is computed by dividing the net loss by
the weighted average number of shares of common stock outstanding
for each period. Diluted loss per share is computed by dividing the
net loss by the weighted average number of shares of common stock
outstanding plus the dilutive effect of shares issuable through the
common stock equivalents. The weighted-average number of common
shares outstanding excludes common stock equivalents because their
inclusion would be anti-dilutive. As of March 31, 2019, common
stock equivalents are comprised of 10,676,750 warrants and
8,777,214 options.
Recent Accounting Pronouncements
The FASB issues ASUs to amend the authoritative literature in ASC.
There have been several ASUs to date, that amend the original text
of ASC. Management believes that those issued to date either (i)
provide supplemental guidance, (ii) are technical corrections,
(iii) are not applicable to us or (iv) are not expected to have a
significant impact our financial statements.
NOTE 4 – NOTES PAYABLE
On November 7, 2017 the Company issued a promissory note for
$75,000 that accrues interest of 6% annually. The promissory note
is due on the earlier of January 31, 2018 or in the event of
default, as such term is defined in the agreement. The terms
of the promissory note provide that the principal amount of the
note is convertible into the same security that is sold and issued
in the next Qualified Financing Round completed by the Company,
except that the conversion price shall be at a ten percent (10%)
discount to the equity price per share raised in such Qualified
Financing Round. Qualified Financing Round is defined
as an equity financing of the Company that is consummated
during the term of the promissory note which results in gross
proceeds of not less than $925,000. The note was in default but as
of the date of this report, has been fully paid
off.
On February 1, 2018, the Company entered into a convertible bridge
loan agreement providing for a loan in the principal amount of
$50,000 to the Company. The loan bears interest at the rate of 6%
annually and is convertible into shares the Company’s common
stock at a 10% discount to the equity price per share that is sold
and issued in the next Qualified Financing Round completed by the
Company. Qualified Financing Round is defined as an equity
financing of the Company that is consummated during the term of the
loan which results in gross proceeds of not less than
$925,000. In connection with the loan, the Company issued to
the lender a three year warrant to purchase 12,500 shares of common
stock of the Company at an exercise price of $0.50 per share. The
bridge loan was due on March 31, 2018. In March 2019, the Company
entered into a debt cancellation agreement with the lender pursuant
to which the Company agreed to issue to the lender 375,000 shares
of the Company’s common stock and a three year warrant to
purchase 25,000 shares of the Company’s common stock at an
exercise price of $0.20. The Company recorded a loss on
extinguishment of debt of $225 related to the
cancellation.
On October 25, 2018, the Company issued a convertible promissory
note in the principal amount of $50,000 which is convertible into
shares the Company’s common stock at a price of $0.20 per
share. This note accrues interest of 8% annually. The note is due
on October 25, 2019.
NOTE 5 - STOCKHOLDERS’ DEFICIT
Common Stock
The Company is authorized to issue 200,000,000 shares of common
stock, par value $0.0001 per share.
During the three months ended March 31, 2019, the company issued
5,435,000 shares of common stock for cash of $1,012,000, and
375,000 shares of common stock for cancellation of
debt.
Preferred Stock
The Company is authorized to issue 15,000,000 shares of preferred
stock, par value $0.0001 per share. The preferred stock may be
issued from time to time in one or more series as the
Company’s Board may authorize. None of the preferred stock
have been designated and none are issued and
outstanding.
Warrants
A summary of warrant issuances are as follows:
|
|
Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contractual Life
|
Warrants
|
|
|
|
|
|
|
|
Outstanding January
1, 2018
|
18,750
|
$
0.50
|
2.85
|
Granted
|
9,112,500
|
0.19
|
3.83
|
Outstanding
December 31, 2018
|
9,131,250
|
0.19
|
3.83
|
Granted
|
1,558,000
|
0.10
|
6.79
|
Outstanding March
31, 2019
|
10,676,750
|
$
0.16
|
4.05
|
During the first quarter of 2019, the Company issued warrants to
purchase 1,558,000 shares of common stock of the Company at an
exercise price of $0.10 per share. The warrants may be exercised on
a cashless basis and have a term of seven years. The warrants were
issued for consulting services.
Options
A summary of options issuances are as follows:
|
|
Weighted
Average
Exercise Price
|
Weighted Average
Remaining
Contractual Life
|
Weighted
Average
Grant Date Fair Value
|
Options
|
|
|
|
|
|
|
|
|
|
Outstanding January
1, 2018
|
-
|
$
-
|
-
|
$
-
|
Granted
|
4,854,692
|
0.04
|
3.00
|
0.19
|
Outstanding
December 31, 2018
|
4,854,692
|
0.04
|
3.00
|
0.19
|
Granted
|
3,922,522
|
0.10
|
7.00
|
0.20
|
Outstanding March
31, 2019
|
8,777,214
|
$
0.07
|
4.60
|
$
0.19
|
Nonvested
Shares
|
|
Nonvested at
January 1, 2018
|
-
|
Granted
|
4,854,692
|
Vested
|
(1,213,673
)
|
Forfeited
|
-
|
Nonvested at
December 31, 2018
|
3,641,019
|
Granted
|
3,922,522
|
Vested
|
(1,263,215
)
|
Forfeited
|
-
|
Nonvested at March
31, 2019
|
6,300,326
|
During the first quarter of 2019, the Company issued stock options
purchase 3,922,522 shares of common stock of the Company at an
exercise price of $0.10 per share. The options have a term of seven
years. The company recognized a stock compensation expense of
$187,306 related to the issuance of these options for the three
months ended March 31, 2019.
The company recognized a stock compensation expense of $244,059 for
the three months ended March 31, 2019.
NOTE 6 – COMMITMENTS AND CONTINGENCIES
On May 15, 2018, the Company entered into a three (3) year lease to
rent office space for its principal executive office, with an
effective date of June 1, 2018. The lease provides for monthly rent
of $2,800 per month for the first year of the lease, $3,780 per
month for the second year and $3,920 per month for the third year.
The Company is also required to pay a monthly common area
maintenance fee of $420.
On February 1, 2019, the Company entered into a twelve-month lease
for office space in Las Vegas, Nevada. The lease requires a monthly
payment of $1,764 and terminates on February 14,
2020.
The Company assumed a three (3) year lease, with an effective date
of February 5, 2019, from a related party. The Company paid $20,839
upon signing the assignment. The lease provides for monthly rent of
$5,345 per month through June 30, 2019, $5,880 per month through
June 30, 2020 and $6,468 per month through June 30, 2021. The
Company is also required to pay a monthly common area maintenance
fee of $695.
On February 22, 2019, the Company entered into a consulting
agreement for public and media relations services. As part of this
agreement the Company will $4,000 per month to the
consultant.
On March 7, 2019, the Company entered into a consulting agreement
for business advisory services. Pursuant to the terms of the
consulting agreement, the Company agreed to pay cash compensation
of $10,417 per month. The Company also agreed to pay a one-time
payment of $5,000 within 5 days of the execution of the agreement.
The Company also agreed to issue the consultant 125,000 options to
purchase shares of the Company’s common stock, which options
will vest quarterly over a 3 year period.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2018, the Company entered into a
loan agreement with the Company’s CFO, Brian Hayek, pursuant
to which Mr. Hayek extended an interest free loan to the Company in
the amount of $30,705. As of March 31, 2019, the amount due on this
loan was $3,000.
On January 16, 2019, the Company appointed Jerrin James as the
Company’s COO. Pursuant to the terms of the agreement with
Mr. James, the Company agreed to issue 2,897,522 shares either in
the form of stock options or warrants, to purchase shares of the
Company’s common stock 25% of which will vest immediately
upon grant with the remainder vesting quarterly over three
years.
On March 5, 2019, the Company appointed Adam Berk as a Director to
the Company. In connection with his appointment the Company agreed
to issue to Mr. Berk, options to purchase 450,000 shares of common
stock which vest immediately upon grant.
NOTE 8 - SUBSEQUENT EVENTS
On April 1, 2019 the Company entered into a consulting agreement
for business advisory services. As part of this agreement the
Company will pay the consultant $20,000 per month. Additionally,
the Company agreed to issue 500,000 warrants to purchase shares of
its common stock. These warrants have an exercise price of $0.20
and a term of 7 years.
On
April 3, 2019, the Company appointed Christian Schenk as a Director
to the Company. In connection with his appointment the Company
agreed to issue to Mr. Schenk, warrants to purchase 1,500,000
shares of common stock which will vest immediately upon grant. The
Company also agreed to issue warrants to purchase 500,000 shares of
common stock of the Company after the close of the merger with
Ganjarunner (see below for details on the business combination),
and issue warrants to purchase 1,000,000 shares of common stock of
the Company after successfully closing the Company’s pending
business arrangement with a cannabis B2B transportation provider or
other business as determined by the Board of
Directors.
Subsequent to the first quarter of 2019, the
Company issued 3,555,000 shares of its common stock for
consideration of $1,236,000.
During the second quarter of 2019, the Company issued 261,665
shares of its common stock for the conversion of a note with a
total value of $52,333 in principle and interest.
During the second quarter of 2019, the Company entered into three
delivery contractor agreements with retailers. As part of these
contracts the Company will offer delivery services in exchange for
a delivery fee from each of these retailers.
On June 21, 2019, the Company, GR Acquisition, Inc.
(“GRA”), a Nevada corporation ,Ganjarunner, Inc.
(“Ganjarunner”), a California corporation, and Global
Wellness, LLC (“GW”), a California limited liability
company, (Ganjarunner and GW are hereafter referred to collectively
as “GR/GW”) entered into an Agreement and Plan of
Merger (the “Agreement”), pursuant to which GR/GW shall
merge with and into GRA, with GRA continuing as the surviving
entity and wholly-owned subsidiary of the Company (the
“Merger”). The Merger closed on June 24, 2019 (the
“Closing Date”). Pursuant to the Agreement, the Company
shall, as partial consideration, pay GR/GW $450,000, $150,000 of
which has already been paid to GR/GW with the remaining $300,000 to
be paid in two equal tranches of $150,000 whereby each tranche is
subject to GRA’s achievement of certain milestones.
Additionally, the Company shall pay to GR/GW (i) $350,000 at the
earlier to occur of the 6-month anniversary of the Closing Date or
upon the Company raising additional funding of at least $2,000,000
and (ii) $300,000 at the end of the 24-month anniversary of the
Closing Date. In addition, as further consideration, the Company
issued to GR/GW’s founders 1,000,000 shares of the
Company’s common stock on the Closing Date and shall make two
additional issuances of 2,000,000 shares of common stock on the
12-month and 24-month anniversaries of the Closing Date, with each
respective issuance contingent upon GRA’s achievement of
certain milestones as set forth in the Agreement.
Subsequent to the first quarter of 2019, the Company entered into
seven employment agreements. As part of these agreements the
Company will issue a total of 1,650,000 options to purchase the
Company's common stock. These options vest quarterly over two or
three years.
On July 10, 2019 (the “Closing Date”), the Company and
Mountain High Recreation, Inc. (“MH”), a California
corporation, entered into an Asset Purchase Agreement (the
“Agreement”), pursuant to which the Company acquired
certain assets from MH as specified in the Agreement, which
included (i) the option to purchase to MH’s California
Cannabis - Retailer Nonstorefront License (ii) the option to
purchase a certain real property lease located at 8 Light Sky Ct,
Sacramento, CA 95828 associated with that certain license , (iii)
the right to use all trademarks and intellectual property
associated with the MH brand (the “Assets”). The
Company assumed no liabilities of MH. The transactions contemplated
by the Agreement, closed on July 10, 2019 (the
“Closing”).
Pursuant to the Agreement, the Company shall, as consideration for
the Assets, pay to MH the following: $200,000 at Closing, $150,000
on or before December 20, 2019, $150,000 on or before March 31,
2020, $250,000 at the end of the twelfth (12
th
) month (on a rolling basis) following the Closing
Date and $250,000 at the end of the twenty-fourth
(24
th
) month (on a rolling basis) following the Closing
Date. In addition, at the Closing, the Company issued to MH
1,000,000 shares of its common stock. At the end of the twelfth
month (on a rolling basis) from the Closing Date, the Company shall
issue to MH warrants to purchase 2,000,000 shares of the
Company’s Common Stock with an exercise price equal to the
per share purchase price paid by investors of the Company’s
then most recent private placement and exercisable for a period of
three (3) years from the date of issuance (the “2020
Warrants”). At the end of the twenty-fourth month (on a
rolling basis) from the Closing Date, the Company shall issue to MH
warrants to purchase 2,000,000 shares of the Company’s Common
Stock with an exercise price equal to the per share purchase price
paid by investors of the Company’s then most recent private
placement price, exercisable for a period of three (3) years from
the date of issuance (the “2021 Warrants”). The 2020
Warrants and 2021 Warrants are subject to adjustment, based on the
amount of gross revenue the Company recognized in connection with
the Assets.
The
Company assumed a five (5) year lease, with an effective date of
June 24, 2019, the acquisition of Ganjarunner. The lease provides
for monthly rent of $3,113 per month through July 31, 2021, $3,206
per month through July 31, 2022 and $3,302 per month through July
31, 2023.