10. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Long-term financing commitment

On January 21, 2014, we signed an agreement with Full Circle. The agreement provides that Full Circle will initially provide $7.5 million to us in the form of Senior Secured Convertible Notes, subject to certain named conditions.  We can borrow an additional $22.5 million with the mutual agreement of Full Circle and ourselves.

At least 95% of any loan proceeds will be used to acquire properties which we will lease to licensed marijuana growers.

Full Circle will provide us with the initial $7.5 million when:

     ●  Full Circle agrees on the location of property to be purchased;

     ●  The specified property’s appraised value is satisfactory to Full Circle;

     ●  A Phase I environmental inspection is completed to the satisfaction of Full Circle; and

     ●  We are able to provide a first priority lien on the property in favor of Full Circle.

We can borrow an additional $22.5 million on terms acceptable to Full Circle and ourselves.

The six-year loan(s) will be secured by real estate acquired with the loan proceeds and will require interest-only payments at a rate of 12% a year, payable monthly. As of March 31, 2014 no amounts have been funded pursuant to its agreement.

The initial loan can, at any time, be converted into shares of our common stock at a conversion price of $5 per common share.  It is contemplated that further advances will be convertible at 110% of the market price of our stock on the day of any advance, or the ten-day volume-weighted average price prior to the day of advance, whichever is lower.

The funding of the loan(s) is subject to the execution of additional documents between the parties.

Full Circle also purchased, for $500,000, warrants which allow Full Circle to purchase up to 1,000,000 shares of our common stock at any time on or prior to January 21, 2017 at a price of $5.50 per share. Of the $500,000 proceeds from the warrant being issued to Full Circle, $100,000 was retained by Full Circle Capital Corporation to cover legal and deal related expenses of future financing transactions (See Notes 11 and 12).

Operating Leases

The Company rents office space for its corporate needs. The Company entered into a month-to-month lease agreement in July 2013 to lease 2,000 square feet for an annual rate of $12,000, paid monthly. This lease was terminated effective April 1, 2014.  The Company entered into a new three-year lease agreement effective April 4, 2014 for its corporate offices.  The facility leased is 3,000 square feet with total payments due of $82,600 through March 31, 2017.

We paid $3,000 for the lease of our corporate offices for the quarter ended March 31, 2014.

Leasehold Improvements

We also agreed with the tenant of the Pueblo West Property to begin construction of an 8,000 sq. ft. light deprivation greenhouse on the property at a cost not to exceed $400,000.  Construction is to begin no later than June 25, 2014.  Depending on the availability of capital, we may construct up to five additional greenhouses on this property.

Legal

To the best of the Company’s knowledge and belief, no legal proceedings are currently pending or threatened.