NOTE

10.

COMMITMENTS AND CONTINGENCIES

Coastal Compassion. See Note

Operating Leases

Land

October 17, 2016,

the Company closed the previously announced acquisition of a

52.6

-acre parcel of undeveloped land in Freetown, Massachusetts. The deposits of

$925,000

previously paid by the Company to the seller, Boston Beer Company (“BBC”), were credited against the total purchase price of

$4,475,000.

The remaining balance of

$3,550,000

was paid to BBC by Massachusetts Medical Properties, LLC (“MMP”). The property is located approximately

miles southeast of Boston. The Company plans to develop the property as the Massachusetts Medical Cannabis Center (the “MMCC”). Plans for the MMCC include the construction of sustainable greenhouse cultivation, processing, and infused product facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program.

As part of a simultaneous transaction, the Company assigned the property rights to MMP for a nominal fee and entered a lease agreement pursuant to which MMP agreed to lease the property to the Company for an initial term of

fifty

(

) years. The Company has the option to extend the term of the lease for

four

(

) additional

ten

(

) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.

The lease payments will be the greater of (a)

$30,000

per month; (b)

$0.38

per square foot per month of any structure built on the property; or (c)

1.5%

of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The lease payments will be adjusted up (but

not

down) every

five

(

) years by any increase in the Consumer Price Index.

Under the terms of the lease, the Company had

six

months to obtain

$2.6

million in capital funding for the construction of the

first

phase building. In the event that the Company is unable to raise these funds within the

six

month period, the Company had an additional

six

months to do so; provided, that the Company has paid accrued lease payments and closing costs. On

October 17, 2017,

the lease agreement was amended to provide that the Company will have until

months from

October 17, 2016

to raise

$2.6

million in capital funding. In addition to extending the funding deadline, this amendment granted MMP a warrant to purchase up to

100,000

shares of the Company’s common stock at an exercise price of

$1.50

per share. The warrant can be exercised at any time on or before

October 17, 2022.

The Company recognized an expense of

and

$171,307

during the

three

and

nine

months ended

June 30, 2018,

respectively, representing the entire grant date fair value of the warrant.

February 16, 2018,

the lease agreement was amended to provide that the Company will have until

months from

October 17, 2016

to raise

$2.6

million in capital funding. In addition to extending the funding deadline, this amendment granted MMP a warrant to purchase up to

50,000

shares of the Company’s common stock at an exercise price of

$1.50

per share. The warrant can be exercised at any time on or before

October 17, 2022.

The Company recognized an expense of

$135,354

during the

nine

months ended

June 30, 2018,

representing the entire grant date fair value of the warrant.

April 17, 2018,

the lease agreement was amended to provide that the Company will have until

months from

October 17, 2016

to raise

$2.6

million in capital funding. In addition to extending the funding deadline, this amendment granted MMP a warrant to purchase up to

50,000

shares of the Company’s common stock at an exercise price of

$1.50

per share. The warrant can be exercised at any time on or before

October 17, 2022.

The Company recognized an expense of

$126,126

during the

nine

months ended

June 30, 2018,

representing the entire grant fair value of the warrant.

As of

June 30, 2018,

the Company has satisfied the funding obligations as per the agreement and amendments.

The Company received a credit for the

$925,000

paid towards the purchase price of the land in the form of discounted lease payments. For the initial

fifty

(

) year term of the lease, the lease payments will be reduced by

$1,542

each month

In connection with the sale of the property to MMP and the lease, the Company and MMP entered into a Share Purchase Agreement pursuant to which the Company issued to MMP

100,000

shares of its common stock at par value of

$0.0001

(“Common Stock”), and a warrant to purchase up to

3,640,000

shares of Common Stock at an exercise price of

$1.00

per share. The warrant can be exercised at any time on or after

October 17, 2018

and on or before

October 17, 2020.

The warrant does

not

contain a cashless exercise provision. The fair value of the warrant was established using the Black Scholes option pricing model using the following assumptions:

	●	Risk-free interest rate – 1.12 percent
	●	Expected term – 4.0 years
	●	Volatility – 100 percent

The Company allocated

$1,899,966

to the warrant which is reflected in additional paid-in-capital and was allocated to prepaid land lease. The fair value of the common stock on the date of the agreement was

$73,000,

which is also reflected in additional paid-in-capital and was allocated to prepaid land lease. The prepaid land lease is being amortized on a straight-line basis over the term of the lease.

The lease expense was

$99,865

and

$99,865

for the

three

months ended

June 30, 2018

and

2017,

respectively, and

$299,595

and

$406,901

for the

nine

months ended

June 30, 2018

and

2017,

respectively. At

June 30, 2018,

the future rental payments required under this lease are

$85,374

for the remainder of fiscal

2018,

341,496

for fiscal years

2019

through

2022,

and

$15,026,024

thereafter.

Office space

The Company leases its office space located at

1550

Wewatta, Denver, Colorado

80202

for

$1,845

per month under a month-to-month lease.

Except as described above, the Company has

other non-cancelable lease commitments.