Note 3 - Assets Held for Sale | Note 3 – Assets Held for Sale (1) Assets in Oregon within the Pioneer Business Park In April 2016, the Company purchased a parcel of land near Eugene, Oregon within the Pioneer Business Park (the “Pioneer Property”) from a private seller for 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 3). The intent of the Company was to build an industrial condominium building on the parcel, akin to the Eagle Point 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, and consequently, the Company abandoned those plans in late calendar 2017. In December 2017, the Company made the decision to put the Pioneer Property up for sale, retained a sales agent and listed the Pioneer Property for sale at a purchase price of $399,000. At that time the Company impaired all costs incurred towards development of the land which amounted to $31,843 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 as of June 30, 2018, respectively. In September 2018, the Company completed the sale of the Pioneer Property for a gross sales price of $349,000 (See Note 3). After payment of all closing costs, the Company recorded a loss on sale of approximately $5,400. (2) WCS Enterprises, Inc. In the quarter ended March 31, 2019, the Company began to actively market WCS for sale and has begun negotiations with certain parties for the sale of WCS, subject to diligence, negotiation of a purchase agreement and fulfillment of typical closing conditions. In connection with these efforts, management has determined that it is appropriate to classify WCS as Assets Held for Sale. On September 30, 2019, the Company entered into a membership interest purchase agreement with the Zallen Trust pursuant to which the Company sold all of the Company’s membership interests in WCS for an aggregate purchase price of $782,450. The Zallen Trust paid the purchase price by transferring to the Company 8,693,888 shares of the Company’s Common Stock, valued at $0.09 per share. The Purchase Agreement also provided that Mr. Zallen transfer to the Company an additional 400,000 shares of Common Stock to settle $36,000 in back rent owed at the time of the sale. The Company retired all of the shares received as a result of the transaction. In connection with the sale of WCS, the Company and Mr. Zallen entered into a separation and release of claims agreement pursuant to which the Company and Mr. Zallen provided a mutual release of claims against the other party and such party’s affiliates, including all claims related to Mr. Zallen’s service as an officer, employee, and director of the Company. The release of claims by Mr. Zallen resulted in the forgiveness of salary accruals of approximately $367,000 for services provided up to June 30, 2018. (3) Smoke on the Water On September 4, 2019 the Company entered into a listing agreement for the sale of the Smoke on the Water site location for an offering price of $850,000, with expected 6% sales commission. In connection with these efforts, management has determined that it is appropriate to classify the Smoke on the Water site location as Assets Held for Sale, and all related operations are classified as discontinued. At June 30, 2019 the Company recorded a impairment change of $112,000 based on the expected sales price less costs of sale compared to the carrying value at June 30, 2019. The Results of the Discounted Operations which included the results of Smoke on the water and WCS are as follows: Fiscal Year Ended June 30, 2019 2018 Net revenues $ 341,016 $ 330,850 Operating expenses Cost of revenue 100,096 80,034 General and administrative 204,263 181,553 Depreciation, amortization and impairment 141,469 61,267 Total operating expenses 445,828 322,854 Income (Loss) from operations (104,81 2 ) 7,996 Gain on cancellation of purchase option - 25,900 Interest expense (54,622) (87,349) Income (loss) from discontinued operations $ (159,434) $ (53,453) Groups of assets and liabilities held for sale as of June 30, 2019 and 2018: June 30, June 30, 2019 2018 ASSETS: Lease receivable $ 32,307 $ 2,440 Prepaid expenses 13,449 4,309 Property, plant and equipment, net 1,606,097 2,067,884 Other assets 6,650 6,650 TOTAL ASSETS $ 1,658,503 $ 2,081,283 LIABILITIES: Accounts payable and accrued liabilities $ 385,647 $ 393,735 Mortgage 605,359 1,767,427 Other liabilities 79,100 79,100 TOTAL LIABILITIES 1,070,106 2,240,262 NET ASSETS $ 588,397 $ (158,979) (4) Mortgages Payable (i) Mortgage related to assets held for sale on Pioneer Property and Eagle Mountain Property June 30, 2019 June 30, 2018 Liability held for sale – Mortgages on Eagle Mountain Property $ - $ 902,711 Liability held for sale – Mortgage on Pioneer Property - 250,868 $ - $ 1,153,579 In 2013, upon the acquisition of the Eagle Point Property, WCS assumed the sellers’ mortgage from People’s Bank of Commerce, NA (“People’s Bank”). The original principal amount of the mortgage was $930,220, had an interest rate equal to People’s Bank’s prime rate plus 1.75%, required 58 monthly payments of $5,946 and required a balloon payment of $802,294 on June 28, 2018, the maturity date. The mortgage was secured by liens against certain properties owned by the seller. In August 2018, the Company paid the mortgage in full. As of June 30, 2019, and June 30, 2018, the balance on the mortgage was $0 and $797,476, respectively. In 2013, after the acquisition of the Eagle Point Property, WCS entered into a second mortgage with People’s Bank for the amount of $120,000. The mortgage had an interest rate equal to People’s Bank’s prime rate plus 3%, required 56 monthly payments of $883, and required a balloon payment of $104,329 on October 15, 2018, the maturity date. The mortgage was 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 June 30, 2019, and June 30, 2018, balance on the mortgage was $0 and $105,235, respectively. (i) Mortgage related to assets held for sale on Pioneer Property and Eagle Mountain Property (continued) In April 2016, as more fully described in Note 3, the Company acquired the Pioneer Property and entered into a mortgage with the seller for the amount of $267,129. The mortgage originally had an interest rate of 6% per annum and a maturity date of the earlier of (a) October 1, 2017 or the date construction begins on the condominium building proposed to be built. 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 required interest only monthly payments of $1,261 from November 2017 through June 2018 with the remaining amount due in the form of a final balloon payment in July 2018. As noted above in Note 3, 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 June 30, 2019, and June 30, 2018, the balance on the mortgage was $0 and $250,868, respectively. (ii) Mortgage related to assets held for sale on Smoke on the Water June 30, 2019 June 30, 2018 Liability held for sale on Smoke on the Water $ 605,359 $ 613,848 In March 2017, as more fully described in Note 3, the Company acquired the Lake Selmac Property. 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 had an interest rate of 5% per annum covering the monthly payments of $3,355 for the initial 12 months, which increased 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. In fiscal year periods ended June 30, 2019, the Company paid $8,489 to the principal of mortgage and $41,493 to the interests of the mortgage. As of June 30, 2019, and June 30, 2018, the balance on the mortgage was $605,359 and $613,848, respectively. The note is unsecured. As of June 30, 2019, the approximate future aggregate principal payments in respect of our current obligations were as follows: 2020 $ 8,012 2021 9,419 2022 587,928 $ 605,359 |