Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Jun. 30, 2019 | Aug. 14, 2019 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2019 | |
Current Fiscal Year End Date | --09-30 | |
Entity File Number | 000-54730 | |
Entity Registrant Name | Item 9 Labs Corp. | |
Entity Central Index Key | 0001500123 | |
Entity Incorporation, State or Country Code | DE | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 63,514,979 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2019 |
CONDENSED INTERIM CONSOLIDATED
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Current Assets: | ||
Cash | $ 786,813 | $ 1,674,266 |
Accounts receivable | 395,941 | 97,382 |
Deferred costs | 1,607,632 | 618,718 |
Notes and interest receivable | 258,712 | 225,074 |
Receivable for sale of Airware assets | 524,000 | 639,000 |
Prepaid expenses and other current assets | 67,415 | 6,107 |
Total current assets | 3,640,513 | 3,260,547 |
Property and equipment, net | 5,991,816 | 1,234,042 |
Investment in Health Defense, LLC | 100,000 | 100,000 |
Deposit on land purchase from related party | 600,000 | 200,000 |
Receivable for sale of Airware assets, net of unamortized discount of $11,855 and $50,912, respectively | 288,145 | 249,088 |
Intangible assets, net | 3,113,167 | |
Goodwill | 5,650,000 | |
Total Assets | 19,383,641 | 5,043,677 |
Current Liabilities: | ||
Accounts payable | 823,754 | 725,510 |
Accrued payroll | 35,000 | 36,733 |
Accrued compensated absences | 34,424 | 17,426 |
Accrued interest | 32,844 | 11,355 |
Accrued expenses | 1,274,329 | 81,363 |
Accrued income tax | 451,572 | 88,826 |
Convertible notes payable | 20,000 | 20,000 |
Total current liabilities | 2,671,923 | 981,213 |
Long term debt | 2,700,000 | 1,500,000 |
Total liabilities | 5,371,923 | 2,481,213 |
Commitments and Contingencies | ||
Stockholders' Equity: | ||
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 63,341,644 and 54,766,642 shares issued and outstanding at June 30, 2019 and September 30, 2018, respectively | 6,341 | 5,477 |
Additional paid-in capital | 17,006,369 | 3,427,230 |
Accumulated deficit | (2,947,606) | (870,243) |
Total Item 9 Labs Corp stockholders' equity | 14,065,104 | 2,562,464 |
Noncontrolling Interest | (53,386) | |
Total Liabilities and Stockholders' Equity | $ 19,383,641 | $ 5,043,677 |
CONDENSED INTERIM CONSOLIDATE_2
CONDENSED INTERIM CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Jun. 30, 2019 | Sep. 30, 2018 |
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ .0001 | $ .0001 |
Common stock, authorized | 2,000,000,000 | 2,000,000,000 |
Common stock, issued | 63,341,644 | 54,766,642 |
Common stock, outstanding | 63,341,644 | 54,766,642 |
CONDENSED INTERIM CONSOLIDATE_3
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||||
Revenues, net | $ 1,542,067 | $ 439,913 | $ 3,627,951 | $ 945,595 |
Cost of services | 697,672 | 376,713 | 1,702,828 | 686,476 |
Gross profit | 844,395 | 63,200 | 1,925,123 | 259,119 |
Operating expenses | ||||
Professional fees and outside services | 366,397 | 186,104 | 920,194 | 199,862 |
Payroll and employee related expenses | 590,965 | 1,631,343 | ||
Sales and marketing | 268,940 | 39,671 | 407,288 | 52,149 |
Depreciation and amortization | 193,455 | 12,355 | 275,955 | 36,825 |
Other operating expenses | 238,496 | 209,748 | 616,403 | 298,442 |
Total expenses | 1,658,253 | 447,878 | 3,851,183 | 587,278 |
Loss from operations | (813,858) | (384,678) | (1,926,060) | (328,159) |
Other income (expense) | ||||
Interest income | 26,553 | 5,350 | 74,386 | 5,350 |
Interest expense | (21,314) | (619) | (22,925) | (1,119) |
Other income | 107,896 | 107,896 | ||
Total other income (expense), net | 113,135 | 4,731 | 159,357 | 4,231 |
Loss from continuing operations, before income tax expense | (700,723) | (379,947) | (1,766,703) | (323,928) |
Income tax expense | 156,647 | 364,046 | ||
Net loss from continuing operations | (857,370) | (379,947) | (2,130,749) | (323,928) |
Income from discontinued operations | 34,752 | 35,231 | ||
Net loss | (857,370) | (345,195) | (2,130,749) | (288,697) |
Less: Net income (loss) attributable to noncontrolling interest | 6,806 | (53,386) | ||
Net loss attributable to parent | $ (864,176) | $ (345,195) | $ (2,077,363) | $ (288,697) |
Basic net income (loss) per common share | $ (0.01) | $ (0.01) | $ (0.03) | $ (0.01) |
Basic weighted average common shares outstanding | 63,159,814 | 42,071,226 | 60,774,873 | 41,204,073 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (Unaudited) - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated (Deficit) | Total | Noncontrolling Interest |
Beginning balance, shares at Sep. 30, 2017 | 7,519,182 | ||||
Beginning balance, amount at Sep. 30, 2017 | $ 752 | $ 1,149,400 | $ (181,522) | $ 968,630 | |
Net income/loss | 84,112 | 84,112 | |||
Ending balance, shares at Dec. 31, 2017 | 7,519,182 | ||||
Ending balance, amount at Dec. 31, 2017 | $ 752 | 1,149,400 | (97,410) | 1,052,742 | |
Beginning balance, shares at Sep. 30, 2017 | 7,519,182 | ||||
Beginning balance, amount at Sep. 30, 2017 | $ 752 | 1,149,400 | (181,522) | 968,630 | |
Net income/loss | (288,697) | ||||
Ending balance, shares at Jun. 30, 2018 | 54,733,286 | ||||
Ending balance, amount at Jun. 30, 2018 | $ 5,474 | 3,376,032 | (470,219) | 2,938,901 | |
Beginning balance, shares at Dec. 31, 2017 | 7,519,182 | ||||
Beginning balance, amount at Dec. 31, 2017 | $ 752 | 1,149,400 | (97,410) | 1,052,742 | |
Issuance of stock by predecessor, shares | 5,346,733 | ||||
Issuance of stock by predecessor, amount | $ 535 | (535) | |||
Increase in additional paid-in capital from merger | 618,311 | 618,311 | |||
Issuance of stock for cash, shares | 202,400 | ||||
Issuance of stock for cash, amount | $ 20 | 202,380 | 202,400 | ||
Merger stock issued, shares | 40,355,771 | ||||
Merger stock issued, amount | $ 4,036 | (4,036) | |||
Net income/loss | (27,614) | ||||
Ending balance, shares at Mar. 31, 2018 | 53,424,086 | ||||
Ending balance, amount at Mar. 31, 2018 | $ 5,343 | 1,965,520 | (125,024) | 1,873,453 | |
Issuance of stock for cash, shares | 1,309,200 | ||||
Issuance of stock for cash, amount | $ 131 | 1,309,069 | 1,309,200 | ||
Exchange of shares to be issued for services | 99,933 | 99,933 | |||
Stock options to be issued issued for services | 1,510 | 1,510 | |||
Net income/loss | (345,195) | (345,195) | |||
Ending balance, shares at Jun. 30, 2018 | 54,733,286 | ||||
Ending balance, amount at Jun. 30, 2018 | $ 5,474 | 3,376,032 | (470,219) | 2,938,901 | |
Beginning balance, shares at Sep. 30, 2018 | 54,766,642 | ||||
Beginning balance, amount at Sep. 30, 2018 | $ 5,477 | 3,427,230 | (870,243) | 2,562,464 | |
Stock issued for acquisition, shares | 3,000,000 | ||||
Stock issued for acquisition, amount | $ 300 | 7,499,700 | 7,500,000 | ||
Issuance of stock for cash, shares | 3,150,000 | ||||
Issuance of stock for cash, amount | $ 315 | 3,149,685 | 3,150,000 | ||
Exchange of shares for services, shares | 30,000 | ||||
Exchange of shares for services, amount | $ 3 | 29,997 | 30,000 | ||
Net income/loss | (323,625) | (323,625) | (47,885) | ||
Ending balance, shares at Dec. 31, 2018 | 60,946,642 | ||||
Ending balance, amount at Dec. 31, 2018 | $ 6,095 | 14,106,612 | (1,193,868) | 12,918,839 | (47,885) |
Beginning balance, shares at Sep. 30, 2018 | 54,766,642 | ||||
Beginning balance, amount at Sep. 30, 2018 | $ 5,477 | 3,427,230 | (870,243) | 2,562,464 | |
Net income/loss | (2,077,363) | ||||
Ending balance, shares at Jun. 30, 2019 | 63,407,932 | ||||
Ending balance, amount at Jun. 30, 2019 | $ 6,341 | 17,006,369 | (2,947,606) | 14,065,104 | (53,386) |
Beginning balance, shares at Dec. 31, 2018 | 60,946,642 | ||||
Beginning balance, amount at Dec. 31, 2018 | $ 6,095 | 14,106,612 | (1,193,868) | 12,918,839 | (47,885) |
Issuance of stock for cash, shares | 2,116,669 | ||||
Issuance of stock for cash, amount | $ 212 | 2,249,791 | 2,250,003 | ||
Exchange of shares for services, shares | 58,529 | ||||
Exchange of shares for services, amount | $ 6 | 134,994 | 135,000 | ||
Stock compensation, shares | 33,144 | ||||
Stock compensation, amount | $ 3 | 124,997 | 125,000 | ||
Net income/loss | (889,562) | (889,562) | (12,307) | ||
Ending balance, shares at Mar. 31, 2019 | 63,154,984 | ||||
Ending balance, amount at Mar. 31, 2019 | $ 6,316 | 16,616,394 | (2,083,430) | 14,539,280 | (60,192) |
Issuance of stock for cash, shares | 173,333 | ||||
Issuance of stock for cash, amount | $ 17 | 259,983 | 260,000 | ||
Exchange of shares for services, shares | 70,000 | ||||
Exchange of shares for services, amount | $ 7 | 104,993 | 105,000 | ||
Stock compensation, shares | 9,615 | ||||
Stock compensation, amount | $ 1 | 24,999 | 25,000 | ||
Net income/loss | (864,176) | (864,176) | 6,806 | ||
Ending balance, shares at Jun. 30, 2019 | 63,407,932 | ||||
Ending balance, amount at Jun. 30, 2019 | $ 6,341 | $ 17,006,369 | $ (2,947,606) | $ 14,065,104 | $ (53,386) |
CONDENSED INTERIM CONSOLIDATE_4
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Cash Flows from Operating Activities: | ||
Net loss | $ (2,130,749) | $ (288,697) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 275,955 | 36,825 |
Interest accrued on notes receivable | (33,638) | |
Common stock issued for services | 270,000 | 100,000 |
Stock compensation expense | 150,000 | 1,510 |
Gain on sale of Airware assets | (29,930) | |
Interest accretion on receivable for sale of Airware assets | (39,057) | |
Changes in operating assets and liabilities: | ||
Accounts receivable | (298,562) | 40,827 |
Deferred costs | (988,914) | (213,440) |
Prepaid expenses and other current assets | (61,308) | (17,226) |
Accounts payable | 98,247 | 4,490 |
Accrued payroll | (1,733) | |
Accrued compensated absences | 16,998 | |
Accrued interest | 21,489 | 1,000 |
Accrued expenses | 1,192,966 | 20,104 |
Accrued income tax | 362,746 | |
Net Cash Used in Operating Activities | (1,165,082) | (344,537) |
Cash Flows From Investing Activities: | ||
Issuance of notes receivable | (210,000) | |
Deposit on land purchase from related party | (400,000) | (200,000) |
Purchases of property and equipment | (4,797,374) | (73,616) |
Cash paid for purchase of AZ DP Counsulting LLC assets | (1,500,000) | |
Cash received from sale of Airware assets | 300,000 | |
Cash received on receivable for sale of Airware assets | 115,000 | |
Cash acquired in merger | 26,363 | |
Net Cash Used in Investing Activities | (6,582,374) | (157,253) |
Financing Activities: | ||
Proceeds from the sale of common stock, net of issuance costs | 5,660,003 | 1,511,600 |
Proceeds from the issuance of long term debt | 1,200,000 | |
Net Cash Provided by Financing Activities | 6,860,003 | 1,511,600 |
Net (Decrease)/Increase in Cash | (887,453) | 1,009,810 |
Cash - Beginning of Period | 1,674,266 | 13,860 |
Cash - End of Period | 786,813 | 1,023,670 |
Supplemental disclosure of cash flow information: | ||
Interest paid in cash | ||
Income taxes paid in cash | ||
Supplemental disclosure of non-cash investing and financing activities: | ||
Stock issued for asset acquisition of Arizona DP Consulting, LLC | 7,500,000 | |
Member equity issued for property, plant and equipment | 958,510 | |
Net assets acquired in reverse merger: | ||
Issuance of common stock for reverse merger | 683,231 | |
Accounts receivable | (44,801) | |
Property and equipment | (6,150) | |
Goodwill | (1,323,780) | |
Accounts payable and accrued expenses | 697,863 | |
Convertible notes payable | 20,000 | |
Cash acquired in merger | 26,363 | |
Net assets acquired in acquisition of Arizona DP Consulting, LLC | ||
Intangible assets | 3,010,000 | |
Goodwill | 5,990,000 | |
Total purchase consideration | $ 9,000,000 |
Description of Business and Sum
Description of Business and Summary of Significant Accounting Policies | 9 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Description of Business and Summary of Significant Accounting Policies | Note 1 – Description of Business and Summary of Significant Accounting Policies Description of Business Item 9 Labs Corp. (“Item 9 Labs” or the “Company”), formerly Airware Labs Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010 as Crown Dynamics Corp. On October 26, 2012, the Articles of Incorporation were amended to reflect a name change to Airware Labs Corp, and on April 2, 2018, they were amended again to reflect the name change to Item 9 Labs Corp. On October 18, 2018 the Company effected a 1 for 20 reverse stock split of the Company’s common stock. The par value and number of authorized shares were not adjusted as a result of the reverse stock split. The total number of shares outstanding at the time of the split was adjusted from 1,095,332,835 to 54,766,642. All share information in these financial statements has been retroactively adjusted to reflect the effect of the reverse split. On March 20, 2018, the Company closed on an Agreement and Plan of Exchange (the “Agreement”) to acquire all of the membership interests of BSSD Group, LLC (“BSSD”), an Arizona limited liability company formed on May 2, 2017, in exchange for newly issued restricted shares of the Company’s common stock (the “Shares”), which represent approximately 75% of the issued and outstanding shares of the Company’s common stock on a fully-diluted basis. The 40,355,771 Shares were distributed pro-rata to the BSSD members. As part of the Agreement, the Company agreed to increase its authorized shares of common stock to two billion. For accounting purposes the transaction is being recorded as a reverse recapitalization, with BSSD as the accounting acquirer. Consequently, the historical pre-merger financial statements of BSSD are now those of the Company. In its determination that BSSD was the accounting acquirer, the Company considered pertinent facts and circumstances, including the following: (i) the BSSD owners received the largest portion of the voting rights of the combined entity; (ii) the management team of the combined entity is primarily comprised of owners or management of BSSD; (iii) the continuing business of the combined entity will be the business of BSSD. The accompanying consolidated financial statements reflect the consolidated operations of the Company from March 20, 2018. Through a licensing agreement, the Company grows medical marijuana and produces cannabis related products at their facility in Pinal County, Arizona on behalf of licensed medical marijuana dispensaries in the state of Arizona. The major assets of the Company, consisting of five acres of land and a cultivation facility, were contributed by the members of BSSD in May 2017 and were recorded at the historical carrying value (original cost less any related accumulated depreciation) of the member as of the contribution date. On September 12, 2018, the Company executed a $1,500,000 promissory note (see Note 7) which was used to make a capital contribution into Strive Management, LLC, a Nevada limited liability company (“Strive Management”). In exchange for the contribution, the Company received a 20% membership interest in Strive Management. The remaining interests are held by three individuals one of which is the Company’s current Chief Executive Officer. Through a management agreement with Strive Wellness of Nevada, LLC, a related party (the Company CEO is a member of this LLC), Strive Management will facilitate the cultivation, processing and distribution of marijuana in Nevada. Strive Wellness of Nevada, LLC has been allocated cultivation, processing and distribution licenses from the State of Nevada. Additionally, the Company will acquire an additional 31% ownership of Strive Management upon the approval from the State of Nevada to operate the cultivation and processing facility. Principles of Consolidation Item 9 Labs consolidates all variable interest entities (“VIEs”) in which the Company is deemed to be the primary beneficiary and all other entities in which it has a controlling voting interest. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company periodically makes judgments in determining whether its investees are VIEs and, each reporting period, the Company assesses whether it is the primary beneficiary of any of its VIEs. As of June 30, 2019 and September 30, 2018, the Company is deemed the primary beneficiary of Strive Management because the entity has insufficient equity to finance its activities without additional subordinated support. The interests in Strive Management held by non-controlling members has been presented on the statement of operations and statement of stockholders’ equity as non-controlling interest. The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities in which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated. The accompanying interim unaudited condensed consolidated financial statements of the Company as of June 30, 2019, do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with our September 30, 2018 audited financial statements filed with the Securities and Exchange Commission on our Form 10-12G filed June 27, 2019. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2019. Accounting Estimates The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States of America 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 expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include estimated useful lives of property and equipment, deferred income taxes, fair value of acquired intangible assets, the fair value of common stock provided as consideration and the estimated fair value of stock options and warrants. Discontinued Operations The Company sold the former Airware business of nasal dilator sales on May 3, 2018, see Note 4. The operating results related to this business have been classified as discontinued operations in the condensed interim consolidated financial statements in accordance with Accounting Standards Codification 205-20, Discontinued Operations Cash Cash represents cash on hand, demand deposits placed with banks and other financial institutions and all highly liquid instruments purchased with a remaining maturity of three months or less as of the purchase date of such investments. The Company maintains cash on deposit, which, can exceed federally insured limits. The Company has not experienced any losses on such accounts nor believes it is exposed to any significant credit risk on cash. Accounts Receivable and Notes Receivable Accounts receivable are reported at the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expects to collect are reported in the results of operations of the year in which those differences are determined, with an offsetting entry to a valuation allowance for accounts receivable. Management believes all accounts receivable outstanding as of the balance sheet dates are fully collectible, and as such has elected to not record a valuation allowance for these periods. Deferred Costs Deferred costs consist of the costs directly related to the production and cultivation of marijuana crops. Deferred costs are relieved to cost of services as products are delivered to dispensaries. Property and Equipment Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Gains and losses on the disposition of property and equipment are recorded in the period incurred. The estimated useful lives of property and equipment are: · Cultivation equipment 2-5 years · Buildings 30 years Intangible Assets Subject to Amortization Intangible assets include trade name, customer relationships, website, a noncompete agreement and intellectual property obtained through a business acquisition (see Note 2). Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired. Intangible assets with finite lives are amortized over their estimated useful life and reported net of accumulated amortization, separately from goodwill. Amortization is calculation on the straight-line basis using the following estimated useful lives: · Trade name 10 years · Customer relationships 5 years · Noncompete agreements 3 years · Website and intellectual property 10 years Generally, the Company utilizes the relief from royalty method to value trade name, the with or without method for valuing the customer relationships, and the discounted cash flow method for valuing website and intellectual property. Goodwill Goodwill represents the excess of the purchase price paid for the acquisition of a business over the fair value of the net tangible and intangible assets acquired. Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Income Taxes The Company accounts for income taxes under FASB ASC 740, Income Taxes The Company files income tax returns in the U.S. federal jurisdiction, and the State of Arizona. The Company is subject to U.S. federal, state, and local income tax examinations by tax authorities. All periods beginning on or after January 1, 2014 are open to examination by taxing authorities. The Company believes it has no tax positions for which the ultimate deductibility is highly uncertain. Revenue Recognition On October 1, 2017, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) and all the related amendments. The Company elected to adopt this guidance using the modified retrospective method. The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows. The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The majority of the Company’s revenue is associated with a customer contract that represents an obligation to perform services that are delivered at a single point in time. Any costs incurred prior to the period in which the services are performed to completion are deferred and recognized as cost of services in the period in which the performance obligations are completed. Since the Company’s revenue is generated from one customer contract, the Company does not have material contract assets or liabilities that fall under ASC 606. As of June 30, 2019 and 2018, 90% of the Company’s revenues were generated for performance obligations completed in the State of Arizona. The Company recognizes revenue as services are rendered. Services are considered complete upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is assured. Per the dispensary contract, the Company is paid 85% of the wholesale market price of the marijuana for the services rendered. The Company’s revenues accounted for under ASC 606, do not require significant estimates or judgments based on the nature of the Company’s revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company’s contracts do not include multiple performance obligations or variable consideration. Fair Value of Financial Instruments The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short term to maturity. The Company’s long-term receivable resulting from the sale of Airware was discounted to its estimated fair value on the date (see Note 4). Net Loss Per Share Basic earnings per share does not include dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. At June 30, 2019, there were 646,008 shares underlying convertible notes payable, warrants and options. Stock-Based Compensation The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation – Stock Compensation”, The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future. Reclassifications Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements. |
Acquisition
Acquisition | 9 Months Ended |
Jun. 30, 2019 | |
Business Combinations [Abstract] | |
Acquisition | Note 2 –Acquisition On November 26, 2018, the company’s wholly owned subsidiary AZ DP Holdings, LLC (AZDP) performed an acquisition of the majority of the assets of Arizona DP Consulting, LLC (AZDPC), a consulting firm specializing in obtaining marijuana dispensary permits and cannabis related business plans. The purchase price was $1,500,000 in cash and 3,000,000 shares of restricted common stock having an aggregate value of $7,500,000 or $2.50 per share based on current market price of the Company shares at time asset purchase agreement was executed. Pursuant to the agreement, Sara Gullickson transitioned from President to CEO under a 3 year employment agreement and became a member of the board of directors of the company. Additionally, AZDP agreed to hire the employees of AZDPC and lease its existing office space which requires $3,200 of monthly rent through May 2019. This acquisition effectiv ely terminates the contract dated June 26, 2018 described in Note 11. Below is a summary of AZDPC’s revenue, expense and net income for January 1, 2018 through August 31, 2018, and January 1, 2017 through December 31, 2017. Assets and liabilities of AZDPC were negligible so presentation was not deemed necessary. (unaudited) (unaudited) January 1 through January 1 through August 30, 2018 to December 31, 2017 Revenue $ 744,822 $ 1,084,202 Expense (356,169 ) (655,911 ) Net Income $ 388,653 $ 428,291 In accordance with ASC 805, Business Combinations A summary of assets acquired in the acquisition and their fair values are presented below: Tradename $ 120,000 Customer Relationship 290,000 Templates, website, and other IP 2,470,000 Noncompete agreement 470,000 Goodwill 5,650,000 $ 9,000,000 Identifiable intangible assets consist of the following as of June 30, 2019: Balance at Additions from Balance at October 1, 2018 Acquisitions Amortization June 30, 2019 Tradename $ — $ 120,000 $ (6,000 ) $ 114,000 Customer Relationship — 290,000 (29,000 ) 261,000 Websites and intellectual property — 2,470,000 (123,500 ) 2,346,500 Noncompete agreement — 470,000 (78,333 ) 391,667 Total $ — $ 3,350,000 $ (236,833 ) $ 3,113,167 Future amortization of the identifiable intangible assets is as follows: Remaining 2019 2020 2021 2022 2023 Thereafter Total Tradename $ 3,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 63,000 $ 114,000 Customer Relationship 14,500 58,000 58,000 58,000 58,000 14,500 261,000 Websites and intellectual property 61,750 247,000 247,000 247,000 247,000 1,296,750 2,346,500 Noncompete agreement 39,167 156,668 156,668 39,164 — — 391,667 Total $ 118,417 $ 473,668 $ 473,668 $ 356,164 $ 317,000 $ 1,374,250 $ 3,113,167 Amortization expense for the three- and nine-month periods ended June 30, 2019 was $82,500 and $236,833, respectively. The Company had no amortizable intangible assets during the nine months ended June 30, 2018. The goodwill arising from the acquisition consists largely of synergies and economies of scale expected from combining the operations and personnel of the businesses. These synergies include access into new markets. |
Property and Equipment, Net
Property and Equipment, Net | 9 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment, Net | Note 3 - Property and Equipment, Net The following represents a summary of our property and equipment as of June 30, 2019 and September 30, 2018: June 30, 2019 September 30, 2018 Manufacturing Equipment $ 154,059 $ 154,059 Construction in Progress 5,031,143 233,768 Land and Building 913,314 913,314 6,098,516 1,301,141 Accumulated Depreciation (106,700 ) (67,099 ) $ 5,991,816 $ 1,234,042 The construction in progress relates to cultivation facilities being built in Arizona and Nevada which were not yet complete or in use as of June 30, 2019; therefore, we have not yet began to depreciate the costs of constructing these facilities. Depreciation expense for the nine months ended June 30, 2019 and 2018 was $39,122 and $36,825, respectively, and for the three months ended June 30, 2019 and 2018 was $13,200 and $12,355, respectively. |
Sale of Airware Assets and Inve
Sale of Airware Assets and Investment in Health Defense LLC | 9 Months Ended |
Jun. 30, 2019 | |
Business Combinations [Abstract] | |
Sale of Airware Assets and Investment in Health Defense LLC | Note 4 – Sale of Airware Assets and Investment in Health Defense LLC On May 3, 2018, the Company entered into an intellectual property sales agreement with Health Defense LLC. Pursuant to the terms of the agreement, the Company sold all of the assets related to the former business of the Company, nasal dilator sales. In consideration for entering into the agreement, the Company received: (i) $300,000 in cash at execution, (ii) $700,000 in cash within one year of execution and (iii) an additional $300,000 by December 31, 2019. Due to the long-term nature of the final $300,000, the Company recognized a discount of $70,070 using a discount rate of 21.50%. During the nine months ended June 30, 2019, the Company recognized $39,057 of interest income related to the accretion of this discount which is included in interest income on the accompanying consolidated statements of operations. As of June 30, 2019, the receivable was in default, though management believes it to be fully collectible within one year of these consolidated financial statements. As of June 30, 2019, unamortized discount on this long-term receivable was $11,855. As of September 30, 2018, unamortized discount on this long-term receivable was $50,912. As additional consideration, the Company was also given a 10% ownership interest in Health Defense LLC. This ownership is valued at $100,000 and is reflected on the balance sheet as an other long-term asset. |
Notes Receivable
Notes Receivable | 9 Months Ended |
Jun. 30, 2019 | |
Receivables [Abstract] | |
Notes Receivable | Note 5 – Notes Receivable On May 11, 2018, the Company entered into a Promissory Note Agreement with borrower in principal amount of $150,000. This is a one year note with 20% non-compounded annual interest payable at maturity. It is convertible at the discretion of the Company into a unit offering of the borrower at a 15% discount. The note is personally guaranteed by the borrower. On May 15, 2018, the Company entered into a Promissory Note Agreement with borrower in principal amount of $60,000. This is a one year note with 15% non-compounded annual interest payable at maturity. It is convertible at the discretion of the Company into an interest in a strategic partnership of ownership and operations of a certain dispensary license. The note is personally guaranteed by the borrower. For the nine months ended June 30, 2019 and year ended September 30, 2018, the Company has accrued $48,712 and $15,074, respectively, of interest receivable related to these notes which is included in notes and interest receivables on the accompanying consolidated balance. As of the date of the condensed financial statements, the notes receivable are in default though management believes them to be fully collectible in the next twelve months. |
Unsecured Convertible Note Paya
Unsecured Convertible Note Payable | 9 Months Ended |
Jun. 30, 2019 | |
Debt Disclosure [Abstract] | |
Unsecured Convertible Note Payable | Note 6 – Unsecured Convertible Note Payable In the reverse recapitalization disclosed in Note 1, the Company assumed one unsecured convertible note payable with principal balance totaling $20,000 which was due in August 2012, carry an interest rate of 8% and is convertible to common stock at $.50 per share. As of June 30, 2019 and September 30, 2018, this unsecured convertible note payable is considered in default and has been presented as a current liability on the condensed interim consolidated balance sheets. |
Long Term Debt
Long Term Debt | 9 Months Ended |
Jun. 30, 2019 | |
Debt Disclosure [Abstract] | |
Long Term Debt | Note 7 – Long Term Debt On September 13, 2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC (“Viridis”) in which Viridis has agreed to loan the Company up to $2.7 million for the expansion of the Company’s Arizona and Nevada properties (see Note 10). As of September 30, 2018, the Company received $1,500,000 of proceeds from Viridis in the form of a promissory note. The $1,500,000 proceeds were utilized to acquire a 20% ownership in Strive Management, LLC as described in Notes 1 and 8. In exchange for the loan, Viridis will be repaid in the form of waterfall revenue participation schedules. Viridis shall receive 5% of the Company’s gross revenues from the Nevada operations, until the loan is repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. Payments on the loan will commence 90 days after the Nevada operation begins earning revenue. Parties acknowledge that the Company is expected to own only 51% of the Nevada operations and therefore Viridis’ revenue participation is limited to the Company’s interest. The operations in Nevada have not yet begun as of the date of this filing. The additional $1,200,000 proceeds were utilized to construct an additional 10,000 square foot cultivation and processing facility in Arizona that became operational in June 2019. The proceeds were received as construction draws between November 2018 and January 2019. In exchange for the loan, Viridis will be repaid in the form of waterfall revenue participation schedules. Viridis shall receive 5% of the Company’s gross revenues from the Arizona operations, until the loan is repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. Payments on the loan will commence 90 days after the Arizona operation begins earning revenue. Interest on the notes accrue monthly at a 2.9% annual rate. Interest of $24,097 has been accrued as of June 30, 2019. |
Variable Interest Entity
Variable Interest Entity | 9 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Variable Interest Entity | Note 8 – Variable Interest Entity As of June 30, 2019, the Company has determined that it holds a variable interest in Strive Management due to the Company being its sole source of capital. Further, the Company has agreed to construct an operational facility in Nevada. As such, Item 9 Labs Corp will raise funds as necessary ($4,000,000 expected) to construct the facility, which will be wholly owned by a subsidiary of Item 9 Labs Corp and leased to Strive Management, LLC, the operating company. No funds have been raised as of the date of these financial statements. If the funds are not raised, the additional 31% interest due to the Company upon operational approval from the State of Nevada as discussed in Note 1 would be subject to reclamation by the other members of Strive Management. The Company has been determined to be the primary beneficiary of Strive Management has the Company has the power to direct the activities that significantly impact Strive Management’s economic performance and the obligation to absorb losses. Strive Managements financial statements as of June 30, 2019 and September 30, 2018 have been consolidated with the Company. Upon consolidation, the asset of Strive Management was recorded at its carrying amounts. As of June 30, 2019, and September 30, 2018 the effects of consolidating Strive Management resulted in an increase in assets of $626,067 and $1,500,000, respectively, primarily from cash. For the three and nine months ended June 30, 2019, Strive Management incurred income of $8,508 and a loss of $66,732, respectively. |
Concentrations
Concentrations | 9 Months Ended |
Jun. 30, 2019 | |
Risks and Uncertainties [Abstract] | |
Concentrations | Note 9 - Concentrations For the three and nine months ended June 30, 2019 and 2018, 92% and 100%, respectively, of the Company’s revenue was generated from a single customer. All trade accounts receivable at June 30, 2019 and 2018 was due from one customer. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 10 - Commitments and Contingencies The production and possession of marijuana is prohibited by the United States of America, though the state of Arizona allows these activities to be performed at licensed facilities such as BSSD. The Company does not believe the federal prohibition of these activities will negatively impact the business. As such, the Company has not elected to record a related accrual contingency. The Company is in default on convertible notes payable totaling $20,000 (see Note 6). The Company has attempted to communicate with the note holder to request extension or conversion, but has been unsuccessful in doing so. The full balance on this note is included in current liabilities. On April 20, 2018, the Company entered into an agreement for the purchase of approximately 44 acres of land from an affiliate of a founding member of BSSD. The purchase price of the property is $3,000,000, payable as follows; (i) $200,000 deposited with escrow agent as an initial earnest money deposit in April 2018, (ii) on or before February 1, 2019, the Company will deposit an additional $800,000 into escrow as additional earnest money deposit and (iii) the balance of the purchase price shall be paid via a promissory note. The earnest money amounts are non-refundable. The Company has negotiated an amendment to this agreement that will spread the $800,000 payment over the course of 4 months through June 30, 2019. As of June 30, 2019, the Company had paid a total of $600,000 which was deposited in escrow, and classified as a long-term asset on the consolidated balance sheet as of June 30, 2019. As of the date of these financial statements, a total of $600,000 has been deposited in escrow. On June 26, 2018, the Company entered into a contractor agreement with Chase Herschman pursuant to which he will provide services in exchange for $120,000 annually, payable each month; up to $420,000 in common stock options which shall vest upon the occurrence of certain benchmarks as described in the contractor agreement and a commission of 1% of the gross profits of the Company. The term of the agreement is a period of three years. Under the terms of the Loan and Revenue Participation Agreement (see Note 7), upon a change in control of the Company, Viridis will be entitled to receive 200% of the principal amount of the loans to the Company computed after considering previous revenue participation payments through the date of change of control and 1% of the aggregate sales price or consideration received in the change in control transaction. As of September 30, 2018, the Company received the $1,500,000 and invested the funds in Strive Management (see Notes 7 and 8). The remaining $1,200,000 has been provided by Viridis directly to contractors of the Arizona property from an account owned and controlled by Viridis. The Company recorded the $1,200,000 as construction in progress (see Note 3) a long-term debt (see Note 7) upon the completion and occupancy of the Arizona facility expansion, as agreed upon in the terms of the note which occurred in June 2019. As part of the agreement to invest in Strive Management, the Company has committed to raise funding of approximately $4,000,000 to complete the construction of a cultivation and processing facility in Nevada which will be leased to Strive Management LLC. On October 22, 2018 the Company entered into a 6 month services agreement with Axiom Group to provide marketing and data distribution services. As part of the agreement, the Company will pay a sum of $15,000 and issue 15,000 shares of common stock to Axiom Group each month the agreement is in place. This contract was terminated in December 2018. On March 11, 2019 the Company entered into a 6 month services agreement with JLS Ventures to provide marketing and data distribution services. As part of the agreement, the Company will pay a sum of $15,000 and issue 35,000 shares of common stock to JLS Ventures each month the agreement is in place. This contract was terminated in May 2019. The Company made a commitment to its Chief Operating Officer to issue 9,615 common stock shares quarterly, starting January 2019, as compensation through October 2019. The shares are being valued at $2.60 per share as that was the market closing price as of the date the agreement was signed. The Company recognized $25,000 of stock compensation for the shares issued in April 2019 which is included in payroll and employee related expenses on the statements of operations. |
Related Party Transactions
Related Party Transactions | 9 Months Ended |
Jun. 30, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 11– Related Party Transactions As discussed in Note 1, on March 20, 2018, the Company issued 40,355,771 shares of common stock to the members of BSSD for their membership interests. As discussed in Note 10, the Company has entered into an agreement as of April 20, 2018 for the purchase of land. The land owner is one of the original members of BSSD and a current employee of the Company. As discussed in Notes 7 and 10, the Company has entered into a Loan and Revenue Participation Agreement and Promissory Note with Viridis. The member of Viridis was elected to the Company’s board of directors on December 21, 2018. As discussed in the Description of the Business |
Stockholders' Deficit
Stockholders' Deficit | 9 Months Ended |
Jun. 30, 2019 | |
Equity [Abstract] | |
Stockholders' Deficit | Note 12 - Stockholders’ Deficit Common Stock As discussed in Note 1, on March 20, 2018, the Company issued 40,355,771 shares of common stock to the members of BSSD for their membership interests. During the nine months ended June 30, 2019, the Company raised $5,660,003 via private placements. The selling price for 5,000,000 shares was $1 per share and the selling price for 440,000 was $1.50 per share for a total of 5,440,002 shares of common stock issued. Additionally, 158,529 shares with a market value of $270,000 were issued to contractors for services and 42,759 shares valued at $150,000 were issued to employees as compensation Warrants As of June 30, 2019 there are 298,411 warrants for purchase of the Company’s common stock outstanding. The Company issued no new warrants during the nine months ended June 30, 2019 and no warrants expired during that period. Warrants outstanding are as follows: Common Shares Issuable Upon Exercise of Warrants Exercise Price of Warrants Date Issued Expiration Date Warrants issued by predecessor 175,000 $ 2.00 3/31/2015 8/31/2020 Warrants issued by predecessor 100,000 $ 1.00 7/28/2016 7/28/2021 Warrants issued by predecessor 23,411 $ 1.30 12/22/2016 12/22/2019 Balance of Warrants at June 30, 2019 298,411 Stock Options On May 8, 2018, the Company granted 22,500 stock options to board members. The options are exercisable at $2.40 per share with a ten year term. The options will vest equally over three years unless there is a change of control of the Company at which time any unvested options vest immediately. As of June 30, 2019, there are 294,991 stock options outstanding. As discussed in Note 2, on March 20, 2018 the Company executed an agreement to acquire all the voting interest in BSSD Group, LLC. As BSSD Group, LLC is the accounting acquirer, all previously outstanding options were re-issued and vested immediately as this was considered a change in control. The Company determines the fair value of stock options issued on the date of grant using the Black-Scholes option-pricing model. There was no option activity in the nine months ended June 30, 2019. The following assumptions were used for determining the fair value of the options granted during the year ended September 30, 2018: Expected stock price volatility 34.72% Expected dividend yield 0.00% Risk-free interest rate 2.97% Option life 10 years Stock-based compensation recognized 3,773 Unrecognized compensation expense 23,390 to be recognized in future periods We do not have an extensive history as a public company and our common stock transactions are too infrequent, therefore we could not practicably estimate the expected volatility of our own stock. Accordingly, we have substituted the historical volatility of a relevant comparable company that is publicly traded and does business within the industry we operate. The options granted during the year ended September 30, 2018 were determined to have a fair value at date of grant of $2.40. The unrecognized compensation expense of $13,856 will be recognized over a weighted average period of 1.09 years. Compensation expense in the amount of $3,178 and $9,534, respectively, was recognized in the three and nine months ended June 30, 2019. There was no activity in stock options during the nine months ended June 30, 2019 and 2018. 294,991 and 272,491 options remain outstanding as of June 30, 2019 and 2018, respectively. 272,491 options were exercisable as of June 30, 2019 and 2018. |
Subsequent Events
Subsequent Events | 9 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 13 - Subsequent Events On July 1, 2019, the Company entered into a 3 year agreement with a concert venue to be the name sponsor for the venue. In exchange, the Company issued 45,457 shares of restricted common stock valued at $200,000($4.40/share) and is to pay $5,000 monthly for the first 12 months and $60,000 in July 2020 and 2021. On July 3, 2019, the Company’s Board approved an employment agreement for a sales director. In connection therewith, the Company granted 16,667 common stock shares totaling $50,000 which will vest six months from the employment agreement. |
Description of Business and S_2
Description of Business and Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | Principles of Consolidation Item 9 Labs consolidates all variable interest entities (“VIEs”) in which the Company is deemed to be the primary beneficiary and all other entities in which it has a controlling voting interest. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company periodically makes judgments in determining whether its investees are VIEs and, each reporting period, the Company assesses whether it is the primary beneficiary of any of its VIEs. As of June 30, 2019 and September 30, 2018, the Company is deemed the primary beneficiary of Strive Management because the entity has insufficient equity to finance its activities without additional subordinated support. The interests in Strive Management held by non-controlling members has been presented on the statement of operations and statement of stockholders’ equity as non-controlling interest. The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and variable interest entities in which the Company is the primary beneficiary. Intercompany balances and transactions have been eliminated. The accompanying interim unaudited condensed consolidated financial statements of the Company as of June 30, 2019, do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with our September 30, 2018 audited financial statements filed with the Securities and Exchange Commission on our Form 10-12G filed June 27, 2019. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year ending September 30, 2019. |
Accounting Estimates | Accounting Estimates The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States of America 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 expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include estimated useful lives of property and equipment, deferred income taxes, fair value of acquired intangible assets, the fair value of common stock provided as consideration and the estimated fair value of stock options and warrants. |
Discontinued Operations | Discontinued Operations The Company sold the former Airware business of nasal dilator sales on May 3, 2018, see Note 4. The operating results related to this business have been classified as discontinued operations in the condensed interim consolidated financial statements in accordance with Accounting Standards Codification 205-20, Discontinued Operations |
Cash | Cash Cash represents cash on hand, demand deposits placed with banks and other financial institutions and all highly liquid instruments purchased with a remaining maturity of three months or less as of the purchase date of such investments. The Company maintains cash on deposit, which, can exceed federally insured limits. The Company has not experienced any losses on such accounts nor believes it is exposed to any significant credit risk on cash. |
Accounts Receivable and Notes Receivable | Accounts Receivable and Notes Receivable Accounts receivable are reported at the amount management expects to collect from outstanding balances. Differences between the amount due and the amount management expects to collect are reported in the results of operations of the year in which those differences are determined, with an offsetting entry to a valuation allowance for accounts receivable. Management believes all accounts receivable outstanding as of the balance sheet dates are fully collectible, and as such has elected to not record a valuation allowance for these periods. |
Deferred Costs | Deferred Costs Deferred costs consist of the costs directly related to the production and cultivation of marijuana crops. Deferred costs are relieved to cost of services as products are delivered to dispensaries. |
Property and Equipment | Property and Equipment Property and equipment are recorded at cost. Depreciation is provided for on the straight-line method, over the estimated useful lives of the assets. Maintenance and repairs that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Betterments or renewals are capitalized when incurred. Gains and losses on the disposition of property and equipment are recorded in the period incurred. The estimated useful lives of property and equipment are: · Cultivation equipment 2-5 years · Buildings 30 years |
Intangible Assets Subject to Amortization | Intangible Assets Subject to Amortization Intangible assets include trade name, customer relationships, website, a noncompete agreement and intellectual property obtained through a business acquisition (see Note 2). Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible asset acquired. Intangible assets with finite lives are amortized over their estimated useful life and reported net of accumulated amortization, separately from goodwill. Amortization is calculation on the straight-line basis using the following estimated useful lives: · Trade name 10 years · Customer relationships 5 years · Noncompete agreements 3 years · Website and intellectual property 10 years Generally, the Company utilizes the relief from royalty method to value trade name, the with or without method for valuing the customer relationships, and the discounted cash flow method for valuing website and intellectual property. |
Goodwill | Goodwill Goodwill represents the excess of the purchase price paid for the acquisition of a business over the fair value of the net tangible and intangible assets acquired. Goodwill is not subject to amortization and is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. |
Income Taxes | Income Taxes The Company accounts for income taxes under FASB ASC 740, Income Taxes The Company files income tax returns in the U.S. federal jurisdiction, and the State of Arizona. The Company is subject to U.S. federal, state, and local income tax examinations by tax authorities. All periods beginning on or after January 1, 2014 are open to examination by taxing authorities. The Company believes it has no tax positions for which the ultimate deductibility is highly uncertain. |
Revenue Recognition | Revenue Recognition On October 1, 2017, the Company adopted ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”) and all the related amendments. The Company elected to adopt this guidance using the modified retrospective method. The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows. The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The majority of the Company’s revenue is associated with a customer contract that represents an obligation to perform services that are delivered at a single point in time. Any costs incurred prior to the period in which the services are performed to completion are deferred and recognized as cost of services in the period in which the performance obligations are completed. Since the Company’s revenue is generated from one customer contract, the Company does not have material contract assets or liabilities that fall under ASC 606. As of June 30, 2019 and 2018, 90% of the Company’s revenues were generated for performance obligations completed in the State of Arizona. The Company recognizes revenue as services are rendered. Services are considered complete upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is assured. Per the dispensary contract, the Company is paid 85% of the wholesale market price of the marijuana for the services rendered. The Company’s revenues accounted for under ASC 606, do not require significant estimates or judgments based on the nature of the Company’s revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company’s contracts do not include multiple performance obligations or variable consideration. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying value of the Company’s financial instruments, consisting of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short term to maturity. The Company’s long-term receivable resulting from the sale of Airware was discounted to its estimated fair value on the date (see Note 4). |
Net Loss Per Share | Net Loss Per Share Basic earnings per share does not include dilution and is computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. At June 30, 2019, there were 646,008 shares underlying convertible notes payable, warrants and options. |
Stock-Based Compensation | Stock-Based Compensation The Company accounts for its stock-based awards in accordance with ASC Subtopic 718-10, “Compensation – Stock Compensation”, The Black-Scholes option-pricing model requires the input of certain assumptions that require the Company’s judgment, including the expected term and the expected stock price volatility of the underlying stock. The assumptions used in calculating the fair value of stock-based compensation represent management’s best estimates, but these estimates involve inherent uncertainties and the application of judgment. As a result, if factors change resulting in the use of different assumptions, stock-based compensation expense could be materially different in the future. |
Reclassifications | Reclassifications Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements. |
Acquisition (Tables)
Acquisition (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Business Combinations [Abstract] | |
Summary of AZDPC’s revenue, expense and net income | (unaudited) (unaudited) January 1 through January 1 through August 30, 2018 to December 31, 2017 Revenue $ 744,822 $ 1,084,202 Expense (356,169 ) (655,911 ) Net Income $ 388,653 $ 428,291 |
Summary of assets acquired in acquisition and fair values | Tradename $ 120,000 Customer Relationship 290,000 Templates, website, and other IP 2,470,000 Noncompete agreement 470,000 Goodwill 5,650,000 $ 9,000,000 |
Identifiable intangible assets | Balance at Additions from Balance at October 1, 2018 Acquisitions Amortization June 30, 2019 Tradename $ — $ 120,000 $ (6,000 ) $ 114,000 Customer Relationship — 290,000 (29,000 ) 261,000 Websites and intellectual property — 2,470,000 (123,500 ) 2,346,500 Noncompete agreement — 470,000 (78,333 ) 391,667 Total $ — $ 3,350,000 $ (236,833 ) $ 3,113,167 |
Future amortization of identifiable intangible assets | Remaining 2019 2020 2021 2022 2023 Thereafter Total Tradename $ 3,000 $ 12,000 $ 12,000 $ 12,000 $ 12,000 $ 63,000 $ 114,000 Customer Relationship 14,500 58,000 58,000 58,000 58,000 14,500 261,000 Websites and intellectual property 61,750 247,000 247,000 247,000 247,000 1,296,750 2,346,500 Noncompete agreement 39,167 156,668 156,668 39,164 — — 391,667 Total $ 118,417 $ 473,668 $ 473,668 $ 356,164 $ 317,000 $ 1,374,250 $ 3,113,167 |
Property and Equipment, Net (Ta
Property and Equipment, Net (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Summary of property and equipment | June 30, 2019 September 30, 2018 Manufacturing Equipment $ 154,059 $ 154,059 Construction in Progress 5,031,143 233,768 Land and Building 913,314 913,314 6,098,516 1,301,141 Accumulated Depreciation (106,700 ) (67,099 ) $ 5,991,816 $ 1,234,042 |
Income Taxes (Tables)
Income Taxes (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income tax provision computed on taxable income since reverse merger | Three months ended June 30, Nine months ended June 30, 2019 2018 2019 2018 Federal $ 155,347 $ 13,272 $ 395,808 $ 54,415 State — (18,617 ) (33,062 ) (15,872 ) Income Tax Provision $ 155,347 $ (5,345 ) $ 362,746 $ 38,543 |
Effective income tax rate reconciliation | Three months ended June 30, Nine months ended June 30, 2019 2018 2019 2018 U.S. federal statutory rate $ 91,877 $ — $ 215,898 $ — Non-deductible items 63,470 — 179,910 — $ 155,347 $ — $ 395,808 $ — |
Stockholders' Deficit (Tables)
Stockholders' Deficit (Tables) | 9 Months Ended |
Jun. 30, 2019 | |
Equity [Abstract] | |
Warrants outstanding | Common Shares Issuable Upon Exercise of Warrants Exercise Price of Warrants Date Issued Expiration Date Warrants issued by predecessor 175,000 $ 2.00 3/31/2015 8/31/2020 Warrants issued by predecessor 100,000 $ 1.00 7/28/2016 7/28/2021 Warrants issued by predecessor 23,411 $ 1.30 12/22/2016 12/22/2019 Balance of Warrants at June 30, 2019 298,411 |
Assumptions used for determining fair value of options granted | Expected stock price volatility 34.72% Expected dividend yield 0.00% Risk-free interest rate 2.97% Option life 10 years Stock-based compensation recognized 3,773 Unrecognized compensation expense 23,390 to be recognized in future periods |
Description of Business and S_3
Description of Business and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 9 Months Ended | |||
Jun. 30, 2019 | Oct. 18, 2018 | Sep. 12, 2018 | Mar. 20, 2018 | |
Accounting Policies [Abstract] | ||||
Reverse stock split | 1-for-20 | |||
Shares outstanding at time of split, pre-split | 1,095,332,835 | |||
Shares outstanding at time of split, post-split | 54,766,642 | |||
Acquisition of BSSD, shares distributed | 40,355,771 | |||
Promissory note used to make capital contribution into Strive Management | $ 1,500,000 | |||
Accounts payable from discontinued operations | $ 427,389 | |||
Antidilutive securities not included in computation of earnings per share | 646,008 |
Acquisition - Summary of AZDPC
Acquisition - Summary of AZDPC revenue, expense and net income (Details) - USD ($) | 8 Months Ended | 12 Months Ended |
Aug. 30, 2018 | Dec. 31, 2017 | |
Business Combinations [Abstract] | ||
Revenue | $ 744,822 | $ 1,084,202 |
Expense | (356,169) | (655,911) |
Net Income | $ 388,653 | $ 428,291 |
Acquisition - Summary of assets
Acquisition - Summary of assets acquired in acquisition and fair values (Details) | Jun. 30, 2019USD ($) |
Assets acquired, fair value | $ 9,000,000 |
Tradename | |
Assets acquired, fair value | 120,000 |
Customer Relationship | |
Assets acquired, fair value | 290,000 |
Templates, website, and other IP | |
Assets acquired, fair value | 2,470,000 |
Noncompete agreement | |
Assets acquired, fair value | 470,000 |
Goodwill | |
Assets acquired, fair value | $ 5,650,000 |
Acquisition - Identifiable inta
Acquisition - Identifiable intangible assets (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2019 | Jun. 30, 2018 | |
Additions from acquisitions | $ 1,323,780 | ||
Amortization | $ (82,500) | (236,833) | |
Tradename | |||
Beginning balance | |||
Additions from acquisitions | 120,000 | ||
Amortization | (6,000) | ||
Ending balance | 114,000 | 114,000 | |
Customer Relationship | |||
Beginning balance | |||
Additions from acquisitions | 290,000 | ||
Amortization | (29,000) | ||
Ending balance | 261,000 | 261,000 | |
Websites and intellectual property | |||
Beginning balance | |||
Additions from acquisitions | 2,470,000 | ||
Amortization | (123,500) | ||
Ending balance | 2,346,500 | 2,346,500 | |
Noncompete agreement | |||
Beginning balance | |||
Additions from acquisitions | 470,000 | ||
Amortization | (78,333) | ||
Ending balance | 391,667 | 391,667 | |
Total | |||
Beginning balance | |||
Additions from acquisitions | 3,350,000 | ||
Amortization | (236,833) | ||
Ending balance | $ 3,113,167 | $ 3,113,167 |
Acquisition - Future amortizati
Acquisition - Future amortization of identifiable intangible assets (Details) | Jun. 30, 2019USD ($) |
Tradename | |
Remaining 2019 | $ 3,000 |
2020 | 12,000 |
2021 | 12,000 |
2022 | 12,000 |
2023 | 12,000 |
Thereafter | 63,000 |
Total | 114,000 |
Customer Relationship | |
Remaining 2019 | 14,500 |
2020 | 58,000 |
2021 | 58,000 |
2022 | 58,000 |
2023 | 58,000 |
Thereafter | 14,500 |
Total | 261,000 |
Websites and intellectual property | |
Remaining 2019 | 61,750 |
2020 | 247,000 |
2021 | 247,000 |
2022 | 247,000 |
2023 | 247,000 |
Thereafter | 1,296,750 |
Total | 2,346,500 |
Noncompete agreement | |
Remaining 2019 | 39,167 |
2020 | 156,668 |
2021 | 156,668 |
2022 | 39,164 |
2023 | |
Thereafter | |
Total | 391,667 |
Total | |
Remaining 2019 | 118,417 |
2020 | 473,668 |
2021 | 473,668 |
2022 | 356,164 |
2023 | 317,000 |
Thereafter | 1,374,250 |
Total | $ 3,113,167 |
Acquisition (Details Narrative)
Acquisition (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2019 | Nov. 26, 2018 | |
Business Combinations [Abstract] | |||
Acquisition of AZDPC, purchase price | $ 1,500,000 | ||
Acquisition of AZDPC, shares of restricted common stock, issued | 3,000,000 | ||
Acquisition of AZDPC, shares of restricted common stock, aggregate value | $ 7,500,000 | ||
Acquisition of AZDPC, shares of restricted common stock, price per share | $ 2.50 | ||
Amortization expense | $ (82,500) | $ (236,833) |
Property and Equipment, Net - S
Property and Equipment, Net - Summary of property and equipment (Details) - USD ($) | Jun. 30, 2019 | Sep. 30, 2018 |
Property and Equipment, Gross | $ 6,098,516 | $ 1,301,141 |
Accumulated Depreciation | (106,700) | (67,099) |
Property and Equipment, Net | 5,991,816 | 1,234,042 |
Manufacturing Equipment | ||
Property and Equipment, Gross | 154,059 | 154,059 |
Construction in Progress | ||
Property and Equipment, Gross | 5,031,143 | 233,768 |
Land and Building | ||
Property and Equipment, Gross | $ 913,314 | $ 913,314 |
Property and Equipment, Net (De
Property and Equipment, Net (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Property, Plant and Equipment [Abstract] | ||||
Depreciation expense | $ (13,200) | $ (12,355) | $ (39,122) | $ (36,825) |
Sale of Airware Assets and In_2
Sale of Airware Assets and Investment in Health Defense LLC (Details Narrative) - USD ($) | 9 Months Ended | |
Jun. 30, 2019 | Sep. 30, 2018 | |
Business Combinations [Abstract] | ||
Sale of Airware Assets, cash received at execution | $ 300,000 | |
Sale of Airware Assets, cash to be received within one year of execution | 700,000 | |
Sale of Airware Assets, cash to be received within by end of year | 300,000 | |
Discount recognized on long-term receivable | 70,070 | |
Interest income recognized in relation to accretion of discount | 39,057 | |
Unamortized discount on long-term receivable | $ 11,855 | $ 50,912 |
Additional consideration, ownership interest received | 10.00% | |
Additional consideration, ownership interest value | $ 100,000 |
Notes Receivable (Details Narra
Notes Receivable (Details Narrative) - USD ($) | 9 Months Ended | |||
Jun. 30, 2019 | Sep. 30, 2018 | May 15, 2018 | May 11, 2018 | |
Accrued interest receivable related to notes | $ 48,712 | $ 15,074 | ||
Promissory Note Agreement (1) | ||||
Promissory note, principal amount | $ 150,000 | |||
Promissory note, annual interest rate | 20.00% | |||
Promissory Note Agreement (2) | ||||
Promissory note, principal amount | $ 60,000 | |||
Promissory note, annual interest rate | 15.00% |
Unsecured Convertible Note Pa_2
Unsecured Convertible Note Payable (Details Narrative) | 9 Months Ended |
Jun. 30, 2019USD ($)$ / shares | |
Debt Disclosure [Abstract] | |
Convertible note payable assumed, principal balance | $ | $ 20,000 |
Convertible note payable assumed, interest rate | 8.00% |
Convertible note payable assumed, price per share | $ / shares | $ 0.50 |
Long Term Debt (Details Narrati
Long Term Debt (Details Narrative) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Debt Disclosure [Abstract] | |
Proceeds received, Viridis loan | $ 2,700,000 |
Variable Interest Entity (Detai
Variable Interest Entity (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2019 | Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Increase in assets from consolidating Strive Management | $ 626,067 | $ 626,067 | $ 1,500,000 |
Income (loss) incurred by Strive Management | $ (66,732) | $ 8,508 |
Concentrations (Details Narrati
Concentrations (Details Narrative) | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
Revenue generated from a single customer | ||
Concentration risk | 92.00% | 100.00% |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) | 9 Months Ended |
Jun. 30, 2019USD ($)$ / sharesshares | |
Commitments and Contingencies Disclosure [Abstract] | |
BSSD affiliate property purchase price, amounts deposited in escrow | $ 600,000 |
Contractor agreement, annual compensation amount | 120,000 |
Contractor agreement, value common stock issuable | $ 420,000 |
Common stock issued to Chief Operating Officer as part of compensation agreement, quarterly share number | shares | 9,615 |
Common stock issued to Chief Operating Officer as part of compensation agreement, price per share | $ / shares | $ 2.60 |
Common stock issued to Chief Operating Officer as part of compensation agreement, stock compensation recognized | $ 25,000 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) | Mar. 20, 2018shares |
Related Party Transactions [Abstract] | |
Acquisition of BSSD, shares distributed | 40,355,771 |
Stockholders' Deficit - Warrant
Stockholders' Deficit - Warrants outstanding (Details) | 9 Months Ended |
Jun. 30, 2019$ / sharesshares | |
Warrants issued by predecessor (1) | |
Common shares issuable upon exercise of warrants | 175,000 |
Exercise price of warrants | $ / shares | $ 2 |
Date issued | Mar. 31, 2015 |
Expiration date | Aug. 31, 2020 |
Warrants issued by predecessor (2) | |
Common shares issuable upon exercise of warrants | 100,000 |
Exercise price of warrants | $ / shares | $ 1 |
Date issued | Jul. 28, 2016 |
Expiration date | Jul. 28, 2021 |
Warrants issued by predecessor (3) | |
Common shares issuable upon exercise of warrants | 23,411 |
Exercise price of warrants | $ / shares | $ 1.30 |
Date issued | Dec. 22, 2016 |
Expiration date | Dec. 22, 2019 |
Balance of Warrants | |
Common shares issuable upon exercise of warrants | 298,411 |
Stockholders' Deficit - Assumpt
Stockholders' Deficit - Assumptions used for determining fair value of options granted (Details) | 9 Months Ended |
Jun. 30, 2019USD ($) | |
Equity [Abstract] | |
Expected stock price volatility | 34.72% |
Expected dividend yield | 0.00% |
Risk-free interest rate | 2.97% |
Option life | 10 years |
Stock-based compensation recognized | $ 3,773 |
Unrecognized compensation expense to be recognized in future periods | $ 23,390 |
Stockholders' Deficit (Details
Stockholders' Deficit (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | |
Common Stock | |||
Private placements, amount | $ 5,660,003 | ||
Private placements, shares of common stock issued | 5,440,002 | ||
Additional common stock issued to contractors for services, shares | 158,529 | ||
Additional common stock issued to contractors for services, market value | $ 270,000 | ||
Additional common stock isued to employees as compensation, shares | 42,759 | ||
Additional common stock isued to employees as compensation, value | $ 150,000 | ||
Warrants | |||
Warrants outstanding | 298,411 | 298,411 | |
Stock Options | |||
Stock options granted to board members | 22,500 | ||
Stock options outstanding | 294,991 | 272,491 | 294,991 |
Stock options exercisable | 272,491 | 272,491 | 272,491 |
Unrecognized compensation expense | $ 13,856 | $ 13,856 | |
Compensation expense recognized | $ 3,178 | $ 3,178 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Jul. 03, 2019 | Jul. 01, 2019 |
Subsequent Events [Abstract] | ||
Shares of restricted common stock issued, shares | 45,457 | |
Shares of restricted common stock issued, value | $ 200,000 | |
Employment agreement for sales director, common stock shares granted | 16,667 | |
Employment agreement for sales director, common stock shares granted, value | $ 50,000 |