Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Mar. 31, 2021 | May 10, 2021 | |
Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2021 | |
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 Shell Company | false | |
Entity Common Stock, Shares Outstanding | 92,209,521 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2021 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Current Assets: | ||
Cash and cash equivalents | $ 4,307,877 | $ 84,677 |
Accounts receivable, net of allowance for doubtful accounts of $76,052 and $81,018, respectively | 2,565,827 | 352,598 |
Deferred costs | 5,769,482 | 2,147,110 |
Prepaid expenses and other current assets | 1,506,770 | 307,905 |
Total current assets | 14,149,956 | 2,892,290 |
Property and equipment, net | 7,977,853 | 7,208,760 |
Right of use asset | 168,779 | 196,756 |
Deposits | 602,520 | 1,243,738 |
Receivable for sale of Airware assets, net of reserves of $596,430 | 155,715 | 160,715 |
Notes and interest receivable, net | 80,000 | 80,000 |
Other intangible assets, net | 128,883,087 | 7,765,114 |
Goodwill | 1,116,396 | 1,116,396 |
Total Assets | 153,134,306 | 20,663,769 |
Current Liabilities: | ||
Accounts payable | 3,994,813 | 1,977,207 |
Accrued payroll | 506,882 | 197,989 |
Accrued interest | 1,063,006 | 780,903 |
Accrued expenses | 3,169,071 | 1,808,819 |
Notes payable, current portion, net of discounts | 1,943,836 | 3,193,150 |
Operating lease liability - current portion | 60,480 | 60,480 |
Convertible notes payable, net of discounts | 1,392,305 | 2,270,000 |
Total current liabilities | 12,130,393 | 10,288,548 |
Operating lease liability, net of current portion | 112,359 | 140,336 |
Notes payables, net of current portion and discounts | 2,733,287 | 2,219,636 |
Total liabilities | 14,976,039 | 12,648,520 |
Commitments and Contingencies | ||
Stockholders' Equity: | ||
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 104,109,521 and 68,336,113 shares issued and 91,809,521 and 56,036,113 outstanding at March 31, 2021 and September 30, 2020, respectively | 10,411 | 6,834 |
Additional paid-in capital | 175,591,614 | 44,426,737 |
Accumulated deficit | (23,993,758) | (22,968,322) |
Total parent stockholders' equity | 151,608,267 | 21,465,249 |
Treasury stock | (13,450,000) | (13,450,000) |
Total Stockholders' Equity | 138,158,267 | 8,015,249 |
Total Liabilities and Stockholders' Equity | $ 153,134,306 | $ 20,663,769 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Statement of Financial Position [Abstract] | ||
Allowance for doubtful accounts on accounts receivable | $ 76,052 | $ 81,018 |
Reserves on receivable for sale of Airware assets | $ 596,430 | $ 596,430 |
Common stock, par value | $ .0001 | $ .0001 |
Common stock, authorized | 2,000,000,000 | 2,000,000,000 |
Common stock, issued | 104,109,521 | 68,336,113 |
Common stock, outstanding | 91,809,521 | 56,036,113 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2021 | Mar. 31, 2020 | Mar. 31, 2021 | Mar. 31, 2020 | |
Income Statement [Abstract] | ||||
Revenues, net | $ 6,110,631 | $ 1,862,012 | $ 9,150,195 | $ 3,394,867 |
Cost of services | 3,121,045 | 1,267,984 | 4,729,176 | 2,319,519 |
Gross profit | 2,989,586 | 594,028 | 4,421,019 | 1,075,348 |
Operating expenses | ||||
Professional fees and outside services | 613,758 | 291,129 | 907,713 | 486,314 |
Payroll and employee related expenses | 1,318,842 | 702,320 | 2,422,146 | 1,531,014 |
Sales and marketing | 84,165 | 28,610 | 127,346 | 161,219 |
Depreciation and amortization | 105,897 | 32,110 | 248,442 | 84,220 |
Other operating expenses | 349,517 | 432,892 | 564,054 | 884,896 |
Provision for bad debt | 22,460 | |||
Total expenses | 2,472,179 | 1,487,061 | 4,269,701 | 3,170,123 |
Income (loss) from operations | 517,407 | (893,033) | 151,318 | (2,094,775) |
Other income (expense) | ||||
Interest expense | (468,387) | (684,203) | (1,176,754) | (1,457,789) |
Total other income (expense), net | (468,387) | (684,203) | (1,176,754) | (1,457,789) |
Net income (loss), before income tax provision | 49,020 | (1,577,236) | (1,025,436) | (3,552,564) |
Income tax provision (benefit) | ||||
Net income (loss) | 49,020 | (1,577,236) | (1,025,436) | (3,552,564) |
Less: Net income (loss) attributable to noncontrolling interest | (1,136) | (26,274) | ||
Net income (loss) attributable to parent | $ 49,020 | $ (1,576,100) | $ (1,025,436) | $ (3,526,290) |
Basic net income (loss) per common share | $ 0 | $ (0.03) | $ (0.02) | $ (0.06) |
Basic weighted average common shares outstanding | 65,880,141 | 61,424,905 | 62,143,521 | 62,017,391 |
Diluted net income (loss) per common share | $ 0 | $ (0.03) | $ (0.02) | $ (0.06) |
Diluted weighted average common shares outstanding | 84,938,235 | 61,424,905 | 62,143,521 | 62,017,391 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) | Common Stock | Additional Paid-in Capital | Treasury Stock | Accumulated (Deficit) | Noncontrolling Interest | Total |
Beginning balance, shares at Sep. 30, 2019 | 63,643,005 | |||||
Beginning balance, amount at Sep. 30, 2019 | $ 6,365 | $ 18,148,962 | $ (10,694,939) | $ (123,942) | $ 7,336,446 | |
Treasury stock acquired in settlement agreement, shares | (2,300,000) | |||||
Treasury stock acquired in settlement agreement, amount | 3,450,000 | $ (3,450,000) | ||||
Issuance of shares for services, shares | 55,618 | |||||
Issuance of shares for services, amount | $ 6 | 132,100 | 132,106 | |||
Stock compensation, shares | 26,282 | |||||
Stock compensation, amount | $ 3 | 74,997 | 75,000 | |||
Net loss | (1,950,190) | (25,138) | (1,975,328) | |||
Ending balance, shares at Dec. 31, 2019 | 63,724,905 | (2,300,000) | ||||
Ending balance, amount at Dec. 31, 2019 | $ 6,374 | 21,806,059 | $ (3,450,000) | (12,645,129) | (149,080) | 5,568,224 |
Beginning balance, shares at Sep. 30, 2019 | 63,643,005 | |||||
Beginning balance, amount at Sep. 30, 2019 | $ 6,365 | 18,148,962 | (10,694,939) | (123,942) | 7,336,446 | |
Net loss | (3,552,564) | |||||
Ending balance, shares at Mar. 31, 2020 | 66,974,905 | (2,300,000) | ||||
Ending balance, amount at Mar. 31, 2020 | $ 6,699 | 28,755,810 | $ (3,450,000) | (14,221,229) | 11,091,280 | |
Beginning balance, shares at Dec. 31, 2019 | 63,724,905 | (2,300,000) | ||||
Beginning balance, amount at Dec. 31, 2019 | $ 6,374 | 21,806,059 | $ (3,450,000) | (12,645,129) | (149,080) | 5,568,224 |
Stock to be issued for acquisition, shares | 3,250,000 | |||||
Stock to be issued for acquisition, amount | $ 325 | 3,506,675 | 3,507,000 | |||
Noncontrolling interest dissolution from acquisition | (150,216) | 150,216 | ||||
Warrants issued | 257,094 | 257,094 | ||||
Warrants to be issued | 3,336,198 | 3,336,198 | ||||
Net loss | (1,576,100) | (1,136) | (1,577,236) | |||
Ending balance, shares at Mar. 31, 2020 | 66,974,905 | (2,300,000) | ||||
Ending balance, amount at Mar. 31, 2020 | $ 6,699 | 28,755,810 | $ (3,450,000) | (14,221,229) | 11,091,280 | |
Beginning balance, shares at Sep. 30, 2020 | 68,336,113 | (12,300,000) | ||||
Beginning balance, amount at Sep. 30, 2020 | $ 6,834 | 44,426,737 | $ (13,450,000) | (22,968,322) | 8,015,249 | |
Stock issued for cash, net, shares | 6,813,206 | |||||
Stock issued for cash, net, amount | $ 681 | 5,790,544 | 5,791,225 | |||
Issuance of shares for services, shares | 111,765 | |||||
Issuance of shares for services, amount | $ 11 | 163,225 | 163,236 | |||
Stock compensation, shares | ||||||
Stock compensation, amount | 304,672 | 304,672 | ||||
Net loss | (1,074,456) | (1,074,456) | ||||
Ending balance, shares at Dec. 31, 2020 | 75,261,084 | (12,300,000) | ||||
Ending balance, amount at Dec. 31, 2020 | $ 7,526 | 50,685,178 | $ (13,450,000) | (24,042,778) | 13,199,926 | |
Beginning balance, shares at Sep. 30, 2020 | 68,336,113 | (12,300,000) | ||||
Beginning balance, amount at Sep. 30, 2020 | $ 6,834 | 44,426,737 | $ (13,450,000) | (22,968,322) | 8,015,249 | |
Net loss | (1,025,436) | |||||
Ending balance, shares at Mar. 31, 2021 | 104,109,521 | (12,300,000) | ||||
Ending balance, amount at Mar. 31, 2021 | $ 10,411 | 175,591,614 | $ (13,450,000) | (23,993,758) | 138,158,267 | |
Beginning balance, shares at Dec. 31, 2020 | 75,261,084 | (12,300,000) | ||||
Beginning balance, amount at Dec. 31, 2020 | $ 7,526 | 50,685,178 | $ (13,450,000) | (24,042,778) | 13,199,926 | |
Stock issued for acquisition, shares | 19,080,000 | |||||
Stock issued for acquisition, amount | $ 1,908 | 64,998,092 | 65,000,000 | |||
Stock issued for cash, net, shares | 8,433,437 | |||||
Stock issued for cash, net, amount | $ 843 | 7,167,740 | 7,168,583 | |||
Warrants issued for acquisition | 51,081,066 | 51,081,066 | ||||
Stock to be issued for convertible notes - forced conversion, shares | 1,335,000 | |||||
Stock to be issued for convertible notes - forced conversion, amount | $ 134 | (134) | ||||
Warrants issued with convertible notes | 926,198 | 926,198 | ||||
Beneficial conversion - convertible notes | 428,802 | 428,802 | ||||
Stock compensation, shares | ||||||
Stock compensation, amount | 304,672 | 304,672 | ||||
Net loss | 49,020 | 49,020 | ||||
Ending balance, shares at Mar. 31, 2021 | 104,109,521 | (12,300,000) | ||||
Ending balance, amount at Mar. 31, 2021 | $ 10,411 | $ 175,591,614 | $ (13,450,000) | $ (23,993,758) | $ 138,158,267 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Mar. 31, 2021 | Dec. 31, 2020 | Mar. 31, 2020 | Dec. 31, 2019 | Mar. 31, 2021 | Mar. 31, 2020 | Sep. 30, 2019 | |
Operating Activities: | |||||||
Net loss | $ 49,020 | $ (1,074,456) | $ (1,577,236) | $ (1,975,328) | $ (1,025,436) | $ (3,552,564) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||
Depreciation | 64,570 | 64,220 | $ 64,220 | ||||
Amortization | 183,872 | 565,620 | |||||
Amortization of right of use asset | 27,977 | ||||||
Amortization of debt discount | 272,359 | 346,936 | |||||
Common stock issued for services | 163,236 | 132,106 | |||||
Stock compensation expense | 609,344 | 75,000 | |||||
Provision for bad debt | 22,460 | ||||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | (2,213,229) | (148,149) | |||||
Deferred costs | (3,622,372) | (663,058) | |||||
Prepaid expenses and other current assets | (1,024,680) | (21,708) | |||||
Accounts payable | 1,107,669 | 1,051,663 | |||||
Accrued payroll | 308,893 | 48,997 | |||||
Accrued interest | 442,693 | 921,449 | |||||
Accrued expenses | 253,474 | 735,309 | |||||
Operating lease liability | (27,977) | ||||||
Net Cash Used in Operating Activities | (4,479,607) | (421,719) | |||||
Investing Activities: | |||||||
Deposit on acquisition | (1,685,368) | ||||||
Cash paid for acquisition | (500,000) | ||||||
Purchases of property and equipment | (739,560) | (51,160) | |||||
Cash received from sale of Airware assets | 5,000 | 40,000 | |||||
Cash received from note receivable | 20,000 | ||||||
Cash acquired in merger | 94,596 | ||||||
Capitalized license fees | (2,790) | (426,743) | |||||
Net Cash Used in Investing Activities | (2,328,122) | (917,903) | |||||
Financing Activities: | |||||||
Proceeds from the sale of common stock, net of issuance costs | 12,959,808 | ||||||
Proceeds from the issuance of debt | 1,355,000 | 3,169,000 | |||||
Debt payments | (3,283,879) | (2,100,000) | |||||
Net Cash Provided by Financing Activities | 11,030,929 | 1,069,000 | |||||
Net Increase (Decrease) in Cash | 4,223,200 | (270,622) | |||||
Cash and cash equivalents - Beginning of Period | $ 84,677 | $ 574,943 | 84,677 | 574,943 | |||
Cash and cash equivalents - End of Period | $ 4,307,877 | $ 304,321 | 4,307,877 | 304,321 | $ 574,943 | ||
Supplemental disclosure of cash flow information: | |||||||
Interest paid in cash | 461,702 | 50,000 | |||||
Income taxes paid in cash | |||||||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Stock issued (or to be issued) for acquisitions | 65,000,000 | 3,507,000 | |||||
Warrants issued for debt and acquisition | 52,007,264 | ||||||
Non-cash equity compensation | 772,580 | ||||||
Non-cash Treasury Stock | 150,216 | ||||||
Fixed assets purchased with debt | 50,914 | ||||||
Right of use asset | 268,359 | ||||||
Lease liability | 268,359 | ||||||
Debt issued for acquisition | 1,000,000 | ||||||
Amortization of debt discount | 272,359 | ||||||
Operating lease right of use asset and liability | 243,027 | ||||||
Accrued interest transferred to debt | 160,590 | ||||||
Beneficial conversion feature | 428,802 | ||||||
Net assets acquired in acquisition: | |||||||
Cash | 94,596 | ||||||
Other current assets | 174,185 | ||||||
Fixed assets, net | 43,189 | ||||||
Other assets - intangibles | 11,048 | ||||||
Accounts payable | 909,937 | ||||||
Other current liabilities | 3,019,193 | ||||||
Notes payable | 1,186,658 | ||||||
Other noncurrent liabilities | $ 414,171 |
Description of Business and Sum
Description of Business and Summary of Significant Accounting Policies | 6 Months Ended |
Mar. 31, 2021 | |
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. Through a licensing agreement, the Company grows marijuana and produces cannabis related products at their facility in Pinal County, Arizona on behalf of a licensed marijuana dispensary in the state of Arizona. In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd, a dispensary franchisor. The transaction was structured as a reverse triangular merger, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd has agreements with more than fifteen (15) entrepreneurial groups to open more than thirty (30) Unity Rd retail dispensary locations in 7 states. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to confidently and successfully operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings. In March 2020, the World Health Organization categorized Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The services we provide are currently designated an essential critical infrastructure business under the President’s COVID-19 guidance, the continued operation of which is vital for national public health, safety and national economic security. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and vendors, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. Certain prior period balances have been reclassified in the accompanying condensed consolidated financial statements to conform to the current year presentation. These reclassifications had no effect on the prior year’s net loss or accumulated deficit. The accompanying condensed consolidated financial statements of the Company as of March 31, 2021 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should be read in conjunction with our September 30, 2020 audited financial statements filed with the SEC on our Form 10-K on January 12, 2021. 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. We derived the September 30, 2020 condensed balance sheet data from audited financial statements, however, we did not include all disclosures required by GAAP. The results for the interim period ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending September 30, 2021. Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, deferred costs, accruals and contingencies, carrying value of goodwill and intangible assets, collectability of notes receivable, the fair value of common stock and the estimated fair value of stock options and warrants, and the estimated fair value of the consideration paid and the fair value of assets purchased and liabilities assumed in the acquisition of OCG, Inc. (See Note 2). Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term. Cash and Cash Equivalents 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 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 recognized in the results of operations in the year in which those differences are determined, with an offsetting entry to a valuation allowance for accounts receivable. The Company’s policy is to evaluate the collectability of accounts receivable on an ongoing basis, record an allowance for specific accounts deemed uncollectible, and evaluate the remaining balance for a general allowance for doubtful accounts. Historical write-offs and current macro and microeconomic conditions are considered when evaluating the need for an allowance. Accounts receivable are written off when all reasonable collection efforts have been taken. At March 31, 2021 and September 30, 2020, the Company has reserved $76,052 and $81,018, respectively, of specific accounts deemed uncollectible. Accounts receivable are pledged as collateral for debt, bear no interest, and are unsecured. Deferred Costs Deferred costs consist of the costs directly related to the production and cultivation of marijuana crops, cannabis oils, and cannabis concentrate products. Deferred costs are relieved to cost of services as products are delivered to dispensaries. Deferred costs consist primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead. 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. Depreciation expense is not included in cost of revenues. Equipment not yet in service will be depreciated once operations commence. The estimated useful lives of property and equipment are: · Cultivation and manufacturing equipment 2-7 years · Buildings 30 years Notes and Other Receivables, net Notes and other receivables 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 in the period in which those differences are determined, with an offsetting entry to a valuation allowance for receivables. Management assesses all receivables individually and in total, considering historical credit losses as well as existing economic conditions to determine the likelihood of future credit losses. The Company stops accruing interest on interest bearing receivables when the receivable is in default. There was a total valuation allowance as of March 31, 2021 and September 30, 2020 of $745,430. Impairment of Long-Lived Assets We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at each balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows. Intangible Assets Subject to Amortization Intangible assets include trade name, customer relationships, website, a noncompete agreement and intellectual property obtained through a business acquisition. 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 calculated on the straight-line basis using the following estimated useful lives: · Trade names 10 years · Customer relationships 2 years · Noncompete agreement 4 months · Websites and other intellectual property 5 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 and Intangible Assets Not Subject to Amortization 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. Indefinite life intangible assets represent licenses purchased for cultivation, processing and distribution of cannabis. Goodwill and indefinite life intangibles are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The goodwill included in these condensed consolidated financial statements represents the amount of consideration paid above the amount of the individually identifiable assets acquired. In assessing potential impairment, management first considers qualitative factors to determine if an impairment of goodwill or indefinite life intangibles existed. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the business or assets acquired. In addition to the annual impairment test, we are required to regularly assess whether a triggering event has occurred which would require interim testing. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on our operations. Currently, we have determined that a triggering event has not occurred that would require an interim impairment test to be performed. However, we refer you to our comment in the first section of this Note 1 as it relates to the impact of COVID-19 and certain economic uncertainties. Licenses Cannabis licenses vary in term for each jurisdiction. The Company capitalizes all costs associated with the acquisition of cannabis licenses in the year the license is obtained. Subsequent measurement is determined by the length of the term of the license. The Company acquired licenses during the year ended September 30, 2020 that have indefinite useful lives. As such, the license costs will not be amortized, but tested annually for impairment or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. Costs associated with maintaining licenses (annual fees) are expensed as incurred. The anticipated maintenance fees are not expected to be material to the condensed consolidated financial statements. Income Taxes Deferred tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes are required. In assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined that it is more likely than not that the Company will not fully realize all of its deferred tax asset and a valuation allowance was recorded at March 31, 2021 and September 30, 2020. The Company did not recognize any assets or liabilities relative to uncertain tax positions at March 31, 2021 and September 30, 2020. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. The Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at March 31, 2021 and September 30, 2020. The Company is generally subject to tax audits for its United States federal and state income tax returns for approximately the last four years, however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are often complex and can require several years to complete. 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 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 previously required under 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. All 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. For the three and six months ended March 31, 2021 and 2020, substantially all of the Company’s revenue was generated from 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 reasonably assured. Under the performance contract, the Company acted as an agent for the dispensary, did not own the marijuana products, could not exchange the marijuana products, prepared invoices for the dispensary and all employees that were in contact with marijuana products were dispensary agents of the dispensary with which we had our contract. Given these facts and circumstances, it was the Company’s policy to record the revenue related to the contract net of the amount retained by the dispensary. Per the dispensary contract, the Company was paid 85% of the wholesale market price of the marijuana products for the services rendered for the three months ended December 31, 2019. The contract was amended in December 2019 and beginning in January 2020, the Company was paid 100% of the wholesale market price of the marijuana for the services rendered. The contract called for monthly payments in the amount of $80,000 for the three months ending March 31, 2020. Beginning April 1, 2020, the Company entered into a three-year agreement with another dispensary, which calls for monthly payments of $40,000. Prior to January 1, 2020, the Company recorded revenues at the amount it expected to collect, 85% of the total wholesale sales. Since January 1, 2020, the Company records revenue at the amount it expects to collect, 100% of the wholesale sales. The fees paid for operating under the contract are expensed to cost of revenues. 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, variable consideration, a significant contract, rights of return or warranties. Fair Value of Financial Instruments The carrying value of the Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short term to maturity (level 3 inputs). The Company’s receivable resulting from the sale of Airware, notes receivable and notes payable approximate fair value based on borrowing rates currently available on notes with similar terms and maturities (level 3 inputs). ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value as follows: Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates and assumptions that market participants would use in pricing the asset or liability. Net Income (Loss) Per Share Basic income (loss) per share does not include dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings/(loss) per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method and If-Converted Method for outstanding convertible debt, as applicable. Under the "treasury stock method," the Company will calculate the number of shares issuable under the terms of its options and warrants based on the average market price of Company common stock during the period, and include that number in the total diluted shares figure for the period. Under the “If-Converted Method”, the Company calculated the shares issuable under the terms of its convertible debt instruments. A reconciliation of basic and diluted earnings/(loss) per share is as follows: Three months ended March 31, Six months ended March 31, 2021 2020 2021 2020 Numerator: Net income(loss) attributable to Item 9 Labs Corp $ 49,020 $ (1,576,100 ) $ (1,025,436 ) $ (3,526,290 ) Denominator: Weighted average common shares outstanding 65,880,141 61,424,905 62,143,521 62,017,391 Dilutive common share equivalents Options 2,141,528 Warrants 14,161,326 Convertible notes 2,755,240 Weighted average diluted shares outstanding 84,938,235 61,424,905 62,143,521 62,017,391 Earnings (loss) per share Basic $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) Diluted $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) Stock-Based Compensation The award of an option to buy the Company’s common stock is a long-term element of compensation since on the date of the award, the exercise price, or purchase price, of the shares subject to the option is generally the same as the price of those shares on the open market. The recipient of a stock option will only realize its value if the market price of the shares increases over the life of the option, and the award gives the executive an incentive to remain with the Company and aligns his interests with those of our stockholders. 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. Assumptions used to estimate compensation expense are determined as follows: · Expected term is generally determined using the average of the contractual term and vesting period of the award; · Expected volatility is measured using the historical daily changes in the market price of the Company’s common stock over a period consistent with the expected term or since March 20, 2018, if earlier, the day of the merger between BSSD Group LLC (“BSSD”) and Airware Labs Corp; · Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards. Item 9 Labs Corp Incentive Stock option Plan: On June 21, 2019, our board and shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. It is the policy of the Company to issue new shares for options that are exercised. Warrants and Debt Discounts The Company bifurcates the value of warrants issued with debt. This bifurcation results in the establishment of a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes valuation model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company’s stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company’s common stock over the expected term of the award and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards. Recently Issued Accounting Pronouncements Pending Adoption In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for us on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us. |
Acquisitions
Acquisitions | 6 Months Ended |
Mar. 31, 2021 | |
Business Combinations [Abstract] | |
Acquisitions | Note 2 –Acquisitions Strive Management, LLC In February 2020, the Company executed an agreement with the other members of Strive Management, LLC to purchase the remaining 80% of Strive Management, LLC (“Strive”), as well as the Nevada licenses its members held in another entity. The Company agreed to pay $500,000 in cash, $1,000,000 in an unsecured note payable, 3,250,000 shares of the Company’s restricted common stock and issue 2,000,000 warrants exercisable into the Company’s common stock. The warrants are to be issued upon the earlier of September 30, 2020 or three months following the date on which each provisional certificate becomes a final certificate, which has not yet occurred. The warrants have a three-year term, exercise price of $1.13 and include down round provisions. In order to close the transaction, the Company borrowed $500,000 from Stockbridge Enterprises, a related party (See note 6). Though the Company acquired the remaining portion of Strive, Strive was not considered a business under ASC 805, Business Combinations, as it did not have a substantive process. As such, the Company has recorded the transaction as an asset acquisition. As of March 31, 2021 and September 30, 2020, $6,703,981 has been recorded to licenses relating to the transaction. OCG Inc. (Unity Rd) On December 13, 2020, the Company and I9 Acquisition Sub Inc. (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Agreement”) with OCG Inc., a Colorado corporation (“ Target ”), pursuant to which the Merger Sub will be merged with and into the Target in a reverse triangular merger with the Target continuing as the surviving entity as a wholly-owned direct subsidiary of the Company (“Merger”). On the terms and subject to the conditions set forth in the Agreement, upon the completion of the Merger, the Target Shareholders became stockholders of the Company through the receipt of an aggregate 19,080,000 restricted shares of the Common Stock of the Company, of which 7,632,000 shares will be held in escrow for 6-18 months (“Merger Consideration”). As the initial merger agreement was agreed upon in February 2020, the Company agreed to fund a line of credit to assist in funding the operations of OCG Inc. during the process. The payments made on behalf of OCG, Inc. were reported as deposits in the amount of $640,000 as of September 30, 2020. As of March 31, 2021, the amount is reported as an internal balance and has been eliminated in consolidation for financial reporting purposes. The Agreement dated December 13, 2020 superseded and replaced all prior agreements between the parties, including that certain merger agreement dated February 27, 2020. The transaction closed on March 19, 2021, which has currently been determined to be the acquisition date. Per ASC 805, Business Combinations, the measurement period is the period after the acquisition date during which the acquirer may adjust the provisional amounts recognized for a business combination. The measurement period shall not exceed one year from the acquisition date. As of the date of this filing, the purchase price allocation is underway but not yet completed. Subsequent to the issuance of these financial statements, the Company expects to obtain a third-party valuation of the fair value of the assets acquired, liabilities assumed and consideration paid for use in the purchase price allocation. The estimated consideration paid was recorded based on the market price of Item 9 Labs stock as of March 19, 2021 for the 19,080,000 of restricted common shares issued and the black scholes model for the 23,560,000 of warrants granted. The assumptions used in the black scholes model were: grant date stock price of $3.40, term of 1.5 years, 140% volatility and a discount rate of .09% (1 year treasury bond), with a total estimated purchase price of $116,081,066. The valuation and allocation are significant estimates and may be materially modified in future filings as the accounting for this acquisition progresses and is finalized. The following table summarizes the allocation of the estimated purchase price to the estimated fair values of the assets acquired and the liabilities assumed as of the transaction date: Consideration paid $ 116,081,066 Tangible assets acquired Cash $ 94,596 Other current assets 174,185 Fixed assets 43,189 Other assets 11,048 Total tangible assets $ 323,018 Assumed liabilities Accounts payable $ 909,937 Other current liabilities 3,019,193 Officer and shareholder loans 1,186,658 Unearned franchise fee revenue 414,171 Total assumed liabilities 5,529,959 Net liabilities assumed (5,206,941 ) Intangible assets (a)(b) $ 121,288,007 (a) – The excess purchase price over the tangible assets acquired and liabilities assumed will be allocated to intangible assets and goodwill after completion of the third-party valuation. In accordance with applicable accounting standards, any goodwill will not be amortized but instead will be tested for impairment at least annually or more frequently if certain indicators are present. Goodwill and intangible assets may not be deductible for tax purposes (b) Any goodwill resulting from the acquisition represents expected synergies from the merger of operations and intangible assets that do not qualify for separate recognition. With the addition of a retail dispensary franchise business, it brings the full vertical to Item 9 Labs Corp (cultivation, processing, distribution and retail), providing a built in premium supply chain to distribute Item 9 Labs products while maintaining a mode of growth which may be less dependent on outside capital for expansion. During the period subsequent to the acquisition date, OCG, Inc. recognized revenue of $9,185 and a net loss of $81,401 for the period of March 19, 2021 to March 31, 2021. The following unaudited pro forma information presents the consolidated results of operations of the Company and OCG, Inc. as if the acquisition consummated on March 19, 2021 had been consummated on October 1, 2019. Such unaudited pro forma information is based on historical unaudited financial information with respect to the acquisition and does not include operational or other charges which might have been affected by the Company. The unaudited pro forma information for the six months ended March 31, 2021 and 2020 presented below is for illustrative purposes only and is not necessarily indicative of the results which would have been achieved or results which may be achieved in the future: Six months ended March 31, 2021 2020 Revenue $ 9,171,159 $ 3,636,535 Net loss $ (6,118,656 ) $ (6,008,208 ) Basic and diluted net loss per common share $ (0.08 ) $ (0.07 ) Basic and diluted weighted average common shares outstanding 81,223,521 81,097,391 |
Property and Equipment, Net
Property and Equipment, Net | 6 Months Ended |
Mar. 31, 2021 | |
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 March 31, 2021 and September 30, 2020: March 31, September 30, 2021 2020 Equipment $ 344,503 $ 169,069 Construction in progress 4,866,678 4,212,208 Land and building 3,097,539 3,093,780 8,308,720 7,475,057 Accumulated Depreciation (330,867 ) (266,297 ) $ 7,977,853 $ 7,208,760 The Company had multiple capital projects ongoing during the six months ended March 31, 2021. The fees associated with engineering and plan submittal, as well as electrical upgrades are reported as construction in progress as of March 31, 2021. Additionally, the Company began implementation of an ERP system, which was also reported as construction in progress. Depreciation expense for the six months ended March 31, 2021 and 2020 was $64,570 and $64,220, respectively. |
Sale of Airware Assets and Inve
Sale of Airware Assets and Investment in Health Defense LLC | 6 Months Ended |
Mar. 31, 2021 | |
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 was to receive: (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 payment, the Company recognized a discount of $70,070 using a discount rate of 21.50%. As additional consideration, the Company was given a 10% ownership interest in Health Defense LLC. This ownership was valued at $100,000 and was previously reflected on the consolidated balance sheet as Investment in Health Defense. During 2020, the Company determined the fair value of the investment to be lower than the carrying value. As such, the Company recorded an impairment charge of $100,000 during the year ended September 30, 2020, reducing the carrying amount to $0. During the year ended September 30, 2019, management determined that the receivable described above should be classified as long-term on the consolidated balance sheet as the payments have not been made as scheduled. Additionally, management has recorded a reserve on the receivable of $596,430 as of March 31, 2021 and September 30, 2020. |
Notes Receivable
Notes Receivable | 6 Months Ended |
Mar. 31, 2021 | |
Receivables [Abstract] | |
Notes Receivable | Note 5 – Notes Receivable On May 11, 2018, the Company entered into a Promissory Note Agreement with a borrower in the principal amount of $150,000. This was 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 borrowers. This note is in default and is on non-accrual status. The Company has recorded a reserve of $80,000 on this note at March 31, 2021 and September 30, 2020. On May 15, 2018, the Company entered into a Promissory Note Agreement with a borrower in the principal amount of $60,000. This was 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. This note is in default and is on non-accrual status. At March 31, 2021 and September 30, 2020, the principal and interest has been fully reserved, totaling $69,000. |
Notes Payable
Notes Payable | 6 Months Ended |
Mar. 31, 2021 | |
Debt Disclosure [Abstract] | |
Notes Payable | Note 6 –Notes Payable Maturity Annual Interest Current Principal Original Discount Net Conversion Shares Issuable Upon Note Date Date Rate Balance Discount Amortization Balance Price Conversion C-1 3/23/2020 9/23/2020 12 % $ 1,100,000 $ (863,049 ) $ 863,049 $ — $ 1.00 — C-2 3/23/2020 9/23/2020 12 % 1,100,000 (863,049 ) 863,049 1,100,000 1.00 1,206,730 C-3 8/15/2011 8/15/2012 8 % 20,000 — — 20,000 0.50 63,510 C-4 6/15/2020 3/15/2021 24 % 50,000 — — 50,000 1.00 50,000 C-5 3/19/2021 9/19/2021 10 % 200,000 — — 200,000 2.50 80,000 C-6 3/19/2021 3/19/2023 10 % 1,355,000 (1,355,000 ) 22,305 22,305 1.00 1,355,000 $ 1,392,305 2,755,240 (C-1, C-2) Convertible Stockbridge/Viridis Notes On March 23, 2020 the Company borrowed proceeds from two related parties, Stockbridge Enterprises and Viridis I9 Capital LLC. The $2,200,000 borrowing is unsecured, had an original term of six months, and accrued interest at a rate of 12% per year. All principal and interest were due on the maturity date. At December 31, 2020, these notes were in default. In February 2021, the Stockbridge note was amended to cure the default (see (n) below). The Viridis note remains in default as of this filing, though the parties are negotiating a long-term arrangement. The debt included a provision for the issuance of 10,000,000 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $.75 and the warrants have a term of 5 years. The debt and warrants were recorded at their relative fair values. The resulting discount was amortized to interest expense over the term of the debt. (C-3, C-4, C-5) Other Convertible Notes The Company has various convertible notes outstanding under various provisions. C-5 note was assumed in the OCG, Inc. transaction. It was restructured to be a 6 month convertible note with an initial principal balance of $300,000, with a principal payment due and paid by March 24, 2021, and additional principal payments of $10,000 due monthly as well as accrued interest at 10%. The note matures September 2021 and may be converted into common stock of the Company at any time before then with an exercise price of $2.50 per share. (C6) Convertible Notes The Company and OCG Inc. borrowed $1,355,000 from various investors in March 2021 under a convertible note agreement. The notes bear interest at 10%, calculated semi-annually, payable on the maturity date in which any accrued but unpaid and unconverted interest and unconverted and outstanding principal is due. In addition to the notes being convertible at the option of the noteholders, the notes include automatic conversion features in which the notes will convert to common shares of the Company upon the earlier of the maturity date or when the quoted market price of the Company is $2.00 or above for five consecutive trading days and has 20,000 shares traded in the same five days. The notes also included warrants to purchase 1,355,000 shares of Company stock for $3 per share, with a 3 year term. The debt, and warrants were recorded at their relative fair values. The resulting discount will be amortized to interest expense over the term of the debt. The beneficial conversion feature was recorded at its intrinsic value, but was limited to the amount of the proceeds allocated to the debt. Maturity Annual Interest Current Principal Original Discount Net Note Date Date Rate Balance Discount Amortization Balance Secured by e 3/23/2020 3/1/2021 22 % $ — — — — 1st DOT AZ property f 5/1/2020 11/1/2023 10 % 1,386,370 (612,760 ) 160,486 934,546 2nd DOT AZ property g 5/1/2020 4/1/2024 10 % 1,564,849 (731,228 ) 191,513 1,025,134 1st DOT NV property h 5/1/2020 5/1/2023 15 % 283,666 (151,212 ) 49,403 181,857 N/A i 2/14/2020 10/14/2022 2 % 437,500 (155,040 ) 90,888 373,348 Secured by licenses j 6/18/2020 1/14/2021 60 % — — — — Future revenues k 9/8/2020 4/7/2021 60 % 18,917 — — 18,916 Future revenues l 2/14/2020 4/14/2020 6 % — (257,094 ) 257,094 — N/A m 12/20/2020 12/20/2021 9 % 38,588 — — 38,588 2 vehicles in AZ n 2/1/2021 2/5/2022 10 % 1,236,891 — — 1,236,891 N/A o 3/19/2021 4/1/2024 10 % 233,427 — — 233,427 N/A p 3/19/2021 4/1/2024 10 % 60,181 — — 60,181 N/A q 3/19/2021 4/1/2024 10 % 574,235 — — 574,235 N/A 4,677,123 Less current portion (1,943,836 ) Long-term debt $ 2,733,287 (e) Aeneas Venture Partners 3, LLC Note On August 28, 2019, Item 9 Properties, LLC, a Nevada limited liability company, and BSSD Group, LLC, an Arizona limited liability company, each wholly owned subsidiaries of Item 9 Labs Corp. collectively, entered into a Loan Agreement of up to $2.5 million (the “Loan Agreement”) with Aeneas Venture Partners 3, LLC, an Arizona limited liability company (the “Lender”). The Loan is secured by a first priority interest in the Company’s real property located in Coolidge, Arizona, including improvements and personal property thereon (the “Property”) and includes an unconditional guarantee by Item 9 Labs Corp. The 5-acre property has 20,000 square feet of buildings, housing the cultivation and processing operations. On March 23, 2020, the Company paid $2,000,000 on the note and reached a settlement to bring the note current. The settlement calls for monthly interest payments of $22,000 and the remaining principal balance of the note is due on March 1, 2021. The note was paid in full on March 1, 2021. (f) Viridis AZ On September 13, 2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC (“Viridis”), a related party, in which Viridis agreed to loan the Company up to $2.7 million for the expansion of the Company’s Arizona and Nevada properties. In exchange for the loan, Viridis was to be repaid in the form of waterfall revenue participation schedules. Viridis was to receive 5% of the Company’s gross revenues from the Arizona operations until the loan was repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. The loan was originally collateralized with a Deed of Trust on the Company’s 5-acre parcel in Coolidge, AZ and its two 10,000 square foot buildings. In August 2019, Viridis agreed to subordinate its first priority Deed of Trust and move into a 2 nd On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,200,000 note payable. As part of the restructuring, the Company issued 1,555,556 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $1.00 and they have a term of 5 years. Accrued interest in the amount of $186,370 was added to the principal balance of the note, making the total principal $1,386,370. Interest only payments of $11,553 shall be paid monthly until November 1, 2020 at which time monthly principal and interest payments of $28,144 are required for 36 months, with a balloon payment of $693,185 due upon the note’s maturity. The note also entitles Viridis to a gross revenue participation of the Arizona Operations equal to 1% of the gross sales (up to $20,000 monthly) upon the maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount will be amortized to interest expense over the term of the debt. The lender has granted a payment forbearance for the note and all unpaid principal and interest during this time will be added to the balloon payment at maturity. (g) Viridis NV On September 13, 2018, the Company borrowed $1,500,000 from Viridis Group I9 Capital LLC, a related party. The proceeds were utilized to acquire a 20% ownership in Strive Management, LLC and is collateralized with a Deed of Trust on the Company’s approximately 5 acre property and construction in progress. In exchange for the loan, Viridis was to be repaid in the form of waterfall revenue participation schedules. Viridis was to 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 was to commence 90 days after the Nevada operation begins earning revenue. On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,500,000 note payable. As part of the restructuring, the Company issued 1,944,444 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $1.00 and they have a term of 5 years. Accrued interest in the amount of $64,849 was added to the principal balance of the note, making the total principal $1,564,849. Interest only payments of $13,040 shall be paid monthly until 3 months following the commencement date of the Nevada Operations at which time monthly principal and interest payments of $33,962 will be required for 36 months, with a balloon payment of $761,007 due upon the note’s maturity. The note also entitles Viridis to a gross revenue participation of the Nevada Operations equal to 1% of the gross sales (up to $20,000 monthly) upon the maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount will be amortized to interest expense over the term of the debt. The lender has granted a payment forbearance for the note and all unpaid principal and interest during this time will be added to the balloon payment at maturity. (h) Virids (unsecured) The Company’s subsidiary, BSSD Group, LLC borrowed $269,000 from Viridis, a related party, in December 2019. This note bore annualized interest at 15%. On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $269,000 note payable. Accrued interest in the amount of $14,666 was added to the principal balance of the note, making the total principal $283,666. As part of the restructuring, the Company issued 400,000 warrants exercisable into the Company’s common stock. The warrants have an exercise price of $.05 and a term of 5 years. Payments of principal and interest in the amount of $9,833 are due monthly until the note’s maturity on May 1, 2023. The debt and warrants were recorded at their relative fair values. The resulting discount will be amortized to interest expense over the term of the debt. The lender has granted a payment forbearance for the note and all unpaid principal and interest during this time will be added to the balloon payment at maturity. (i) Strive Note In connection with the license acquisition described in Note 2, the Company entered into a note payable with the sellers in February 2020. The $1,000,000 note has a term of two years starting September 30, 2020 and bears interest at 2% per year. A principal payment in the amount of $500,000 was due on the earlier of October 10, 2020 or three months following the date on which each provisional certificate becomes a final certificate. The remaining balance is to be paid in quarterly installments of $62,500 plus accrued interest. Due to the low stated interest rate on the note, management imputed additional interest on the note. (j) CBR 1 In June 2020, the Company executed on a short-term financing arrangement. The net proceeds of $873,000 were utilized to further expand the production capabilities of our operations in Arizona. Thirty payments of $40,500 were due weekly and the arrangement matured and was paid in full in January 2021. The loan was secured by future revenues of our operations in Arizona. (k) CBR 2 In September 2020, the Company executed on a short-term financing arrangement. The proceeds of $490,000 are being utilized to further expand the production capabilities of our operations in Arizona. Five payments of $11,250 are due weekly through October 14, 2020 and twenty-five payments of $24,750 are then due weekly until the arrangement matures in April 2021. The loan is secured by future revenues of our operations in Arizona. (l) Stockbridge Note The Company entered into an additional note with Stockbridge Enterprises, a related party, in February 2020. The $500,000 borrowing had a term of 60 days and bore interest at 6% per year. All principal and interest were due on the maturity date of April 2020. The note included a provision for the issuance of 500,000 warrants exercisable into the Company’s common stock. The warrants have an exercise price of $.05 and a term of 5 years. In February 2021, this note was amended to cure the default (see (n) below). (m) Automotive Debt In December 2020, the Company’s subsidiary, BSSD Group purchased vehicles for use in operations. The dealership financed the vehicles. The initial principal balance of the note was $50,914. (n) Stockbridge Amended Debt In February 2021, the Company and Stockbridge Enterprises, a related party, under a trouble debt restructuring, agreed to restructure and settle the outstanding notes. The total outstanding balance of $1,660,590 including accrued interest will be repaid under a new promissory note, calling for a down payment of $300,000 (paid at time of signing), $120,000 monthly payments for 11 months with the remaining balance of $40,590 paid on February 1, 2022. The note bears interest at 10%. The restructured notes removed the conversion features included in one of the notes that was restructured. (o, p, q) OCG Officers Debt As part of the OCG transaction in March 2021, the Company assumed the officer debt of OCG, Inc. The debt is held in OCG, Inc., bears interest at 10% and is amortized over a 3 year term. Interest only payments are due monthly for 6 months, then half of the principal balance will be amortized over the remaining 30 months, with principal and accrued interest paid monthly, with a balloon payment of all outstanding principal and interest due at maturity. |
Concentrations
Concentrations | 6 Months Ended |
Mar. 31, 2021 | |
Risks and Uncertainties [Abstract] | |
Concentrations | Note 7 - Concentrations For the three and six months ended March 31, 2021 and 2020, substantially all of the Company’s revenue was generated from a single customer. The Company’s wholly owned subsidiary provides services to this customer under a three-year Cultivation Management Services Agreement that commenced on April 1, 2020. Provisions of the agreement require 30-day written notice to terminate except for the following circumstances, in which case the agreement is cancellable with no notice: (i) uncured default; (ii) gross negligence, intentional, or willful misconduct by either party; (iii) federal or state enforcement action against either party; (iv) any change or revocation of state or local law that has the effect of prohibiting the legal operation of the Cultivation Facility; (v) the dispensary license renewal is not approved; (vi) the dispensary fails to maintain its dispensary license in good standing with the regulators resulting in the revocation of the dispensary license. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Mar. 31, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Note 8 - 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. If the federal government decides to enforce the Controlled Substances Act, it could have a material adverse effect on our business. However, the Company does not currently 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. 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, (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. As of the date of these financial statements, $600,000 has been deposited in escrow which has been classified as a long-term asset on the condensed consolidated sheet as of March 31, 2021 and September 30, 2020. The Company entered into a 60 month lease with VGI Citadel LLC, a related party, to rent office space for its corporate headquarters which began on September 1, 2019. The lease payments total $6,478 monthly for the first twelve months, include all utilities and an estimated amount for common area maintenance and real estate taxes. The monthly lease rate increases to $6,653, $6,828, $7,003, and $7,178 for years two through five, respectively. As of March 31, 2021 and September 30, 2020, the Company has accrued unpaid payroll taxes of approximately $2,200,000 and $1,700,000, respectively, which includes estimated penalties and interest, and is included in accrued expenses in the accompanying balance sheets. |
Related Party Transactions
Related Party Transactions | 6 Months Ended |
Mar. 31, 2021 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 9– Related Party Transactions As discussed in Note 8, 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 Note 6, BSSD Group, LLC, a wholly owned subsidiary of the Company entered into a loan agreement with Viridis. As discussed in Note 6, the Company has notes payable to Viridis I9 Capital LLC and Stockbridge Enterprises in the with varying terms as of March 31, 2021. As discussed in Note 8, the Company has a lease agreement with VGI Capital LLC. A member of VGI Capital was elected to the Company’s board of directors on December 21, 2018 and is currently the Company’s CEO. Included in our accounts payable at March 31, 2021 and September 30, 2020 is approximately $80,000, and $90,000, respectively in amounts due to related parties. |
Stockholders' Equity
Stockholders' Equity | 6 Months Ended |
Mar. 31, 2021 | |
Equity [Abstract] | |
Stockholders' Equity | Note 10 - Stockholders’ Equity Common Stock In the six months ended March 31, 2020, in the normal course of business, the Company issued 55,618 shares of restricted common stock, valued at $132,106 as consideration for various contracts, including venue sponsorships, marketing, and investor relations. In February 2020, the Company committed to issue 3,250,000 shares of restricted common stock for the Strive acquisition. The agreement called for the members of Strive to receive membership interest in Strive, which would be transferrable into the 3,250,000 shares of restricted common stock of the Company. As of the financial statement date, the sellers have not requested the transfer so the shares have not been issued, though they are reserved and included in shares outstanding. In the six months ended March 31, 2020, the Company issued 26,282 shares of restricted common stock to employees, valued at $75,000. In the six months ended March 31, 2021, in the normal course of business, the Company issued 111,765 shares of restricted common stock to vendors, valued at $163,236. During the six months ended March 31, 2021, the Company raised $12,959,808 via private placement. The Company issued 15,246,643 shares with a selling price for its restricted common stock of $0.85. In March 2021, the Company issued 19,080,000 shares of restricted common stock for the OCG, Inc. acquisition. See Note 2. Warrants As of March 31, 2021, there are 41,415,000 warrants for purchase of the Company’s common stock outstanding. Warrants outstanding as of March 31, 2021 are as follows: Common Shares Issuable Upon Exercise Exercise Price Grant Date Expiration Warrants issued by predecessor 100,000 $ 1.00 7/28/2016 7/28/2021 Warrants issued in connection with debt financing 500,000 $ 0.05 2/14/2020 2/14/2025 Warrants issued in connection with acquisition 2,000,000 $ 1.13 2/14/2020 2/14/2023 Warrants issued in connection with debt financing 10,000,000 $ 0.75 3/28/2020 3/29/2025 Warrants issued in connection with debt financing 3,500,000 $ 1.00 5/1/2020 5/2/2025 Warrants issued in connection with debt financing 400,000 $ 0.05 5/1/2020 5/2/2025 Warrants issued in connection with acquisition 23,560,000 $ 3.00 3/19/2021 6/30/2024 Warrants issued in connection with debt financing 1,355,000 $ 3.00 3/16/2021 6/30/2024 Balance of Warrants at March 31, 2021 41,415,000 Stock Options As of March 31, 2021, there are 3,211,709 stock options outstanding, 287,491 of those options are exercisable with a weighted average exercise price of $5.34. The 2,924,218 unvested options have a weighted average exercise price of $0.87. |
Going Concern
Going Concern | 6 Months Ended |
Mar. 31, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Going Concern | Note 11 – Going Concern The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplate continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, realization of a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company operates in a new, developing industry with a variety of competitors. These factors raise substantial doubt about the Company’s ability to continue as a going concern. As a result, the Company’s independent registered public accounting firm included an emphasis-of-matter paragraph with respect to the consolidated financial statements for the year ended September 30, 2020, expressing uncertainty regarding the Company’s assumption that it will continue as a going concern. In order to continue as a going concern, the Company will need to generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows: Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing its products to dispensaries throughout the state of Arizona. The Company’s revenues have increased significantly since its inception in May 2017. Management will continue its plans to increase revenues in the Arizona market by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona, with construction of a cultivation and processing facility underway in Nevada. Financing. To date, the Company has financed its operations primarily with loans from shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow significantly, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful. If the Company is unable to generate significant sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations, and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern. |
Subsequent Events
Subsequent Events | 6 Months Ended |
Mar. 31, 2021 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 12 – Subsequent Events Subsequent to March 31, 2021, the Company sold 400,000 shares for $340,000, or $0.85 per share. |
Description of Business and S_2
Description of Business and Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
Description of Business | 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. Through a licensing agreement, the Company grows marijuana and produces cannabis related products at their facility in Pinal County, Arizona on behalf of a licensed marijuana dispensary in the state of Arizona. In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd, a dispensary franchisor. The transaction was structured as a reverse triangular merger, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd has agreements with more than fifteen (15) entrepreneurial groups to open more than thirty (30) Unity Rd retail dispensary locations in 7 states. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to confidently and successfully operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings. In March 2020, the World Health Organization categorized Coronavirus Disease 2019 (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The services we provide are currently designated an essential critical infrastructure business under the President’s COVID-19 guidance, the continued operation of which is vital for national public health, safety and national economic security. The extent of the impact of the COVID-19 outbreak on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, its impact on our customers and vendors, and the range of governmental and community reactions to the pandemic, which are uncertain and cannot be fully predicted at this time. |
Principles of Consolidation | Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated. Certain prior period balances have been reclassified in the accompanying condensed consolidated financial statements to conform to the current year presentation. These reclassifications had no effect on the prior year’s net loss or accumulated deficit. The accompanying condensed consolidated financial statements of the Company as of March 31, 2021 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and should be read in conjunction with our September 30, 2020 audited financial statements filed with the SEC on our Form 10-K on January 12, 2021. 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. We derived the September 30, 2020 condensed balance sheet data from audited financial statements, however, we did not include all disclosures required by GAAP. The results for the interim period ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending September 30, 2021. |
Accounting Estimates | Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, deferred costs, accruals and contingencies, carrying value of goodwill and intangible assets, collectability of notes receivable, the fair value of common stock and the estimated fair value of stock options and warrants, and the estimated fair value of the consideration paid and the fair value of assets purchased and liabilities assumed in the acquisition of OCG, Inc. (See Note 2). Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term. |
Cash and Cash Equivalents | Cash and Cash Equivalents 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 | Accounts 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 recognized in the results of operations in the year in which those differences are determined, with an offsetting entry to a valuation allowance for accounts receivable. The Company’s policy is to evaluate the collectability of accounts receivable on an ongoing basis, record an allowance for specific accounts deemed uncollectible, and evaluate the remaining balance for a general allowance for doubtful accounts. Historical write-offs and current macro and microeconomic conditions are considered when evaluating the need for an allowance. Accounts receivable are written off when all reasonable collection efforts have been taken. At March 31, 2021 and September 30, 2020, the Company has reserved $76,052 and $81,018, respectively, of specific accounts deemed uncollectible. Accounts receivable are pledged as collateral for debt, bear no interest, and are unsecured. |
Deferred Costs | Deferred Costs Deferred costs consist of the costs directly related to the production and cultivation of marijuana crops, cannabis oils, and cannabis concentrate products. Deferred costs are relieved to cost of services as products are delivered to dispensaries. Deferred costs consist primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead. |
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. Depreciation expense is not included in cost of revenues. Equipment not yet in service will be depreciated once operations commence. The estimated useful lives of property and equipment are: · Cultivation and manufacturing equipment 2-7 years · Buildings 30 years |
Notes and Other Receivables, net | Notes and Other Receivables, net Notes and other receivables 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 in the period in which those differences are determined, with an offsetting entry to a valuation allowance for receivables. Management assesses all receivables individually and in total, considering historical credit losses as well as existing economic conditions to determine the likelihood of future credit losses. The Company stops accruing interest on interest bearing receivables when the receivable is in default. There was a total valuation allowance as of March 31, 2021 and September 30, 2020 of $745,430. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at each balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows. |
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. 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 calculated on the straight-line basis using the following estimated useful lives: · Trade names 10 years · Customer relationships 2 years · Noncompete agreement 4 months · Websites and other intellectual property 5 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 and Intangible Assets Not Subject to Amortization | Goodwill and Intangible Assets Not Subject to Amortization 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. Indefinite life intangible assets represent licenses purchased for cultivation, processing and distribution of cannabis. Goodwill and indefinite life intangibles are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. The goodwill included in these condensed consolidated financial statements represents the amount of consideration paid above the amount of the individually identifiable assets acquired. In assessing potential impairment, management first considers qualitative factors to determine if an impairment of goodwill or indefinite life intangibles existed. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the business or assets acquired. In addition to the annual impairment test, we are required to regularly assess whether a triggering event has occurred which would require interim testing. We considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on our operations. Currently, we have determined that a triggering event has not occurred that would require an interim impairment test to be performed. However, we refer you to our comment in the first section of this Note 1 as it relates to the impact of COVID-19 and certain economic uncertainties. |
Licenses | Licenses Cannabis licenses vary in term for each jurisdiction. The Company capitalizes all costs associated with the acquisition of cannabis licenses in the year the license is obtained. Subsequent measurement is determined by the length of the term of the license. The Company acquired licenses during the year ended September 30, 2020 that have indefinite useful lives. As such, the license costs will not be amortized, but tested annually for impairment or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable. Costs associated with maintaining licenses (annual fees) are expensed as incurred. The anticipated maintenance fees are not expected to be material to the condensed consolidated financial statements. |
Income Taxes | Income Taxes Deferred tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes are required. In assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined that it is more likely than not that the Company will not fully realize all of its deferred tax asset and a valuation allowance was recorded at March 31, 2021 and September 30, 2020. The Company did not recognize any assets or liabilities relative to uncertain tax positions at March 31, 2021 and September 30, 2020. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. The Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at March 31, 2021 and September 30, 2020. The Company is generally subject to tax audits for its United States federal and state income tax returns for approximately the last four years, however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are often complex and can require several years to complete. |
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 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 previously required under 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. All 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. For the three and six months ended March 31, 2021 and 2020, substantially all of the Company’s revenue was generated from 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 reasonably assured. Under the performance contract, the Company acted as an agent for the dispensary, did not own the marijuana products, could not exchange the marijuana products, prepared invoices for the dispensary and all employees that were in contact with marijuana products were dispensary agents of the dispensary with which we had our contract. Given these facts and circumstances, it was the Company’s policy to record the revenue related to the contract net of the amount retained by the dispensary. Per the dispensary contract, the Company was paid 85% of the wholesale market price of the marijuana products for the services rendered for the three months ended December 31, 2019. The contract was amended in December 2019 and beginning in January 2020, the Company was paid 100% of the wholesale market price of the marijuana for the services rendered. The contract called for monthly payments in the amount of $80,000 for the three months ending March 31, 2020. Beginning April 1, 2020, the Company entered into a three-year agreement with another dispensary, which calls for monthly payments of $40,000. Prior to January 1, 2020, the Company recorded revenues at the amount it expected to collect, 85% of the total wholesale sales. Since January 1, 2020, the Company records revenue at the amount it expects to collect, 100% of the wholesale sales. The fees paid for operating under the contract are expensed to cost of revenues. 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, variable consideration, a significant contract, rights of return or warranties. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying value of the Company’s financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value due to their short term to maturity (level 3 inputs). The Company’s receivable resulting from the sale of Airware, notes receivable and notes payable approximate fair value based on borrowing rates currently available on notes with similar terms and maturities (level 3 inputs). ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value as follows: Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates and assumptions that market participants would use in pricing the asset or liability. |
Net Loss Per Share | Net Income (Loss) Per Share Basic income (loss) per share does not include dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings/(loss) per share data is computed using the weighted average number of common and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares consist of shares that would be issued upon the exercise of stock options and warrants, computed using the treasury stock method and If-Converted Method for outstanding convertible debt, as applicable. Under the "treasury stock method," the Company will calculate the number of shares issuable under the terms of its options and warrants based on the average market price of Company common stock during the period, and include that number in the total diluted shares figure for the period. Under the “If-Converted Method”, the Company calculated the shares issuable under the terms of its convertible debt instruments. A reconciliation of basic and diluted earnings/(loss) per share is as follows: Three months ended March 31, Six months ended March 31, 2021 2020 2021 2020 Numerator: Net income(loss) attributable to Item 9 Labs Corp $ 49,020 $ (1,576,100 ) $ (1,025,436 ) $ (3,526,290 ) Denominator: Weighted average common shares outstanding 65,880,141 61,424,905 62,143,521 62,017,391 Dilutive common share equivalents Options 2,141,528 Warrants 14,161,326 Convertible notes 2,755,240 Weighted average diluted shares outstanding 84,938,235 61,424,905 62,143,521 62,017,391 Earnings (loss) per share Basic $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) Diluted $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) |
Stock-Based Compensation and Item 9 Labs Corp Incentive Stock Option Plan | Stock-Based Compensation The award of an option to buy the Company’s common stock is a long-term element of compensation since on the date of the award, the exercise price, or purchase price, of the shares subject to the option is generally the same as the price of those shares on the open market. The recipient of a stock option will only realize its value if the market price of the shares increases over the life of the option, and the award gives the executive an incentive to remain with the Company and aligns his interests with those of our stockholders. 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. Assumptions used to estimate compensation expense are determined as follows: · Expected term is generally determined using the average of the contractual term and vesting period of the award; · Expected volatility is measured using the historical daily changes in the market price of the Company’s common stock over a period consistent with the expected term or since March 20, 2018, if earlier, the day of the merger between BSSD Group LLC (“BSSD”) and Airware Labs Corp; · Risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards. Item 9 Labs Corp Incentive Stock option Plan: On June 21, 2019, our board and shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. It is the policy of the Company to issue new shares for options that are exercised. |
Warrants and Debt Discounts | Warrants and Debt Discounts The Company bifurcates the value of warrants issued with debt. This bifurcation results in the establishment of a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes valuation model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company’s stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company’s common stock over the expected term of the award and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements Pending Adoption In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for us on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us. |
Description of Business and S_3
Description of Business and Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Accounting Policies [Abstract] | |
Reconciliation of basic and diluted earnings/(loss) per share | Three months ended March 31, Six months ended March 31, 2021 2020 2021 2020 Numerator: Net income(loss) attributable to Item 9 Labs Corp $ 49,020 $ (1,576,100 ) $ (1,025,436 ) $ (3,526,290 ) Denominator: Weighted average common shares outstanding 65,880,141 61,424,905 62,143,521 62,017,391 Dilutive common share equivalents Options 2,141,528 Warrants 14,161,326 Convertible notes 2,755,240 Weighted average diluted shares outstanding 84,938,235 61,424,905 62,143,521 62,017,391 Earnings (loss) per share Basic $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) Diluted $ 0.00 $ (0.03 ) $ (0.02 ) $ (0.06 ) |
Acquisitions (Tables)
Acquisitions (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Business Combinations [Abstract] | |
Allocation of estimated purchase price to estimated fair values of assets acquired and liabilities assumed | Consideration paid $ 116,081,066 Tangible assets acquired Cash $ 94,596 Other current assets 174,185 Fixed assets 43,189 Other assets 11,048 Total tangible assets $ 323,018 Assumed liabilities Accounts payable $ 909,937 Other current liabilities 3,019,193 Officer and shareholder loans 1,186,658 Unearned franchise fee revenue 414,171 Total assumed liabilities 5,529,959 Net liabilities assumed (5,206,941 ) Intangible assets (a)(b) $ 121,288,007 |
Unaudited pro forma information | Six months ended March 31, 2021 2020 Revenue $ 9,171,159 $ 3,636,535 Net loss $ (6,118,656 ) $ (6,008,208 ) Basic and diluted net loss per common share $ (0.08 ) $ (0.07 ) Basic and diluted weighted average common shares outstanding 81,223,521 81,097,391 |
Property and Equipment, Net (Ta
Property and Equipment, Net (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Property, Plant and Equipment [Abstract] | |
Summary of property and equipment | March 31, September 30, 2021 2020 Equipment $ 344,503 $ 169,069 Construction in progress 4,866,678 4,212,208 Land and building 3,097,539 3,093,780 8,308,720 7,475,057 Accumulated Depreciation (330,867 ) (266,297 ) $ 7,977,853 $ 7,208,760 |
Notes Payable (Tables)
Notes Payable (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Debt Disclosure [Abstract] | |
Convertible notes payable | Maturity Annual Interest Current Principal Original Discount Net Conversion Shares Issuable Upon Note Date Date Rate Balance Discount Amortization Balance Price Conversion C-1 3/23/2020 9/23/2020 12 % $ 1,100,000 $ (863,049 ) $ 863,049 $ — $ 1.00 — C-2 3/23/2020 9/23/2020 12 % 1,100,000 (863,049 ) 863,049 1,100,000 1.00 1,206,730 C-3 8/15/2011 8/15/2012 8 % 20,000 — — 20,000 0.50 63,510 C-4 6/15/2020 3/15/2021 24 % 50,000 — — 50,000 1.00 50,000 C-5 3/19/2021 9/19/2021 10 % 200,000 — — 200,000 2.50 80,000 C-6 3/19/2021 3/19/2023 10 % 1,355,000 (1,355,000 ) 22,305 22,305 1.00 1,355,000 $ 1,392,305 2,755,240 |
Various convertible notes outstanding under various provisions | Maturity Annual Interest Current Principal Original Discount Net Note Date Date Rate Balance Discount Amortization Balance Secured by e 3/23/2020 3/1/2021 22 % $ — — — — 1st DOT AZ property f 5/1/2020 11/1/2023 10 % 1,386,370 (612,760 ) 160,486 934,546 2nd DOT AZ property g 5/1/2020 4/1/2024 10 % 1,564,849 (731,228 ) 191,513 1,025,134 1st DOT NV property h 5/1/2020 5/1/2023 15 % 283,666 (151,212 ) 49,403 181,857 N/A i 2/14/2020 10/14/2022 2 % 437,500 (155,040 ) 90,888 373,348 Secured by licenses j 6/18/2020 1/14/2021 60 % — — — — Future revenues k 9/8/2020 4/7/2021 60 % 18,917 — — 18,916 Future revenues l 2/14/2020 4/14/2020 6 % — (257,094 ) 257,094 — N/A m 12/20/2020 12/20/2021 9 % 38,588 — — 38,588 2 vehicles in AZ n 2/1/2021 2/5/2022 10 % 1,236,891 — — 1,236,891 N/A o 3/19/2021 4/1/2024 10 % 233,427 — — 233,427 N/A p 3/19/2021 4/1/2024 10 % 60,181 — — 60,181 N/A q 3/19/2021 4/1/2024 10 % 574,235 — — 574,235 N/A 4,677,123 Less current portion (1,943,836 ) Long-term debt $ 2,733,287 |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 6 Months Ended |
Mar. 31, 2021 | |
Equity [Abstract] | |
Warrants outstanding | Common Shares Issuable Upon Exercise Exercise Price Grant Date Expiration Warrants issued by predecessor 100,000 $ 1.00 7/28/2016 7/28/2021 Warrants issued in connection with debt financing 500,000 $ 0.05 2/14/2020 2/14/2025 Warrants issued in connection with acquisition 2,000,000 $ 1.13 2/14/2020 2/14/2023 Warrants issued in connection with debt financing 10,000,000 $ 0.75 3/28/2020 3/29/2025 Warrants issued in connection with debt financing 3,500,000 $ 1.00 5/1/2020 5/2/2025 Warrants issued in connection with debt financing 400,000 $ 0.05 5/1/2020 5/2/2025 Warrants issued in connection with acquisition 23,560,000 $ 3.00 3/19/2021 6/30/2024 Warrants issued in connection with debt financing 1,355,000 $ 3.00 3/16/2021 6/30/2024 Balance of Warrants at March 31, 2021 41,415,000 |
Description of Business and S_4
Description of Business and Summary of Significant Accounting Policies - Reconciliation of basic and diluted earnings/(loss) per share (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Mar. 31, 2021 | Mar. 31, 2020 | Mar. 31, 2021 | Mar. 31, 2020 | |
Numerator: | ||||
Net income(loss) attributable to Item 9 Labs Corp | $ 49,020 | $ (1,576,100) | $ (1,025,436) | $ (3,526,290) |
Denominator: | ||||
Weighted average common shares outstanding | 65,880,141 | 61,424,905 | 62,143,521 | 62,017,391 |
Dilutive common share equivalents | ||||
Options | 2,141,528 | |||
Warrants | 14,161,326 | |||
Convertible notes | 2,755,240 | |||
Weighted average diluted shares outstanding | 84,938,235 | 61,424,905 | 62,143,521 | 62,017,391 |
Earnings (loss) per share | ||||
Basic | $ 0 | $ (0.03) | $ (0.02) | $ (0.06) |
Diluted | $ 0 | $ (0.03) | $ (0.02) | $ (0.06) |
Description of Business and S_5
Description of Business and Summary of Significant Accounting Policies (Details Narrative) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Accounting Policies [Abstract] | ||
Allowance for doubtful accounts on accounts receivable | $ 76,052 | $ 81,018 |
Valuation allowance on notes and other receivables, net | $ 745,430 | $ 745,430 |
Acquisitions - Allocation of es
Acquisitions - Allocation of estimated purchase price to estimated fair values of assets acquired and liabilities assumed (Details) | 6 Months Ended |
Mar. 31, 2021USD ($) | |
Business Combinations [Abstract] | |
Consideration paid | $ 116,081,066 |
Tangible assets acquired | |
Cash | 94,596 |
Other current assets | 174,185 |
Fixed assets | 43,189 |
Other assets | 11,048 |
Total tangible assets | 323,018 |
Assumed liabilities | |
Accounts payable | 909,937 |
Other current liabilities | 3,019,193 |
Officer and shareholder loans | 1,186,658 |
Unearned franchise fee revenue | 414,171 |
Total assumed liabilities | 5,529,959 |
Net liabilities assumed | (5,206,941) |
Intangible assets (a)(b) | $ 121,288,007 |
Acquisitions - Unaudited pro fo
Acquisitions - Unaudited pro forma information (Details) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Business Combinations [Abstract] | ||
Revenue | $ 9,161,974 | $ 3,675,464 |
Net loss | $ (4,948,311) | $ (6,008,208) |
Basic and diluted net loss per common share | $ (0.08) | $ (0.07) |
Basic and diluted weighted average common shares outstanding | 81,223,521 | 81,097,391 |
Acquisitions (Details Narrative
Acquisitions (Details Narrative) - USD ($) | 3 Months Ended | 6 Months Ended | 12 Months Ended |
Mar. 31, 2021 | Mar. 31, 2021 | Sep. 30, 2020 | |
Strive Management, LLC | |||
Acquisitions, cash paid | $ 500,000 | ||
Acquisitions, unsecured note payable issued | $ 1,000,000 | ||
Acquisitions, shares of restricted common stock, issued | 3,250,000 | ||
Acquisitions, warrants issued | 2,000,000 | ||
Amounts borrowed from related party to close transaction | $ 500,000 | ||
Licenses relating to transaction recorded | $ 6,703,981 | $ 6,703,981 | 6,703,981 |
OCG Inc. (Unity Rd) | |||
Restricted shares of Company Common Stock granted to Target Shareholders | 19,080,000 | ||
Payments for OCG acquisition recorded as deposits | 640,000 | $ 640,000 | $ 640,000 |
Revenue recognized | 9,185 | ||
Net loss recognized | $ (81,401) |
Property and Equipment, Net - S
Property and Equipment, Net - Summary of property and equipment (Details) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Property and Equipment, Gross | $ 8,308,720 | $ 7,475,057 |
Accumulated Depreciation | (330,867) | (266,297) |
Property and Equipment, Net | 7,977,853 | 7,208,760 |
Equipment | ||
Property and Equipment, Gross | 344,503 | 169,069 |
Construction in Progress | ||
Property and Equipment, Gross | 4,866,678 | 4,212,208 |
Land and Building | ||
Property and Equipment, Gross | $ 3,097,539 | $ 3,093,780 |
Property and Equipment, Net (De
Property and Equipment, Net (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | Sep. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |||
Depreciation expense | $ (64,570) | $ (64,220) | $ (64,220) |
Sale of Airware Assets and In_2
Sale of Airware Assets and Investment in Health Defense LLC (Details Narrative) - USD ($) | 12 Months Ended | |
Sep. 30, 2020 | Mar. 31, 2021 | |
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 | |
Unamortized discount on long-term receivable | $ 70,070 | $ 70,070 |
Additional consideration, ownership interest received | 10.00% | |
Additional consideration, ownership interest value | $ 100,000 | |
Additional reserve on receivable | $ 596,430 | $ 596,430 |
Notes Receivable (Details Narra
Notes Receivable (Details Narrative) - USD ($) | 6 Months Ended | |||
Mar. 31, 2021 | Sep. 30, 2020 | May 15, 2018 | May 11, 2018 | |
Promissory Note Agreement (1) | ||||
Promissory note, principal amount | $ 150,000 | |||
Promissory note, annual interest rate | 20.00% | |||
Reserve recorded on notes receivable | $ 80,000 | $ 80,000 | ||
Promissory Note Agreement (2) | ||||
Promissory note, principal amount | $ 60,000 | |||
Promissory note, annual interest rate | 15.00% | |||
Reserve recorded on notes receivable | $ 69,000 | $ 69,000 |
Notes Payable - Convertible not
Notes Payable - Convertible notes payable (Details) | 6 Months Ended |
Mar. 31, 2021USD ($)$ / sharesshares | |
C-1 | |
Note date | Mar. 23, 2020 |
Maturity date | Sep. 23, 2020 |
Annual interest rate | 12.00% |
Current principal balance | $ 1,100,000 |
Original discount | (863,049) |
Discount amortization | 863,049 |
Net balance | |
Conversion price | $ / shares | $ 1 |
Shares issuable upon conversion | shares | |
C-2 | |
Note date | Mar. 23, 2020 |
Maturity date | Sep. 23, 2020 |
Annual interest rate | 12.00% |
Current principal balance | $ 1,100,000 |
Original discount | (863,049) |
Discount amortization | 863,049 |
Net balance | $ 1,100,000 |
Conversion price | $ / shares | $ 1 |
Shares issuable upon conversion | shares | 1,206,730 |
C-3 | |
Note date | Aug. 15, 2011 |
Maturity date | Aug. 15, 2012 |
Annual interest rate | 8.00% |
Current principal balance | $ 20,000 |
Original discount | |
Discount amortization | |
Net balance | $ 20,000 |
Conversion price | $ / shares | $ 0.50 |
Shares issuable upon conversion | shares | 63,510 |
C-4 | |
Note date | Jun. 15, 2020 |
Maturity date | Mar. 15, 2021 |
Annual interest rate | 24.00% |
Current principal balance | $ 50,000 |
Original discount | |
Discount amortization | |
Net balance | $ 50,000 |
Conversion price | $ / shares | $ 1 |
Shares issuable upon conversion | shares | 50,000 |
C-5 | |
Note date | Mar. 19, 2021 |
Maturity date | Sep. 19, 2021 |
Annual interest rate | 10.00% |
Current principal balance | $ 200,000 |
Original discount | |
Discount amortization | |
Net balance | $ 200,000 |
Conversion price | $ / shares | $ 2.50 |
Shares issuable upon conversion | shares | 80,000 |
C-6 | |
Note date | Mar. 19, 2021 |
Maturity date | Mar. 19, 2023 |
Annual interest rate | 10.00% |
Current principal balance | $ 1,355,000 |
Original discount | (1,355,000) |
Discount amortization | 22,305 |
Net balance | $ 22,305 |
Conversion price | $ / shares | $ 1 |
Shares issuable upon conversion | shares | 1,355,000 |
Total | |
Net balance | $ 1,392,305 |
Shares issuable upon conversion | shares | 2,755,240 |
Notes Payable - Various convert
Notes Payable - Various convertible notes outstanding under varioius provisions (Details) | 6 Months Ended |
Mar. 31, 2021USD ($) | |
e | |
Note date | Mar. 23, 2020 |
Maturity date | Mar. 1, 2021 |
Annual interest rate | 22.00% |
Current principal balance | |
Original discount | |
Discount amortization | |
Net balance | |
Secured by | 1st DOT AZ property |
f | |
Note date | May 1, 2020 |
Maturity date | Nov. 1, 2023 |
Annual interest rate | 10.00% |
Current principal balance | $ 1,386,370 |
Original discount | (612,760) |
Discount amortization | 160,486 |
Net balance | $ 934,546 |
Secured by | 2nd DOT AZ property |
g | |
Note date | May 1, 2020 |
Maturity date | Apr. 1, 2024 |
Annual interest rate | 10.00% |
Current principal balance | $ 1,564,849 |
Original discount | (731,228) |
Discount amortization | 191,513 |
Net balance | $ 1,025,134 |
Secured by | 1st DOT NV property |
h | |
Note date | May 1, 2020 |
Maturity date | May 1, 2023 |
Annual interest rate | 15.00% |
Current principal balance | $ 283,666 |
Original discount | (151,212) |
Discount amortization | 49,403 |
Net balance | $ 181,857 |
Secured by | N/A |
i | |
Note date | Feb. 14, 2020 |
Maturity date | Oct. 14, 2022 |
Annual interest rate | 2.00% |
Current principal balance | $ 437,500 |
Original discount | (155,040) |
Discount amortization | 90,888 |
Net balance | $ 373,348 |
Secured by | Secured by licenses |
j | |
Note date | Jun. 18, 2020 |
Maturity date | Jan. 14, 2021 |
Annual interest rate | 60.00% |
Current principal balance | |
Original discount | |
Discount amortization | |
Net balance | |
Secured by | Future revenues |
k | |
Note date | Sep. 8, 2020 |
Maturity date | Apr. 7, 2021 |
Annual interest rate | 60.00% |
Current principal balance | $ 18,917 |
Original discount | |
Discount amortization | |
Net balance | $ 18,916 |
Secured by | Future revenues |
l | |
Note date | Feb. 14, 2020 |
Maturity date | Apr. 14, 2020 |
Annual interest rate | 6.00% |
Current principal balance | |
Original discount | (257,094) |
Discount amortization | 257,094 |
Net balance | |
Secured by | N/A |
m | |
Note date | Dec. 20, 2020 |
Maturity date | Dec. 20, 2021 |
Annual interest rate | 9.00% |
Current principal balance | $ 38,588 |
Original discount | |
Discount amortization | |
Net balance | $ 38,588 |
Secured by | 2 vehicles in AZ |
n | |
Note date | Feb. 1, 2021 |
Maturity date | Feb. 5, 2022 |
Annual interest rate | 10.00% |
Current principal balance | $ 1,236,891 |
Original discount | |
Discount amortization | |
Net balance | $ 1,236,891 |
Secured by | N/A |
o | |
Note date | Mar. 19, 2021 |
Maturity date | Apr. 1, 2024 |
Annual interest rate | 10.00% |
Current principal balance | $ 233,427 |
Original discount | |
Discount amortization | |
Net balance | $ 233,427 |
Secured by | N/A |
P | |
Note date | Mar. 19, 2021 |
Maturity date | Apr. 1, 2024 |
Annual interest rate | 10.00% |
Current principal balance | $ 60,181 |
Original discount | |
Discount amortization | |
Net balance | $ 60,181 |
Secured by | N/A |
Q | |
Note date | Mar. 19, 2021 |
Maturity date | Apr. 1, 2024 |
Annual interest rate | 10.00% |
Current principal balance | $ 574,235 |
Original discount | |
Discount amortization | |
Net balance | $ 574,235 |
Secured by | N/A |
Total | |
Net balance | $ 4,677,123 |
Less current portion | (1,943,836) |
Long-term debt | $ 2,733,287 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | 6 Months Ended | 12 Months Ended |
Mar. 31, 2021 | Sep. 30, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | ||
BSSD affiliate property purchase price, amounts deposited in escrow | $ 600,000 | $ 600,000 |
Unpaid payroll taxes outstanding | $ 2,200,000 | $ 1,700,000 |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | Mar. 31, 2021 | Sep. 30, 2020 |
Related Party Transactions [Abstract] | ||
Amounts due to related parties included in accounts payable | $ 80,000 | $ 90,000 |
Stockholders' Equity - Warrants
Stockholders' Equity - Warrants outstanding (Details) | 6 Months Ended |
Mar. 31, 2021$ / sharesshares | |
Warrants issued by predecessor (2) | |
Common shares issuable upon exercise | 100,000 |
Exercise price | $ / shares | $ 1 |
Grant date | Jul. 28, 2016 |
Expiration | Jul. 28, 2021 |
Warrants issued related to debt financing (1) | |
Common shares issuable upon exercise | 500,000 |
Exercise price | $ / shares | $ 0.05 |
Grant date | Feb. 14, 2020 |
Expiration | Feb. 14, 2025 |
Warrants issued related to acquisition (1) | |
Common shares issuable upon exercise | 2,000,000 |
Exercise price | $ / shares | $ 1.13 |
Grant date | Feb. 14, 2020 |
Expiration | Feb. 14, 2023 |
Warrants issued related to debt financing (2) | |
Common shares issuable upon exercise | 10,000,000 |
Exercise price | $ / shares | $ 0.75 |
Grant date | Mar. 28, 2020 |
Expiration | Mar. 29, 2025 |
Warrants issued related to debt financing (3) | |
Common shares issuable upon exercise | 3,500,000 |
Exercise price | $ / shares | $ 1 |
Grant date | May 1, 2020 |
Expiration | May 2, 2025 |
Warrants issued related to debt financing (4) | |
Common shares issuable upon exercise | 400,000 |
Exercise price | $ / shares | $ 0.05 |
Grant date | May 1, 2020 |
Expiration | May 2, 2025 |
Warrants issued related to acquisition (2) | |
Common shares issuable upon exercise | 23,560,000 |
Exercise price | $ / shares | $ 3 |
Grant date | Mar. 19, 2021 |
Expiration | Jun. 30, 2024 |
Warrants issued related to debt financing (5) | |
Common shares issuable upon exercise | 1,355,000 |
Exercise price | $ / shares | $ 3 |
Grant date | Mar. 16, 2021 |
Expiration | Jun. 30, 2024 |
Balance of Warrants | |
Common shares issuable upon exercise | 41,415,000 |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - USD ($) | 6 Months Ended | |
Mar. 31, 2021 | Mar. 31, 2020 | |
Common Stock | ||
Restricted common stock issued as consideration for consulting contracts, shares | 55,618 | |
Restricted common stock issued as consideration for consulting contracts, value | $ 132,106 | |
Restricted common stock issued to employees, shares | 26,282 | |
Restricted common stock issued to employees, value | $ 75,000 | |
Restricted common stock issued to vendors, shares | 111,765 | |
Restricted common stock issued to vendors, amount | $ 163,236 | |
Private placements, amount | $ 12,959,808 | |
Private placements, shares of restricted common stock issued | 15,246,643 | |
Restricted common stock issued for OCG, Inc. acquisition, shares | 19,080,000 | |
Warrants | ||
Warrants outstanding | 41,415,000 | |
Stock Options | ||
Stock options outstanding | 3,211,709 |
Subsequent Events (Details)
Subsequent Events (Details) | 1 Months Ended |
May 10, 2021USD ($)shares | |
Subsequent Events [Abstract] | |
Shares sold, shares | shares | 400,000 |
Shares sold, amount | $ | $ 340,000 |