Annual report pursuant to Section 13 and 15(d)

Related Party Transactions

v3.21.1
Related Party Transactions
12 Months Ended
Dec. 31, 2020
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 3 – RELATED PARTY TRANSACTIONS

 

In October 2018, we issued a $1,000,000 unsecured note payable to Cloud9 Support Inc. (“Cloud9 Support”), an entity owned by James Lowe, a director of the Company, which originally became due April 30, 2019 (the “James Lowe Note”). The James Lowe Note was personally guaranteed by Bradley Nattrass, our Chief Executive Officer, and Octavio Gutierrez. The loan had a one-time origination fee of $12,500. Interest accrued at the rate of 12% per annum and was paid monthly. As additional consideration for the James Lowe Note, we granted Mr. Lowe (as designee of Cloud9 Support) an option to purchase 5,000 shares of our common stock at an exercise price of $7.20 per share, which option is exercisable for a period of five years. The due date for the James Lowe Note was extended in May 2019 to December 31, 2019 and the interest rate was decreased to 9% per year. In consideration for Cloud9 Support extending the maturity date of the note and reducing the interest rate, we issued 1,667 shares of our common stock to Mr. Lowe (as designee of Cloud9 Support).

 

On February 21, 2020, we entered into an agreement to amend the James Lowe Note to extend the maturity date of therein from December 31, 2019 to the date which is the earlier of 60 days following the date: (a) on which demand for repayment is made by the lenders under the Credit Agreement, as described in Note 10, (which is now only applicable in the case of an event of default under the Credit Agreement because of the removal of the demand feature pursuant to the First Amendment to the Credit Agreement); or (b) which is the maturity date under the Credit Agreement.

 

In addition, on February 25, 2020, the Company entered into a subordination, postponement and standstill agreement with Cloud9 Support (the “Subordination Agreement”) pursuant to which Cloud9 Support agreed to postpone and subordinate all payments due under the promissory note until the facilities under the Credit Agreement have been fully and finally repaid. The term for the Subordination Agreement will continue in force as long as the Company is indebted to the agent or lenders under the Credit Agreement. In consideration for Cloud9 Support’s agreement to extend the maturity date of the promissory note and to enter into the Subordination Agreement, we issued 16,667 shares of common stock to Mr. Lowe (as designee of Cloud9 Support).

 

On December 15, 2020, James Lowe agreed to convert the $1,000,000 James Lowe Note plus $4,500 of accrued interest (the “New James Lowe Note”) into a convertible note bridge financing (see “Bridge Financing” in Note 9 – Notes Payable). The New James Lowe Note carries interest at the rate of 12% and matures on December 31, 2021. The New James Lowe Note will be mandatorily converted into shares of our common stock upon the closing of a qualified offering, at 75% of the per share price paid by investors in a qualified offering.

 

The Company has purchased goods from Cloud 9 Support. Purchases from Cloud 9 Support were $0 and $97,329 during the years ended 2020 and 2019, respectively. Cloud 9 Support also purchases materials from the Company for use with their customers. Total sales to Cloud 9 Support from the Company were $414,108 and $392,963 during the years ended 2020 and 2019, respectively. Outstanding receivables from Cloud 9 Support as of December 31, 2020 and 2019 totaled $61,678 and $49,659, respectively. Net outstanding payables for purchases of inventory and other services to Cloud 9 Support as of December 31, 2020 and 2019, totaled $0 and $16,402, respectively.

 

The Company purchases some cultivation products from Bravo Lighting, LLC (d/b/a Bravo Enterprises) (“Bravo”) and Enviro-Glo, LLC (“Enviro-Glo”), manufacturers and distributors of commercial building lighting and other product solutions with common control by the Company’s two major stockholders, Bradley Nattrass and Octavio Gutierrez. Purchases from Bravo and Enviro-Glo totaled $0 and $45,129 for the years ended 2020 and 2019, respectively. Outstanding receivables from Bravo and Enviro-Glo for the years ended 2020 and 2019 totaled $0 and $0, respectively. Net outstanding payables incurred for purchases of inventory and other services to Bravo and Enviro-Glo as of December 31, 2020 and 2019, was $0 and $8,570, respectively.