Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2018
Property Equipment And Leasehold Improvements Net  

Property, equipment, and leasehold improvements, net consists of the following:


    December 31,  
    2018     2017  
Land and Building   $ 22,401,014     $ 9,047,201  
Furniture and Equipment     3,652,044       3,553,587  
Computer Hardware and Software     531,119       486,176  
Leasehold Improvements     8,524,930       9,316,665  
Construction in Progress     12,288,468       1,204,547  
Subtotal     47,397,575       23,608,176  
Less Accumulated Depreciation     (5,807,078 )     (4,416,560 )
Less Assets Held for Sale     (7,451,408 )     0  
Property, Equipment and Leasehold Improvements, Net   $ 34,139,089     $ 19,191,616  


Depreciation expense related to property, equipment and leasehold improvements for the years ended December 31, 2018 and 2017 was $2.00 million and $1.93 million, respectively.


During the third quarter of 2017, the Company recorded an impairment charge for land held in Nevada. In accordance with the guidance for the impairment of long-lived assets, the Company evaluated the property for recovery and recorded an impairment charge of $0.14 million to adjust the carrying value of the property to our estimate of fair value. The impairment charge was recorded in other expense in our consolidated statement of operations.


Assets Divested


On July 6, 2018, Medi Farm LLC, a wholly-owned subsidiary of the Company, entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Exhale Brands Nevada III, LLC (the “Purchaser”) pursuant to which the Company agreed to sell and the Purchaser agreed to purchase substantially all of the assets of the Company related to the Company’s dispensary located at 1921 Western Ave., Las Vegas, NV 89102 (“Western”). The total consideration was $6.25 million in cash plus the value of the inventory on the closing date. The transaction closed on October 22, 2018 upon receiving approval from the Nevada Department of Taxation.


Management has concluded that the Western asset purchase agreement does not meet the definition of the sale of a business. Therefore, the relevant guidance is ASC 610-20 “Other Income.” The Company recognized a gain upon sale of the assets equal to the difference between the consideration paid and the book value of the assets as of the disposition date, less direct costs to sell.


The following table summarizes the transaction: 


Total Consideration   $ 6,408,239  
Inventory     159,161  
Prepaid Expenses     9,645  
Property & Equipment     597,253  
Total Asset Book Value     766,059  
Transaction Costs     412,500  
Gain on Sale   $ 5,229,680  


Assets and Liabilities Held-for-Sale


During the fourth quarter of 2018, we began actively marketing the real estate held at Carnegie, Santa Ana; therefore $7.45 million of property, plant and equipment assets and $4.50 million of mortgage liabilities have been classified as held-for-sale, as they met the criteria for such classification at December 31, 2018.