Annual report pursuant to Section 13 and 15(d)

EQUITY INVESTMENTS

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EQUITY INVESTMENTS
12 Months Ended
Mar. 31, 2019
Notes to Financial Statements  
NOTE 4 - EQUITY INVESTMENTS

As of March 31, 2018, the Company's equity investments represented investments of purchased shares of stock of four (4) entities with ownership percentages of less than 5%. Cost basis of these investments aggregated $468,537 as of March 31, 2018. On April 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, and as such, these investments were recorded at their market value as of March 31, 2019, with the change in fair value being reflected in the statement of operations. As of March 31, 2019, the fair value of these investments based on observable market evidence was determined to be $898,292, with an Change in fair value of investments of $429,755 for the period then ended. In addition, one of these investments, Bailey, issued a cash dividend of $186,397 during the period that was reflected as dividend income.

 

Equity investments relate to purchases of stock in certain entities with ownership percentages of less than 5% and consist of the following:

 

   

March 31,

2019

    March 31,
2018
 
(A)    GemmaCert   $ 93,529     $ 68,237  
(B)    Hightimes Holdings Corp.     654,763       250,000  
(C)    Precision Cultivation Systems, LLC     50,000       50,000  
(D)    Bailey Venture Partners XII LLC     100,000       100,000  
    $ 898,292     $ 468,537  

 

(A) In November 2016, the Company purchased 29,571 shares of Preferred A stock of Cannabi-Tech Ltd. (“Cannabi”), at a price of $1.69086 per share for total investment of $50,000. Cannabi is a private company incorporated in the State of Israel that provides lab-grade medical cannabis quality control testing systems used to test the quality of medical marijuana flowers. Cannabi subsequently changed its name to GemmaCert. In October 2017, the Company purchased an additional 7,309 shares of Preferred A-1 stock of GemmaCert at a price of $2.536 per share for total investment of $18,537. At March 31, 2019, the Company revalued all its shares of GemmaCert at $2.536 per share, the most recent purchase price. This resulted in an aggregate increase in value of $24,992, which was reflected as unrealized gain from the change in GemmaCert’s market value.

 

As a private company, GemmaCert does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in GemmaCert during the fiscal year ended March 31, 2019. As such, the Company has measured the value of the investment at cost as of March 31, 2019, which we believe approximates market value.

 

(B) In January 2017, the Company entered in to an agreement to purchase 59,524 shares of Class A common stock at a price of $4.20 per share for total investment of $250,000, which accounts for less than 5% investment in Hightimes Holdings Corp. (“Hightimes”). Hightimes owns High Times Magazine and hosts festivals, events and competitions including the High Times Cannabis Cup and multiple e-commerce properties, including HighTimes.com, CannabisCup.com and 420.com. During the fiscal year ended March 31, 2019, the Company was able to obtain observable evidence that the investment had a market value of $11.00 per share, or an aggregate value of $654,763. As such, the Company recorded an unrealized gain from the change in market value of $404,763 during the fiscal year ended March 31, 2019.

 

(C) In June 2017, the Company entered in a Subscription Agreement to purchase 0.5% interest in Precision Cultivation Systems, LLC (“Precision”), a Delaware limited liability company, for a purchase price of $50,000. Precision is developing a growth system that capitalizes on a patent-pending cultivation method that utilizes proprietary irrigation and root zone conditioning. As part of the Subscription Agreement, $42,500 of the investment is subject to repayment on a pro-rata basis with other investors who have entered into similar Subscription Agreements. Amounts subject to repayment are solely at the discretion of Precision.

 

As a private company, Precision does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in Precision during the fiscal year ended March 31, 2019. As such, the Company has measured the value of the investment at cost as of March 31, 2019, which we believe approximates market value.

 

(D) In January 2018, the Company paid $100,000 for the purchase of a Membership Interest in Bailey Venture Partners XII LLC (“Bailey”) representing less than 5% interest in Bailey. Along with other funds received from third-party investors, Bailey plans to invest funds received in various strategic investments. In February 2019, the Company received a distribution of $186,397 from Bailey’s investment in JUUL Labs, Inc.

 

As a private company, Bailey does not have a readily determinable fair value. Additionally, there have been no observable price changes from transactions for similar investments in Bailey during the fiscal year ended March 31, 2019. As such, the Company has measured the value of the investment at cost as of March 31, 2019, which we believe approximates market value.

 

As the Company does not participate in the management of these companies nor has the ability to exercise significant influence over these companies, the Company recorded these investments at cost, and as of April 1, 2018, adjusted the cost basis to market at the end of each reporting period. Dividends, if any, are recognized when received.