Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed
Inc. (the “Company”), a Delaware corporation, develops and manages state-of-the-art, regulatory-compliant facilities
for the cultivation, production, and dispensing of legal cannabis and cannabis-infused products. Such facilities, located in multiple
states, are leased to the Company’s clients in the emerging cannabis industry. Along with operational oversight, the Company
provides its clients with legal, accounting, human resources, business development, and other corporate and administrative services.
The
Company also provides professional consultative services in all aspects of cannabis licensing procurement. To date, the Company
has secured, on behalf of its clients, 11 cannabis licenses across five states—two in Delaware, two in Illinois, one in
Nevada, three in Maryland and three in Massachusetts. Accordingly, the Company has developed seed-to-sale cannabis facilities
across of these five states in excess of 300,000 square feet.
In
addition, the Company licenses precision-dosed, cannabis-infused products to treat specific medical conditions or to achieve a
certain result. These products are licensed under the brand names Kalm Fusion™ and Nature’s Heritage™, both
of which were developed by the Company, and Betty’s Eddies™, acquired in October 2017. The Company also has exclusive
sublicensing rights in certain states to distribute vaporizer pens developed by Lucid Mood™, as well as the clinically-tested
medicinal cannabis strains developed in Israel by Tikun Olam™.
The
Company’s stock is quoted on the OTCQB market under the ticker symbol MRMD.
The
Company was originally incorporated in January 2011 under the name Worlds Online Inc., using the ticker symbol WORX. In early
2017, the Company name and ticker were changed to its current name and ticker. Since inception, the Company had operated an online
portal that offers multi-user virtual environments to users. This segment of the business has had insignificant operations since
early 2014.
In
May 2014, the Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC, a company operating in the
cannabis industry. The purchase price consisted of Company common stock, options to purchase additional Company common stock,
and a minority interest in MariMed Advisors Inc. This transaction, further disclosed in Note 3, was accounted for as a purchase
acquisition where the Company was both the legal and accounting acquirer.
In
June 2017, the minority interest in MariMed Advisors Inc. was merged into the Company.
In
May 2018, the Company acquired iRollie LLC, a manufacturer of branded cannabis products and accessories for consumers, and custom
product and packaging for companies in the cannabis industry. This acquisition is further disclosed in Note 3.
NOTE
2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”).
In
accordance with GAAP, these interim statements do not contain all of the disclosures normally required in annual statements. In
addition, the results of operations of interim periods are not necessarily indicative of the results of operations to be expected
for the full year. Accordingly, these interim financial statements should be read in conjunction with the Company’s audited
annual financial statements and accompanying notes for the year ended December 31, 2017.
Certain
reclassifications have been made to prior periods’ data to conform to the current period presentation. These reclassifications
had no effect on reported income (losses) or cash flows.
Principles
of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of MariMed Inc. and its subsidiaries, all of which
are majority-owned. Intercompany accounts and transactions have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect
the reported amounts within the financial statements and disclosures thereof. Actual results could differ from these estimates
or assumptions.
Cash
Equivalents
The
Company considers all highly liquid investments with a maturity date of three months or less to be cash equivalents. The fair
values of these investments approximate their carrying values.
Revenue
Recognition
The
Company’s main sources of revenue are comprised of: leasing of its developed cannabis cultivation, production, and dispensary
facilities to its cannabis-licensed clients; agreements to provide comprehensive oversight and corporate support to its clients’
operations; consulting services to companies operating in the medical and legal recreational cannabis industries; arrangements
for the procurement of cannabis materials and resources; and licensing of branded cannabis products.
The
Company recognizes revenue when all of the following criteria are met: evidence of an arrangement exists such as a signed contract,
delivery has occurred/services have been performed, the price is fixed or determinable, and collectability is reasonably assured.
Research
and Development Costs
Research
and development costs are charged to operations as incurred.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation, with depreciation recognized on a straight-line basis over the
shorter of the estimated useful life of the asset or the lease term, if applicable. When assets are retired or disposed, the cost
and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income. Repairs
and maintenance are charged to expense in the period incurred.
The
estimated useful lives of property and equipment are generally as follows: buildings and building improvements, seven to thirty-nine
years; tenant improvements, the remaining duration of the related lease; furniture and fixtures, seven years; machinery and equipment,
five to ten years. Land is not depreciated.
The
Company’s property and equipment are individually reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment exists when the carrying amount of an asset exceeds
the aggregate projected future cash flows over the anticipated holding period on an undiscounted basis. An impairment loss is
measured based on the excess of the asset’s carrying amount over its estimated fair value.
Impairment
analyses are based on management’s current plans, intended holding periods and available market information at the time
the analyses are prepared. If these criteria change, the Company’s evaluation of impairment losses may be different and
could have a material impact to the consolidated financial statements.
For
the six months ended June 30, 2018 and 2017, based on its impairment analyses, the Company did not have any impairment losses.
Impairment
of Long Lived Assets
The
Company evaluates the recoverability of its fixed assets and other assets in accordance with the Financial Accounting Standards
Board’s Accounting Standards Codification (“ASC”) 360-10-15,
Impairment or Disposal of Long-Lived Assets
.
Impairment of long-lived assets is recognized when the net book value of such assets exceeds their expected cash flows, in which
case the assets are written down to fair value, which is determined based on discounted future cash flows or appraised values.
Fair
Value of Financial Instruments
The
Company follows the provisions of ASC 820,
Fair Value Measurement
, to measure the fair value of its financial instruments,
and ASC 825,
Financial Instruments,
for disclosures on the fair value of its financial instruments. To increase consistency
and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest
priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. The three levels of fair value hierarchy defined by ASC 820 are:
Level
1
|
Quoted
market prices available in active markets for identical assets or liabilities as of the reporting date.
|
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable
as of the reporting date.
|
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market data.
|
The
carrying amounts of the Company’s financial assets and liabilities, such as cash and accounts payable approximate their
fair values due to the short maturity of these instruments. The fair value of option and warrant issuances are determined utilizing
the binomial options pricing model and employing the following inputs: life of instrument, exercise price, value of the underlying
security on issuance date, and 2-year volatility of underlying security.
Extinguishment
of Liabilities
The
Company accounts for extinguishment of liabilities in accordance with ASC 405-20,
Extinguishments of Liabilities.
When
the conditions for extinguishment are met, the liabilities are written down to zero and a gain or loss is recognized.
Stock-Based
Compensation
The
Company accounts for stock-based compensation using the fair value method as set forth in ASC 718,
Compensation—Stock
Compensation,
which requires a public entity to measure the cost of employee services received in exchange for an equity award
based on the fair value of the award on the grant date, with limited exceptions. Such value will be incurred as compensation expense
over the period an employee is required to provide service in exchange for the award, usually the vesting period. No compensation
cost is recognized for equity awards for which employees do not render the requisite service.
Income
Taxes
The
Company accounts for income taxes in accordance with ASC 740,
Income Taxes
. Deferred income tax assets and liabilities
are determined based upon differences between the financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets
are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be
realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements
of operations in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. The Company did not take any uncertain tax positions and
had no adjustments to unrecognized income tax liabilities or benefits for the six months ended June 30, 2018 and 2017.
Related
Party Transactions
The
Company follows ASC 850,
Related Party Disclosures
, for the identification of related parties and disclosure of related
party transactions.
In
accordance with ASC 850, the Company’s financial statements include disclosures of material related party transactions,
other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, as well
as transactions that are eliminated in the preparation of financial statements.
Comprehensive
Income
The
Company reports comprehensive income and its components following guidance set forth by ASC 220,
Comprehensive Income
,
which establishes standards for the reporting and display of comprehensive income and its components in the consolidated financial
statements. There were no items of comprehensive income applicable to the Company during the period covered in the financial statements.
Earnings
Per Share
Earnings
per common share is computed pursuant to ASC 260,
Earnings Per Share
. Basic earnings per share is computed by dividing
net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share
is computed by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus the weighted
average number of potentially dilutive securities during the period.
As
of June 30, 2018 and 2017, there were 12,508,932 and 10,475,000, respectively, of potentially dilutive securities in the form
of options and warrants. Also as of June 30, 2018 and 2017, there were zero and 500,000 shares, respectively, of subscriptions
on convertible preferred stock, and $250,000 and $3,125,000, respectively, of convertible promissory notes, that were potentially
dilutive, whose conversion into common stock is based on a discount to the market value of common stock on or about the future
conversion date. For the six months ended June 30, 2018, all potentially dilutive securities had an anti-dilutive effect on earnings
per share, and in accordance with ASC 260, were excluded from the diluted net income per share calculation, resulting in calculations
of basic and fully diluted net income per share that were identical for this period. These securities may dilute earnings per
share in the future.
Commitments
and Contingencies
The
Company follows ASC 450,
Contingencies
, which requires the Company to assess the likelihood that a loss will be incurred
from the occurrence or non-occurrence of one or more future events. Such assessment inherently involves an exercise of judgment.
In assessing possible loss contingencies from legal proceedings or unasserted claims, the Company would evaluate the perceived
merits of the proceedings or claims, and the perceived merits of the relief sought or expected to be sought.
If
the assessment of a contingency indicates that it is probable that a material loss will be incurred and the amount of the liability
can be estimated, then such estimated liability would be accrued in the Company’s financial statements. If the assessment
indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material,
would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which
case the guarantees would be disclosed.
While
not assured, management does not believe, based upon information available at this time, that a loss contingency will have material
adverse effect on the Company’s financial position, results of operations or cash flows.
Risk
and Uncertainties
The
Company is subject to risks common to companies operating within the legal and medical marijuana industries, including, but not
limited to, federal laws, government regulations and jurisdictional laws.
Noncontrolling
Interests
Noncontrolling
interests represent third-party minority ownership of the Company’s consolidated subsidiaries. Net income attributable to
noncontrolling interests is shown in the consolidated statements of operations; and the value of net assets owned by noncontrolling
interests are presented as a component of equity within the balance sheets.
Off
Balance Sheet Arrangements
The
Company does not have any off-balance sheet arrangements.
Recent
Accounting Pronouncements
In
November 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2016-18,
Statement of Cash
Flows (Topic 230): Restricted Cash
, which enhances and clarifies the guidance on the classification and presentation of restricted
cash in the statement of cash flows. This ASU will be effective in 2019 and its impact is dependent upon the level of restricted
cash of the Company, which at this time is insignificant.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, which modifies accounting for lessees by requiring
the recording of lease assets and liabilities for operating leases and disclosing key information about leasing arrangements.
This ASU will be effective in 2020 and the Company is currently evaluating the impact of adoption, which will be determined by
the Company’s lease portfolio at the time of implementation.
In
2014 and subsequently in 2016, the FASB issued new standards on the recognition of revenue. While the new standards amend the
current standards, they are not expected to have a material impact on the amount and timing of revenue recognized in the Company’s
consolidated financial statements when the new standards are adopted in 2019.
In
addition to the above, the Company has reviewed all other recently issued, but not yet effective, accounting pronouncements, and
does not believe the future adoption of any such pronouncements will have a material impact on its financial condition or the
results of its operations.
NOTE
3 – ACQUISITIONS
In
May 2014, the Company, through its subsidiary MariMed Advisors Inc., acquired Sigal Consulting LLC from its ownership group which
included the current CEO and CFO of the Company (the “Sigal Ownership Group”). The purchase price received by the
Sigal Ownership Group was comprised of (i) 31,954,236 shares of common stock valued at approximately $5,913.000, representing
50% of the Company’s outstanding shares on the closing date, (ii) options to purchase three million shares of the Company’s
common stock, exercisable over five years with exercise prices ranging from $0.15 to $0.35, and valued at approximately $570,000,
and (iii) a 49% ownership interest in MariMed Advisors Inc. The excess of purchase price over the book value of the acquired entity
was recorded as goodwill, which was subsequently impaired in full and written down to zero.
In
June 2017, the remaining 49% interest of MariMed Advisors Inc. was merged into the Company in exchange for an aggregate 75 million
shares of common stock to the Sigal Ownership Group.
In
October 2017, the Company acquired the intellectual property, formulations, recipes, proprietary equipment, know-how, and other
certain assets of the Betty’s Eddies™ brand of cannabis-infused fruit chews. The purchase price was $140,000 plus
subscriptions on 1,000,000 shares of the Company’s common stock. In addition, the selling company shall receive royalties
based on a percentage of the Company’s sales of the Betty’s Eddies™ product line, commencing at 25% and decreasing
to 2.5% as certain sales thresholds are met. For the six months ended June 30, 2018, such royalties approximated $14,000, of which
$5,000 were paid and $9,000 accrued at June 30, 2018.
After
applying the total purchase price, which consisted of the cash paid plus the fair value of the subscribed common stock on the
date of the transaction, to the assessed fair values of the assets purchased, the transaction gave rise to goodwill of approximately
$333,000. At June 30, 2018 and December 31, 2017, the Company reviewed the goodwill for impairment and determined that, based
on the present value of future cash flows of the acquired assets, there was no impairment. The goodwill is included in
Other
Assets
in the Company’s financial statements.
In
May 2018, the Company issued $600,000 of subscriptions on common stock in exchange for 100% of the ownership interests of iRollie
LLC. The Company acquired, among other assets and liabilities, iRollie’s entire product line, service offerings, clients,
and intellectual property, and hired its two co-founders. After applying the purchase price to the fair value of the assets acquired
and liabilities assumed, the Company recorded goodwill of approximately
$119,000
.
At June 30, 2018, the Company determined that the goodwill had not been impaired, which is included in
Other Assets
in
the Company’s financial statements.
NOTE
4 – PROPERTY AND EQUIPMENT
Property
and equipment are shown net of accumulated depreciation and are primarily comprised of the following: land; buildings; building
and tenant improvements; furniture and fixtures; and machinery and equipment.
During
the six months ended June 30, 2018 and 2017, additions to property and equipment were approximately $5,664,000 million and $3,766,000
million, respectively.
Depreciation
expense for the six months ended June 30, 2018 and 2017 was approximately $254,000 and $163,000, respectively. At June 30, 2018
and December 31, 2017, accumulated depreciation approximated $1,746,000 and $1,499,000, respectively.
NOTE
5 – DEBT
During
the six months ended June 30, 2018, the Company received additional capital of approximately $1,998,000 from the existing mortgage
on the cannabis cultivation and processing facility it is currently developing in the state of Massachusetts.
During
the six months ended June 30, 2017, the Company raised $400,000 from the issuance of a promissory note with an interest rate of
10% and a term of 6 months. No promissory notes were issued during the six months ended June 30, 2018.
During
the six months ended June 30, 2018, the Company repaid $700,000 of promissory notes, and converted $1,275,000 of promissory notes
into 1,679,486 shares of common stock. The conversions resulted in the recording of non-cash losses totaling $818,000, based on
the market value of the common stock on the conversion dates. No repayments or conversions of debt occurred during the same period
in 2017.
NOTE
6 – EQUITY
Preferred
Stock
In
January 2017, the Company increased the number of authorized shares of preferred stock from 5 million to 50 million shares.
During
the six months ended June 30, 2017, the Company issued subscriptions on 200,000 shares of Series A convertible preferred stock
at $1.00 per share. No subscriptions were issued during the same period in 2018.
Series
A convertible preferred stock accrues an annual dividend of six percent until conversion, and is convertible, along with any accrued
dividends, into common stock at a twenty-five percent discount to the selling price of the common stock in a qualified offering,
as defined in the subscription agreement. In addition, the Company shall have the ability to force the conversion of preferred
stock at such time the Company has a market capitalization in excess of $50 million for ten consecutive trading days. In such
event, the conversion price shall be a 25% discount to the average closing price of the Company’s common stock over the
ten trading days prior to the Company’s notice of its intent to convert.
In
January 2018, all 500,000 shares of subscribed Series A convertible preferred stock were converted into 970,989 shares of common
stock at a conversion price of $0.55 per share. The Company recorded a non-cash loss on conversion of approximately $34,000 based
on the market value of the common stock on the conversion date. No shares were converted during the same period in 2017.
Common
Stock
In
January 2017, the Company increased the number of authorized shares of common stock from 100 million to 500 million shares.
In
June 2017, the Company issued 75 million shares of common stock to acquire the remaining 49% interest in its subsidiary MariMed
Advisors Inc.
During
the six months ended June 30, 2018, the Company sold 10,111,578 shares of common stock at prices ranging from $0.50 to $1.37 per
share, resulting in total proceeds of $8,461,000. During the same period in 2017, the Company sold 22,178,888 shares of common
stock at prices of $0.18 and $0.25 per share, resulting in total proceeds of $5,200,000.
During
the six months ended June 30, 2018 and 2017, the Company issued 1,313,901 and 498,543 shares of common stock, respectively for
services rendered by third parties. The Company recorded non-cash losses of approximately $959,000 in 2018 and $18,000 in 2017,
based on the market value of the common stock on the issuance dates.
Common
Stock Subscriptions
In
October 2017, the Company issued subscriptions on 1,000,000 shares of common stock as part of the purchase price of the Betty’s
Eddies™ acquired assets, as disclosed in Note 3. The common shares associated with these subscriptions were issued in June
2018.
During
the six months ended June 30, 2018, the Company issued subscriptions on 264,317 shares of common stock to acquire iRollie LLC,
as disclosed in Note 3. Also during this period, the Company issued (i) subscriptions on 32,083 shares of common stock for the
exercise of a warrant, (ii) subscriptions on 2,001,641 shares of common stock to settle $1,951,600 of vendor invoices, where the
number of subscriptions issued was determined using the fair value of the stock on the issuance date, and (iii) subscriptions
on 9,281 shares of common stock, equivalent to an aggregate amount of $20,000, for the payment of rent for the months of May and
June 2018 for a leased property in Massachusetts. No subscriptions on common stock were issued during the same period in 2017.
All
of the subscriptions on common stock referred to above are reflected under the caption
Common Stock Subscriptions
within
the current liabilities section of the Company’s balance sheet.
Membership
Interests
During
the six months ended June 30, 2017, the Company issued 1,667 Class A membership units of Mari Holdings MD LLC, a majority-owned
subsidiary, for $150,000. These units represented 0.33% ownership of this subsidiary at June 30, 2017. No membership units were
issued during the six months ended June 30, 2018.
NOTE
7 – STOCK OPTIONS
During
the six months ended June 30, 2018, the Company granted options to purchase 1.45 million shares of common stock to the Company’s
board members at exercise prices ranging from $0.14 to $0.77, vesting over a six-month period, and expiring between December 2020
and December 2022. The fair value of these options on grant date of approximately $458,000 was recorded as equity compensation
during the six months ended June 30, 2018.
In May 2018,
the Company granted options to purchase 200,000 shares of common stock to an employee at an exercise price of $0.90 per share,
which expire in May 2023. As of June 30, 2018, the Company recorded approximately $36,000 of the total equity compensation on
this grant of approximately $264,000 which shall be recorded over the six-month vesting period.
During
the six months ended June 30, 2017, the Company granted options to purchase 100,000 shares of common stock to employees at exercise
prices of $0.26 and $0.33, and expiring in March and April 2021. The fair value of these options on the grant date of approximately
$19,000 was recorded as equity compensation over the respective vesting periods.
During
the six months ended June 30, 2018, options to purchase 700,000 shares of common stock were exercised at exercise prices ranging
from $0.08 to $0.63 per share. No options were exercised during the same period in 2017.
Options
to purchase 300,000 shares of common stock were forfeited during the six-month period ended June 30, 2018. No options were forfeited
during the same period in 2017.
Stock
options outstanding and exercisable as of June 30, 2018 were:
Exercise
Price
|
|
|
Shares
Under Option
|
|
|
Remaining
|
|
per
Share
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life
in Years
|
|
$
|
0.080
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
0.58
|
|
$
|
0.080
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
1.47
|
|
$
|
0.130
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
2.00
|
|
$
|
0.140
|
|
|
|
650,000
|
|
|
|
650,000
|
|
|
|
2.51
|
|
$
|
0.150
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.25
|
|
$
|
0.250
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.25
|
|
$
|
0.260
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
2.76
|
|
$
|
0.330
|
|
|
|
50,000
|
|
|
|
25,000
|
|
|
|
2.69
|
|
$
|
0.350
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.25
|
|
$
|
0.450
|
|
|
|
250,000
|
|
|
|
125,000
|
|
|
|
3.26
|
|
$
|
0.550
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
2.25
|
|
$
|
0.630
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
3.51
|
|
$
|
0.770
|
|
|
|
300,000
|
|
|
|
-
|
|
|
|
4.51
|
|
$
|
0.900
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
4.87
|
|
|
|
|
|
|
5,450,000
|
|
|
|
4,800,000
|
|
|
|
|
|
NOTE
8 – WARRANTS
During
the six months ended June 30, 2018 and 2017, the Company issued warrants to purchase 4,239,000 and 100,000 shares of common stock,
respectively, expiring in February 2021 and March 2020, respectively, at exercise prices ranging from $0.30 to $2.25 per share.
The Company recorded non-cash equity compensation of approximately $6,370,000 in 2018 and $19,000 in 2017 representing the estimated
fair value of these instruments on the issuance dates.
During
the six months ended June 30, 2018, warrants to purchase 1,425,379 shares of common stock were exercised, at exercise prices ranging
from $0.10 and $0.50 per share. No warrants were exercised during the same period in 2017.
At
June 30, 2018 and 2017, warrants to purchase 7,058,932 and 1,225,000 shares of common stock were outstanding, respectively, at
exercise prices ranging between $0.10 and $2.25 per share.
NOTE
9 – RELATED PARTY TRANSACTIONS
As
disclosed in Note 3 above, the current CEO and CFO of the Company are part in the Sigal Ownership Group from whom Sigal Consulting
LLC was acquired in May 2014. The 49% ownership in the Company’s subsidiary, MariMed Advisors Inc., which the Sigal Ownership
Group acquired as part of the purchase price, was acquired by the Company from the Sigal Ownership Group in June 2017 in exchange
for 75 million shares of the Company’s common stock.
In
September 2017, the former CEO of the Company, who is a currently a board member, exercised options to purchase 4.5 million shares
of common stock at an exercise price of $0.01 per share. The aggregate exercise price of $45,000 was paid in a cashless transaction
with 90,000 shares of common stock which were classified as treasury stock.
In
October 2017, the Company acquired the intellectual property, formulations, recipes, proprietary equipment, and know-how of the
Betty’s Eddies™ brand of cannabis-infused products, as disclosed in Note 3, from a company that is minority-owned
by the Company’s chief operating officer.
In
December 2017, options to purchase 200,000 shares of commons stock at an exercise price of $0.025 were forfeited by the CEO and
by an independent board member (100,000 shares forfeited by each individual).
During
the six months ended June 30, 2018, a current board member exercised options to purchase 400,000 shares of common stock, and the
former CFO of the Company exercised options to purchase 300,000 shares of common stock. These options were exercised at exercise
prices ranging from $0.08 to $0.63 per share. No options were exercised during the same period in 2017.
During
the six months ended June 30, 2018 and 2017, the Company issued 170,000 and 169,487 shares, respectively, of common stock for
services rendered by the former CFO of the Company. Based on the market value of the common stock on the dates of the two issuances,
the Company recorded non-cash losses of approximately $112,000 in 2018 and $18,000 in 2017.
At
June 30, 2018 and December 31, 2017, the Company owed approximately $19,000 and $14,000 to the CEO and CFO, respectively.
The
caption
Due from Related Parties
in the Company’s financial statements is primarily comprised of short term loans
to non-consolidated entities under common ownership.
The
caption
Due to Related Parties
reflects short term loans from related parties and includes advances received from officers
of the Company.
NOTE
10 –
COMMITMENTS AND CONTINGENCIES
An
employment agreement with the former CEO of the Company that provided this individual with salary, car allowances, stock options,
life insurance, and other employee benefits was terminated in 2017.
The
Company recorded an accrual of approximately $1,043,000 at June 30, 2018 and December 31, 2017 for any amounts that may be owed
under this agreement. However, the Company is contesting the validity this agreement.
NOTE
11 – SEGMENT REPORTING
In
accordance with ASC 280, the following is information regarding the Company’s operating segments:
|
|
Six
Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Online portal operations
|
|
$
|
—
|
|
|
$
|
114
|
|
Cannabis related operations
|
|
|
5,020,275
|
|
|
|
2,771,662
|
|
Consolidated
revenues
|
|
$
|
5,020,275
|
|
|
$
|
2,771,776
|
|
|
|
|
|
|
|
|
|
|
Depreciation:
|
|
|
|
|
|
|
|
|
Online portal operations
|
|
$
|
—
|
|
|
$
|
—
|
|
Cannabis related operations
|
|
|
253,713
|
|
|
|
163,410
|
|
Depreciation
|
|
$
|
253,713
|
|
|
$
|
163,410
|
|
|
|
|
|
|
|
|
|
|
Net income (loss):
|
|
|
|
|
|
|
|
|
Online portal operations
|
|
$
|
(181
|
)
|
|
$
|
(146,774
|
)
|
Cannabis related operations
|
|
|
(1,831,210
|
)
|
|
|
760,965
|
|
Net
income (loss)
|
|
$
|
(8,110,391
|
)
|
|
$
|
614,191
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Online portal operations
|
|
$
|
—
|
|
|
$
|
—
|
|
Cannabis related operations
|
|
|
5,663,585
|
|
|
|
3,766,154
|
|
Combined
capital expenditures
|
|
$
|
5,663,585
|
|
|
$
|
3,766,154
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Online portal operations
|
|
$
|
1,217
|
|
|
$
|
1,504
|
|
Cannabis related operations
|
|
|
45,439,399
|
|
|
|
15,349,925
|
|
Combined
assets
|
|
$
|
45,440,616
|
|
|
$
|
15,351,429
|
|
NOTE
12 – SUBSEQUENT EVENTS
Subsequent
to June 30, 2018, the following events occurred:
|
-
|
The
Company sold 1,200,780 shares of common stock, at prices ranging from $0.90 to $2.70
per share, for an aggregate amount of $2,200,000.
|
|
|
|
|
-
|
The
Company issued warrants to purchase 544,500 shares of common stock at an exercise price
of $4.20 per share.
|
|
|
|
|
-
|
Warrant
holders exercised warrants to purchase 232,083 shares of common stock at exercise prices
of $0.10 and $0.40 per share.
|
|
|
|
|
-
|
A
board member was issued 302,000 shares of common stock from the exercise of stock options
at exercise prices ranging from $0.08 to $0.63 per share. The aggregate number of shares
exercised was 400,000, offset by 98,000 shares used to pay the aggregate exercise price
of $98,000 in a cashless transaction.
|
|
|
|
|
-
|
In
August 2018, the Company made a payment of $250,000 pursuant to an exclusive worldwide
licensing agreement for the production and distribution of precision-dosed, dissolvable
cannabis products.
|