Notes
to Consolidated Financial Statements
NOTE
1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
MariMed
Inc., (the “Company”), a Delaware corporation, is a professional management company in the emerging medical
cannabis industry. The Company advises its clients in securing cannabis licenses, and in turn, develops and manages state-of-the-art,
regulatory-compliant facilities for the cultivation, production, and dispensing of legal cannabis and cannabis-infused
products. Along with this operational oversight, the Company provides its clients with legal, accounting, human resources, and
other corporate and administrative services.
In
addition, the Company licenses and distributes a custom brand of cannabis-infused products, under the brand name Kalm Fusion™,
which are precision-dosed and designed for specific medical conditions and related symptoms. In 2017, the Company
expanded its product line with the acquisition of the Betty’s Eddies™ brand of cannabis-infused fruit chews,
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 has 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. (“MMA”), acquired Sigal Consulting LLC in exchange
for (i) an aggregate amount of the Company’s common stock equal to 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 (iii) a 49% ownership interest in MMA.
This
transaction was accounted for as a purchase acquisition where the Company was both the legal and accounting acquirer. Accordingly,
the Company recorded as goodwill the value of the common stock and options issued in excess of the Sigal assets acquired and liabilities
assumed. This goodwill was subsequently deemed impaired in full and written down to zero.
In
June 2017, the Company acquired the remaining 49% interest in MMA in exchange for 75 million shares of common stock.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“GAAP”).
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 consolidated financial statements include the accounts of MariMed Inc. and its subsidiaries, all of which are wholly-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: subleasing contracts with our medical cannabis clients; consulting
services to companies operating in the legal and medical cannabis industries; production arrangements for the procurement of cannabis
resources; and licensing revenues from the sale of our branded 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, the price is fixed or determinable, and collectability is reasonably assured. This will usually be in the
form of a receipt of customer acceptance and satisfaction with delivered product, or in the case of development and service revenue,
when services have been performed.
Deferred
revenue represents cash payments received before revenue is earned; the corresponding costs are also deferred until such revenue
is ultimately recognized.
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 years ended December 31, 2017 and 2016, 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 years ended December 31, 2017 and
2016.
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 December 31, 2017 and 2016, there were 8,399,000 and 10,375,000 potentially dilutive securities in the form of options and
warrants. In addition, there were 500,000 shares of convertible preferred stock and $1,350,000 of convertible promissory notes
that were potentially dilutive whose conversion into common stock will be based on a discount to the market value of common stock
on or about the future conversion date. 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. For that reason, the
calculations of basic and fully diluted net income per share were identical for the years ended December 31, 2017 and 2016. These
options and warrants may dilute earnings per share in the future.
Commitments
and Contingencies
The
Company follows ASC 450,
Contingencies
, to report accounting for contingencies. Certain conditions may exist
as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved
when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the 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, and based upon information available at this time, management does not believe that a loss contingency exists
that 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; 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
The
Company has reviewed all 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 – 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 years ended December 31, 2017 and 2016, the Company issued subscriptions on 200,000 shares and 300,000 shares, respectively,
of Series A convertible preferred stock at $1.00 per share. This preferred stock accrues an annual dividend of six percent until
conversion.
The
Series A convertible preferred stock shall be 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.
Common
Stock
In
January 2017, the Company increased the number of authorized shares of common stock from 100 million to 500 million shares.
During
the year ended December 31, 2017, the Company issued 26,672,228 shares of common stock, at prices ranging from $0.18 to $0.50
per share, resulting in total proceeds of $6,578,000.
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 year ended December 31, 2017, the Company issued 1,007,597 shares in exchange for services rendered by third-parties or to
otherwise settle outstanding obligations. Based on the market value of the common stock on the date of issuance, the Company recorded
a non-cash loss on conversion of approximately $31,000.
In
August 2017, $2.05 million in principal and approximately $262,000 of accrued interest on promissory notes were converted into
4,385,823 shares of common stock. Based on the market value of the common stock on the conversion date, the Company recorded a
non-cash loss on conversion of approximately $451,000.
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 further disclosed in Note 9.
In
December 2017, the Company retired promissory notes consisting of $300,000 in principal and $50,000 in accrued interest by the
issuance of 1,000,000 shares of commons stock. Based on the market value of the common stock on the date of retirement, the Company
recorded a non-cash loss on conversion of $390,000.
In
April 2016, the Company issued 31,954,237 shares of common stock as part of the purchase price of the Sigal acquisition disclosed
in Note 1. These shares represented the aggregate amount of shares equal to 50% of the Company’s outstanding common stock
on the closing date of this acquisition.
Membership
Interests
During
2017 and 2016, the Company issued 12,778 and 2,500 Class A membership units of Mari Holdings MD LLC, a majority-owned subsidiary,
for $1,150,000 and $200,000, respectively. These units represented ownership of 3.05% and 0.75% in this subsidiary at December
31, 2017 and 2016, respectively.
During
2016, the Company issued 4,123 Class A membership units of Mia Development LLC, a majority-owned subsidiary, for approximately
$206,000, representing 0.82% ownership of this subsidiary. Also during 2016, the Company issued 11,786 Class A membership units,
representing 2.36% of this subsidiary, to retire approximately $589,000 of promissory notes and accrued interest.
NOTE
4 – DEFERRED REVENUE
Deferred
revenue represented the conversion of a promissory note issued to a third party by the Company’s former parent, which was
assumed by the Company in 201l, for future products and services of the Company’s dormant online portal business.
No
products or services were provided by the Company in 2017 or 2016. In July 2017, the Company wrote off the entire carrying amount
of deferred revenue of approximately $227,000 based on an agreement with the third party whereby the Company was released
from all of its obligations to the third party and any actions or demands related thereto.
NOTE
5 – PROPERTY AND EQUIPMENT
At
December 31, 2017 and 2016, property and equipment consisted of the following:
Description
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
3,392,710
|
|
|
$
|
592,210
|
|
Buildings
and building improvements
|
|
|
18,464,544
|
|
|
|
3,587,064
|
|
Tenant
improvements
|
|
|
4,223,903
|
|
|
|
1,923,890
|
|
Furniture
and fixtures
|
|
|
99,138
|
|
|
|
109,560
|
|
Machinery
and equipment
|
|
|
1,273,514
|
|
|
|
228,523
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(1,498,878
|
)
|
|
|
(1,136,187
|
)
|
Property
and equipment, net
|
|
$
|
25,954,931
|
|
|
$
|
5,305,060
|
|
During
the years ended December 31, 2017 and 2016, additions to property and equipment were approximately $21.0 million
and $3.4 million, respectively. These purchases included the acquisition of properties in Hagerstown, MD and Middleborough, MA,
and the buildout of facilities in Lewes, DE, Clark County, NV, and Hagerstown, MD.
Depreciation
and amortization for the years ended December 31, 2017 and 2016 was approximately $363,000 and $266,000, respectively.
NOTE
6 – STOCK OPTIONS AND WARRANTS
During
2017, the Company granted options to purchase 550,000 shares of common stock at exercise prices ranging from $0.26 to $0.55, vesting
from the grant date through March 2019, and expiring between September 2020 and October 2021. The fair value of these options
on grant date of approximately $159,000 shall be recorded as non-cash compensation expense over the vesting periods, with approximately
$74,000 incurred during 2017. No warrants were exercised in 2017.
During
2017, options to purchase 4.8 million shares of common stock were exercised at prices ranging from $0.01 to $0.025. Of this amount,
4.5 million shares were exercised by the former CEO of the Company, who is currently a Board member. This individual’s exercise
price of $0.01 per share, or $45,000 in total, was paid with the surrender of 90,000 shares of common stock. These surrendered
shares were classified as treasury stock.
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).
Stock
options outstanding and exercisable as of December 31, 2017 were:
Exercise
Price
|
|
|
Shares
Under Option
|
|
|
Remaining
|
|
per
Share
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Life
in Years
|
|
$
|
0.025
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
0.01
|
|
$
|
0.080
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
1.08
|
|
$
|
0.080
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
1.97
|
|
$
|
0.130
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
2.50
|
|
$
|
0.150
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.74
|
|
$
|
0.250
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.74
|
|
$
|
0.260
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
3.25
|
|
$
|
0.330
|
|
|
|
50,000
|
|
|
|
-
|
|
|
|
3.19
|
|
$
|
0.350
|
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
|
1.74
|
|
$
|
0.450
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
3.76
|
|
$
|
0.550
|
|
|
|
200,000
|
|
|
|
50,000
|
|
|
|
2.74
|
|
|
|
|
|
|
4,800,000
|
|
|
|
4,350,000
|
|
|
|
|
|
During
2017, the Company issued warrants to purchase approximately 3.1 million shares of common stock at exercise prices ranging from
$0.40 to $0.62, expiring between March and December of 2020. The Company recorded non-cash compensation expense of approximately
$1,004,000 on such issuances, representing the estimated fair value of these instruments on the issuance date.
During
2016, the Company issued warrants to purchase 1.07 million shares of common stock at exercise prices ranging from $0.10 to $0.20,
expiring between February 2019 and August 2021. The Company recorded non-cash compensation expense of approximately $164,000,
representing the estimated fair value of these instruments on the issuance date.
During
2016 no stock options were issued, nor were any stock options or warrants exercised.
NOTE
7 – INCOME TAXES
Due
to operating losses, there is no required provision for federal or state income taxes for the years ended December 31, 2017 or
2016.
At December 31, 2017, the Company had federal and state
net operating loss carry forwards of approximately $4.1 million.
The
Company’s deferred tax asset at December 31, 2017 consisted of a net operating loss calculated using federal and
state effective tax rates, equating to approximately $1,753,000, which was fully offset by a valuation allowance
as shown in the following table:
Deferred
tax asset
|
|
$
|
1,753,000
|
|
Valuation
allowance
|
|
|
(1,753,000
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
The
reconciliation of income taxes computed at the federal and state statutory income tax rate to total income taxes for the periods
ended December 31, 2017 and 2016 was as follows:
|
|
2017
|
|
|
2016
|
|
Income
tax computed at the federal statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
Income
tax computed at the state statutory rate
|
|
|
5
|
%
|
|
|
5
|
%
|
Valuation
allowance
|
|
|
(39
|
)%
|
|
|
(39
|
)%
|
Total
deferred tax asset
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE
8 – RELATED PARTY TRANSACTIONS
As
disclosed in Note 1, the Company acquired Sigal Consulting LLC in May 2014. At the time of the transaction, Sigal Consulting LLC
was partially owned by a director of the Company and by individuals who became the Company’s CEO and CFO in 2018.
On
June 2017, the Company acquired the remaining 49% interest in MariMed Advisors Inc. from its ownership group, which included a
director of the Company and individuals who became the CEO and CFO of the Company in 2018, for an aggregate 75 million
shares of 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, as disclosed in Note 6 above.
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 from a company that is minority-owned by the Company’s
chief operating officer. 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 be paid a royalty based on a percentage of the Company’s revenue associated
with the Betty’s Eddies™ product line, commencing at 25% and decreasing to 2.5% as certain sales thresholds are met.
For the year ended December 31, 2017, the Company earned approximately $40,000 of revenue and paid royalties of approximately
$10,000.
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 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 financial
statements.
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).
At
December 31, 2017, the Company owed approximately $19,000 and $14,000 to the CEO and CFO, respectively.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
An
employment agreement with the former CEO of the Company, which was terminated in 2017, provided this individual with salary,
car allowances, bonuses based on the Company reaching certain milestones, life insurance, stock options and a death benefit.
The
Company has recorded approximately $1,043,000 and $872,000 at December 31, 2017 and 2016, respectively, under accrued expenses
for any amounts that may be owed under this agreement.
NOTE
10 – SEGMENT REPORTING
The
Company follows paragraph 280 of the FASB Accounting Standards Codification for disclosures about segment reporting. This statement
requires companies to report information about operating segments in interim and annual financial statements. It also requires
segment disclosures about products and services, geographic areas, and major customers.
The
Company has two reportable operating segments as determined by management using the “management approach” as defined
by the authoritative guidance on
Disclosures about Segments of an Enterprise and Related Information
: Corporate administration
costs, which include, but are not limited to, general accounting, human resources, legal and credit and collections, are partially
allocated to the two operating segments.
Summarized
in the following tables are net sales and operating revenues, depreciation and amortization expense, income from continuing operations
before taxes, capital expenditures and assets for the Company’s reportable segments as of and for the fiscal years ended
December 31, 2017 and December 31, 2016:
|
|
2017
|
|
|
2016
|
|
Revenues:
|
|
|
|
|
|
|
Online
portal operations
|
|
$
|
289
|
|
|
$
|
618
|
|
Cannabis
operations
|
|
|
6,067,564
|
|
|
|
3,563,502
|
|
Consolidated
revenues
|
|
$
|
6,067,853
|
|
|
$
|
3,564,120
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization:
|
|
|
|
|
|
|
|
|
Online
portal operations
|
|
$
|
—
|
|
|
$
|
—
|
|
Cannabis
operations
|
|
|
362,691
|
|
|
|
265,746
|
|
Depreciation
and amortization
|
|
$
|
362,691
|
|
|
$
|
265,746
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss):
|
|
|
|
|
|
|
|
|
Online
portal operations
|
|
$
|
122,636
|
|
|
$
|
589,844
|
|
Cannabis
operations
|
|
|
(1,151,698
|
)
|
|
|
(268,679
|
)
|
Net
income (loss)
|
|
$
|
(1,029,062
|
)
|
|
$
|
321,165
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
Online
portal operations
|
|
$
|
—
|
|
|
$
|
—
|
|
Cannabis
operations
|
|
|
(21,012,563
|
)
|
|
|
3,364,070
|
|
Combined
capital expenditures
|
|
$
|
(21,012,563
|
)
|
|
$
|
3,364,070
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Online
portal operations
|
|
$
|
928
|
|
|
$
|
709
|
|
Cannabis
operations
|
|
|
32,201,087
|
|
|
|
8,562,392
|
|
Combined
assets
|
|
$
|
32,202,015
|
|
|
$
|
8,563,101
|
|
NOTE
11 – REAL ESTATE TRANSACTIONS
In
November 2017, the Company closed on a 137,500 square foot industrial property located on 21.95 acres in New Bedford, Massachusetts.
Approximately half of the available square footage is leased to a non-cannabis manufacturing company under a 5-year lease. The
Company has started development of the remaining half of the building into a cannabis cultivation and processing facility which
will be leased to a cannabis licensee under a 20-year lease, the term of which will start after the completion of construction.
In
July 2017 the Company purchased a 22,700 square foot retail and warehouse building located on the main street of Middleborough,
Massachusetts. The Company is currently constructing a 10,000 square foot retail dispensary which will be leased to the same
cannabis licensee tenant of our New Bedford location, under a 20-year lease starting mid-2018.
In
January 2017, the Company purchased a long-standing 180,000 square foot former manufacturing facility in Hagerstown, Maryland,
which was rehabilitated by the Company into a cultivation and processing facility for a licensed cannabis tenant under a 20-year
lease that started January 1, 2018.
In
2016, the Company finalized construction of two free-standing retail dispensaries, each approximately 3,400 square feet, in the
cities of Anna and Harrisburg in Illinois. The facilities are leased to licensed cannabis dispensary companies under 20-year
leases with 18 years remaining.
The
Company leases approximately10,000 square feet of an industrial building that it has built out into a cannabis cultivation facility.
This facility is subleased to a licensed cannabis company under a sub-lease which is coterminous with the Company’s lease
for 10 years with 6.25 years remaining.
The
Company owns a 45,070 square foot facility on 2.25 acres in Wilmington, Delaware, which was purchased in September 2016, and developed
into a cannabis cultivation, processing, and dispensary facility. The facility is leased to a cannabis licensee company occupying
100% of the space under a 20-year lease with 16 years remaining.
The
Company leases 4,122 square feet of retail space in a newly-built multi-use building in Lewes, Delaware. This five-year lease
with a five-year option to extend the term commenced in October 2016. The Company built out the space into a cannabis dispensary
which is sub-leased to the same licensed cannabis company occupying the Wilmington facility, under a five-year lease with a five-year
option to extend.
The
Company’s corporate office is located in Newton, Massachusetts. The space is subleased from a related party at a cost of
$24,000 per year. The lease for this office will expire in July 2018.
NOTE
12 – DEBT
In
2017, convertible promissory notes totaling $2.05 million in principal and approximately $262,000 of accrued interest were converted
into 4,385,823 shares of common stock; and promissory notes totaling $300,000 in principal and $50,000 of accrued interest were
retired via the issuance of 1,000,000 shares of commons stock. Both transactions are further disclosed in Note 3 above.
During
2017, the Company raised 9,475,000 from the issuance of promissory notes with interest rates ranging from 4.5% to 12%, all with
maturity dates of 12 months or less from the date of issue.
In
October 2017, the Company entered into a mortgage agreement with Bank of New England for its New Bedford, Massachusetts location.
The principal balance on the mortgage was $2,895,000 with an interest rate of 6.5%.
During
2016, the Company issued $950,000 of promissory notes with interest rates between 10% and 12%, and repaid $175,000 in promissory
notes. Also during 2016, the Company converted two promissory notes plus accrued interest into Class A units of Mia Development
LLC, a majority-owned subsidiary.
NOTE
13 – SUBSEQUENT EVENTS
The
following equity and debt transactions occurred subsequent to December 31, 2017:
|
●
|
All
500,000 outstanding shares of subscribed Series A convertible preferred stock, plus accrued dividends on such shares,
were converted by the Company into 970,989 shares of common stock.
|
|
|
|
|
●
|
Warrants
to purchased 89,416 shares of common stock were exercised at exercise prices ranging from $0.20 to $0.40.
|
|
|
|
|
●
|
Options
to purchase 300,000 shares of commons stock at exercise prices ranging from $0.025 to $0.55 were forfeited. Of this amount,
200,000 shares 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).
|
|
|
|
|
●
|
Options
to purchase 300,000 shares of common stock were exercised at an exercise price of $0.13 per share.
|
|
|
|
|
●
|
Two
noteholders with principal balances totaling $875,000 converted their promissory notes at a conversion rate of $0.65 per
share. Accordingly, 1,346,154 shares in total of common stock were issued to these note holders.
|
|
|
|
|
●
|
The
Company issued 2,430,768 shares of common stock, at prices ranging from $0.50 to $0.65 per share, resulting in total
proceeds of $1,400,000.
|
|
|
|
|
●
|
The
Company issued warrants to purchase 237,500 shares of common stock at $0.65 per share pursuant to a previously issued
promissory note.
|
|
|
|
|
●
|
The
Company issued 370,000 shares of common stock for the payment of services.
|